Zipcar’s Reports First Quarterly Profit en Route to $25, Market Still Unsure
After posting losses for several years, Zipcar (NYSE:ZIP), the world’s leading car sharing network, posted its first ever quarterly profit, riding on healthy membership growth of 25%. During the quarter, it completed its U.K. Streetcar acquisition, expanded its University program to 36 new campuses and launched a Facebook application providing a new access point to its members. It also joined forces with Ford in a two-year partnership, making it the largest automotive source for its university program. Zipcar went public in April 2011 and has witnessed steep top-line growth with rising membership, now serving over 650K members with a fleet of over 9K vehicles. Aside from competing with traditional rental companies and car sharing services like Connect by Hertz, Enterprise’s WeCar, UHaul’s UCarShare and City Car Share, it now also faces competition from up and coming low-cost, peer-to-peer (P2P) car sharing services like RelayRides and GetAround.
See our complete analysis for Zipcar’s stock.
Strong growth momentum continues
Zipcar continued with its strong growth momentum this quarter achieving revenue growth of 24% boosted by membership growth of 25%. With this, the total membership figure is close to 650K. With its expansion into new college campuses, the quarter also saw significant investments into its fleet, making Zipcar’s fleet size close to 9.5K, compared to 8.5K this time last year.
It completed the integration of the acquired Streetcar operations in the U.K. ahead of schedule, preparing base for further expansion in new European markets of France, UK, Germany. In the U.S., it gradually expanded its University Program adding services in 36 new college campuses to reach a total of 250 institutions nationwide. In late August, Zipcar formed a two-year partnership with Ford, making it the largest automotive source for its university Program. It also launched a new Facebook app to make car sharing more accessible to its members, especially the college community. Zipcar is likely to launch into 2-3 new markets every year from 2012.
Optimistic about margin improvements
The key cost performance metric, usage revenue per vehicle per day increased 8% to $65 from $60 in the prior year period. Although fleet operation costs remained higher, it was largely due to fleet expansion into new campuses and is expected to go down as a % of revenue as penetration levels improve.
We are optimistic about the gradual improvement in operating margins as Zipcar transitions from leasing its vehicles to purchasing them and as revenue mix shifts towards higher membership fee. Fee revenue represented 13.6% of total revenue in 3Q 2011 compared to 11.4% in the prior year period. In the coming years, Zipcar expects fee revenues to contribute over 17% of the total revenue and usage revenue to contribute the remaining 83%. This will lead to an increase in profit margins as fee revenues have over 90% gross margins, much higher than those of usage revenues.
We have a revised Trefis price estimate of $25 for Zipcar, about 30% ahead of the market price.
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