Shares of Zipcar (Nasdaq: ZIP) hit a new all-time low this morning, and that's on top of getting pounded yesterday after posting disappointing quarterly results.
It may not be fair to discuss an "all-time low" for a stock that has only been trading for a little more than 12 months, but it's true. Even the underwriter buddies who were high-fiving one another after getting in on the $18 IPO last April are sorely underwater if they're still holding on to shares of the leading auto-sharing company.
Yesterday's quarterly report itself wasn't terrible. Revenue climbed 20% to $59.1 million. There are now 709,000 Zipsters renting cars by the hour or day with gas and insurance included, a 23% improvement over the past year. After posting back-to-back profitable quarters, Zipcar did deliver a deficit of $0.08 a share. However, analysts were expecting a loss of $0.11 a share. The sharing service has now come through with four consecutive quarters of better-than-expected results on the bottom line since going public.
Guidance was consistent with where Wall Street had pulled over. Zipcar sees revenue growing 20% to 22% this year, and the seasonally soft first quarter may be its last profitless period. Zipcar sees a profit for all of 2012 clocking in between $0.07 a share and $0.18 a share.
Cracking open the hood
If things look so rosy, why did the stock shed 11% of its value in its heaviest volume in more than two months?
Well, the primary reason for the sell-off is Zipcar's guidance for the current quarter. It's looking at 15% to 20% in revenue growth, and the midpoint of its bottom-line guidance is essentially breakeven. Wall Street was at the high end of those ranges. The full-year guidance indicates that revenue growth and outright profitability will accelerate during the second half of the year, but investors always take a company's feel for its current quarter more seriously.
There are also a few unwelcome sights. Seeing Zipcar's revenue climb 20% -- despite a 23% increase in its membership base -- implies lower revenue per member. Don't get caught up in the metric that shows usage revenue per vehicle climbing 5% to $60 a day. That's nice to see, but that's more about fleet management than the actual service's popularity. Are folks just not using Zipcar as much as they used to? After all, despite the 23% spike in Zipsters, the company has only expanded the size of its fleet by 14% over the past year.
It's also marginally problematic to see revenue in its four established markets -- Boston, San Francisco, New York, and Washington D.C. -- growing slightly faster than its overall revenue. Despite all of the company's efforts to expand both internationally and into new cities and college campuses domestically, is this really a product that will only be a hit in the biggest of cities?
If so, it wouldn't be all that bad if we approach Zipcar as a value stock instead of a growth play. Revenue in those four original cities climbed 21% and pre-tax margins are up to 21%. Zipcar generated $0.17 a share in pre-tax profits from just those four cities during a single seasonally sleepy quarter!
Adjust that rearview mirror
The rub here is that the competition is coming, and they're flashing their high beams at Zipcar. Hertz (NYSE: HTZ) recently stopped charging annual fees for its Zipcar clone, and then sweetened the pot by adding bonus driving credits and one-way rentals. Avis Budget (Nasdaq: CAR) began testing a car-sharing platform with its corporate fleet late last year that may be a prelude to a consumer-facing rollout.
We also can't forget peer-to-peer sharing, a niche that General Motors (NYSE: GM) validated last year after striking a deal with RelayRides to let all OnStar-equipped vehicles seamlessly participate in the program.
Zipcar isn't shifting into neutral. It signed a deal with Honda (NYSE: HMC) as a preferred vehicle manufacturer earlier this month, a move that will help flesh out Zipcar's fleet with Honda's newer hybrid and electric vehicles.
As long as Zipcar lives up to its full-year outlook -- a move that will imply strong guidance when it reports again in three months -- the shares will bounce back nicely between now and its next report. However, if there are signs that Hertz or the peer-to-peer car-sharing craze are weighing down on Zipcar's brake pedal, this may not be the last of the all-time lows.
Shifting into gear
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