Car-sharing leader Zipcar (NASDAQ:ZIP.DL2) may look like it stepped on the gas in the third quarter as earnings showed it zipping ahead, but I wouldn't be too quick to drive off with the stock. You're likely to end up in the breakdown lane if you jump in here.

Zippy performance
Zipcar moved a step closer to profitability when it said revenues jumped 15% as membership rolls rose 18%, which says people are joining up but not fully using the service. That means they'll rethink that decision later on when it comes time to renew, and probably opt out.

I admit that the logic of renting a car for a couple of hours for more than what it would cost me to get it for a full day from the likes of an Enterprise Rent-A-Car escapes me, but I guess there's some sense in urban settings at least for drivers to opt for a pick-up-and-go service. But competition from better-financed rivals like Hertz (OTC:HTZG.Q) show Zipcar's dominance may be fleeting.

Zipcar, which has been around for more than a decade (since 2000, actually), has 767,000 members, yet Hertz on Demand, which only launched in July , has hit 166,000 members, a 170% increase in membership while revenues surged 70%. Hertz, with its better marketing prowess, already has nearly a fifth of the members its rival does.

Stuck in traffic
And there's more competition besides, including Daimler's car2go, Enterprise's Mint Cars, and to a lesser extent, Avis (NASDAQ:CAR), whose On Location service is geared more toward its corporate customers than as a residential car-sharing service.

As the competition grows, Zipcar is going to face pressure to eliminate its annual membership fees, which will be a real blow to its revenues, particularly as they factored so heavily in its results this quarter. When (NASDAQ:BKNG) eliminated booking fees a few years ago, it wasn't long before Expedia (NASDAQ:EXPE) and Orbitz (NYSE: OWW) were forced to follow suit. Expect Zipcar to cave in as well on its pricey $60 to $100 application and membership fees, which represented 14.3% of its revenues in the third quarter, up from 13.6% last year.

Hertz, which is trying to buy Dollar Thrifty (NYSE: DTG), might end up pushing its On Demand service even harder if regulators get stuck on industry competition issues. The acquisition would leave just three players controlling 95% of the car rental market. It already plans on converting its entire 375,000-vehicle fleet to be able to connect with the on-demand service. Each car will come equipped with an RFID chip that will enable customers using a computer or their smartphone to reserve and unlock a rental car. That would equate to a fleet 30 times the size of Zipcar's.

The short story
Yes, I've been bearish about this stock for some time (the stock is down 47% since I weighed in on it in February on Motley Fool CAPS compared to a 1% rise in the S&P 500), and there's little to suggest anything's really changed my outlook on it.

Zipcar's stock got a bigger than usual bounce because it was heavily shorted, but once the squeeze wears off, you can expect the car-sharing service to once again have four flat tires and be up on blocks. For investors who have been waiting for a rebound, I'd use the surge to cut my losses and get out. Car rental agencies around the globe have reported better-than-expected numbers -- even priceline's was a big contributor to its surprisingly strong quarter -- so don't read anything special into Zipcar's results.

But let me know in the comments box below if you disagree with my bearish outlook and see a reason that its higher-cost service will be able to beat the competition across the finish line.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.