3 Predictions for Zipcar in 2013

Zipcar (UNKNOWN: ZIP.DL2  ) may be starting to drive in the right direction. Shares of the leading car-sharing service have climbed 37% since bottoming out at $5.90 last month. It still has a long uphill climb to regain earlier highs, but at least it's not stuck in reverse again.

Zipcar is coming off a blowout quarter and now claims 767,000 accounts of casual drivers who would prefer to rent a car by the hour -- with gas and insurance included -- than worry about the hassles of actual automobile ownership.

What about 2013? Well, you came to the right place. I have a crystal ball, and there are a few things I see happening with Zipcar in 2013.

1. Zipcar will gain ground -- for a change -- in 2013
There was plenty of buzz surrounding the fast-growing auto-sharing service when it went public in April 2011 at $18. The stock opened at $30, but it's been all downhill after that. Zipcar shares closed out 2011 at $13.42, off 25% from its $18 IPO and a brutal 55% slide since initial springtime debut of $30.

This year hasn't been much better. The stock has declined nearly 40% as we head into the final trading day of 2012. Enough! Asset sharing is a trend that's too juicy to ignore, even if Wall Street has largely ignored it.

HomeAway (NASDAQ: AWAY  ) provides homeowners and those with vacation properties the opportunity to rent their properties when they're not in use. HomeAway's popularity is booming. Analysts see revenue growth of at better than 20% in 2012 and 2013. However, just like Zipcar, this 2011 IPO lost ground in 2011 and again in 2012.

From cars to corporate jets to real estate, there's a real movement of taking full advantage of big-ticket assets by sharing them when they're not in use. The market hasn't rewarded the trend in 2012, but it will in 2013.

2. Zipcar will earn more than the $0.18 a share that analysts are targeting for 2013
After posting back-to-back quarterly deficits during the first half of the year, Zipcar stunned investors with a profit of $0.10 a share in last month's third-quarter report. Wall Street was holding out for net income of only $0.01 a share.

This is a seasonal business. Investors can't merely assume a run rate of $0.10 a share. Business slows for Zipcar during the winter. However, the scalable nature of Zipcar's business can't be ignored.

In its four established markets -- Boston, New York, Washington, D.C., and San Francisco -- pre-tax operating profit margins have widened from 23% to 29% over the past year. Smaller markets, campus programs, and international expansion have been a drag on the bottom line, but they remain necessary to grow Zipcar's global presence. Zipcar's presence on more than 300 universities and colleges around the country help indoctrinate the young generation on the merits of auto sharing.

Will this all help Zipcar blow past the $0.18 a share the market is expecting for 2013? Well, if we go by the most recent quarter, analysts are apparently asleep at the wheel here.

3. Zipcar will introduce one-way rentals in 2013
One of the limitations with Zipcar is that drivers have to return the car to the same parking spot where they started. They can't use it to drive to or from work. They certainly can't drive to the airport. Even a simple dinner-and-movie outing can run into a $40 or $50 rental tab.

Logistically speaking, one-way rentals are a mess. Zipcar's FAQ is clear on its stance:

Can I make a one-way trip in a Zipcar?
No. You'll need to return your Zipcar to its reserved parking location at the end of your reservation.

However, Hertz (NYSE: HTZ  ) now offers one-way rentals from its Zipcar clone called Hertz On Demand. Yes, Hertz On Demand also offers hourly rates as low as $5 and no annual fees to join. Zipcar may not be quick to get into a price war or eradicate its annual membership fees, but the one-way rental is too strong a benefit to ignore. Yes, it's a logistical mess. It cuts against the culture where renters know they can count on a car to be exactly where it can always be found. But Zipcar can't just ignore what the competition is doing.

Furthermore, there's a growing auto-sharing trend where folks get to rent out their own cars. It may seem a laughable idea at first, but the niche got some serious validation late last, year when General Motors (NYSE: GM  ) made it seamless for its OnStar customers to become part of the industry-leading RelayRides program. Zipcar doesn't have to respond to every challenge, but some will be opportunities.

There are now 767,000 Zipsters, 18% more accounts than the company had a year ago. Why fix what isn't broken? Well, one-way rentals seem to be the next area where Zipcar will bend. Zipcar reportedly began surveying some customers recently for a name to give the one-way service. Clearly, the company has evolved to the point where it's likely to offer the plan. It may not be a feature in every city, and it may roll out the premium offering under a different banner. Whatever the case, one-way rentals are probably coming -- and soon.

Take the keys
Is Zipcar's crashing share price a sign to abandon ship, or should you back up the (rental) truck and buy more today? 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.

 

Take the keys
Is Zipcar's crashing share price a sign to abandon ship, or should you back up the (rental) truck and buy more today? 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 (4) | Recommend This Article (3)

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  • Report this Comment On January 01, 2013, at 4:32 PM, markdumasjr wrote:

    This is an honest question. How can you recommend ZIP with a clear conscience? Since going public (which provided the company significant exposure) they have expanded their membership by only 32% (some of which were added only as the result of purchase of European car sharing companies) Besides the membership attributable to acquisition, much of the additional membership is attributable to reduced membership fees for those enrolled in college and SIGNIFICANT advertisement expense. The cost of the growth of the membership has exceeded the attendant revenue growth. This company has not made an annual profit in the 10+ years it has been in business. Moreover, the yearly spending on the service for new members is SIGNIFICANTLY less than that for the old members. This is to say the current trend is, high expense to add a new member who on average pays SUBSTANTIALLY less in annual membership fee and who spends SUBSTANTIALLY less on the service. This is simply not good for the company. Additionally there has been a dramatic rise in competition in this space over the last ten years (Autolib, Car2Go, Drivenow, Communauto, Greenwheels, CityCarShare, Hertz on Demand, WeCar, Avis On Location, U Car Share, IGO, and Getaround... just to name a few). If stock performance history or company/market fundamentals are any indicator of the future performance of this stock, it will be traded only in the OTC Pink Sheets as a penny stock within a couple of years. This being said, why don't you desist from recommending this stock? Your continued promotion of this stock calls into question your ability to impartially advise investors and exposes your publication to the risk of being seen as providing terrible advice (remember, you have been promoting this stock since it was trading above 25).

    Thanks,

    Mark

  • Report this Comment On January 02, 2013, at 2:38 AM, sisula wrote:

    Very good points, Mark!

  • Report this Comment On January 02, 2013, at 3:34 AM, JustinCrowe wrote:

    Love my job, since I've been bringing in $5600… I sit at home, music playing while I work in front of my new iMac that I got now that I'm making it online(Click on menu Home)

    http://goo.gl/HvCIF

    Happy New Year!

  • Report this Comment On January 02, 2013, at 7:56 AM, jaynew wrote:

    4. Zip car will be acquired at a ~50% premium prior to the first trading day of the year, forcing Fools to lock in said gains and reinvest into another Breaker or two...

    Oh well...

    -Jaynew

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