Shares of car-sharing service Zipcar
Poor guidance appears to be the culprit, as the company actually beat earnings estimates, posting an $0.08 EPS loss on expectations of an $0.11 shortfall, but second-quarter projections of $71 million to $74 million in revenue and breakeven net income were behind analyst predictions. As a recent IPO with a growth rate of just 20%, Zipcar's push into positive numbers may be a little tepid for some investors who are used to seeing new stocks explode out of the gate. Still, I think the sell-off seems overdone.
Zipcar's a big-picture story. The bull argument comes with a belief in the power of car sharing as a disruptive innovation, even though that could take years to play out. Profits would be nice of course, but the winter months are Zipcar's slowest and management has still projected net income around $5 million for the year. Also, in its established markets -- Boston, New York, San Francisco, and Washington, D.C. -- profits continue to grow at a brisk pace and operating margins increased to 21% this quarter. More than half of its revenue comes from those markets, and the fat margins seem to indicate that growth initiatives are eating into profits rather than incompetence or a faulty business model.
In the last quarter, the company invested $8.7 million in Wheelz, a peer-to-peer car sharing service; expanded its Zipvan cargo fleet in Boston and Washington, D.C.; and formed a partnership with Honda
Some see increasing competition as a potential flat tire for Zipcar, but Hertz's
The threat from peer-to-peer service also looms, but I think GM-backed
For now, Zipcar's clearly got its work cut out, but I'm not too worried about any of the other car-sharing pretenders.
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Fool contributor Jeremy Bowman holds no positions in the companies mentioned in this article. The Motley Fool owns shares of Zipcar, Hertz Global Holdings, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Netflix, Amazon.com, Zipcar, and General Motors. The Motley Fool has a disclosure policy.
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