Why Zipcar's Zipping Ahead

Car-sharing service Zipcar (Nasdaq: ZIP  ) reported its third quarter earnings after the market closed Thursday and, in after-hours trading, shares have gained 25%. While Zipcar put in a solid quarter, beating revenue estimates, growing the membership base, and raising full-year guidance, the real news was CEO Scott Griffith's announcement that, in 2012, the company will be profitable.

In the third quarter, revenue increased 15%, from $68 million to $78 million. Members, whose fees accounted for 14.3% of revenue in the third quarter, grew 18%, to nearly 770,000. Zipcar also launched in Miami, marking the 20th major metropolitan area to host a Zipcar presence. Most importantly, quarter earnings increased a whopping 560% from the third quarter of 2011, from $651,000 to $4.3 million. This puts the company on track to earn an annual profit for the first time in its history of between $1 million and $4 million. Zipcar's chronic annual losses have been a major drag on the company's share price.

The reason Zipcar has taken so long to realize profitability is that it has reinvested revenue into rapid growth, both organic and through acquisitions. In only a decade, it has expanded from three cities on the Eastern seaboard to 20, with a presence on 300 college campuses. All that growth is expensive, and new operations are not immediately profitable, because the company needs some time to scale up and recruit members.

Accordingly, Zipcar traditionally breaks out the performance of its "Established Markets" in its earnings report. Zipcar currently considers its operations in Boston, San Francisco, New York, and Washington, DC to be Established Markets, and these markets have actually been profitable for several years. What's happened in 2012 is that income from mature operations have finally overcome the company's heavy -- and ongoing -- investments in new markets.

While Zipcar's inaugural year of profitability is an important milestone, it's important to put that in perspective. If Zipcar hits the high end of its earnings guidance, it will still sport a price-to-earnings ratio of 60, more than four times as expensive as the S&P 500 average. Will Zipcar's years of investments produce enough income to justify its high valuation? 

Our top Zipcar analyst will help you answer that question, and tell you what everyone is missing about Zipcar today, in his premium research report on the company. Click here now for instant access.

 


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2103705, ~/Articles/ArticleHandler.aspx, 7/25/2014 12:34:36 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement