Zipcar Tanks As Growth Slows Down

Zipcar (NYSE:ZIP) announced its Q2 results on Thursday with 15% growth in revenues (y/y) and 21% increase in membership base to 731K. Even though it continued to post a loss, it came much closer to profitability than ever. However, the growth missed market and company’s own expectations, leading to weaker forecasts for the next quarter and current fiscal. As a result, its stock tanked 20% in after-hours trading, falling $2.13 down to $8.50, below the company’s 52-week low for intraday trading and is down heavily in early trading.

Zipcar serves 730K members with a fleet of over 11K vehicles in North America and Europe. Aside from competing with traditional rental companies and car-sharing services like Hertz On Demand, Enterprise’s WeCar, UHaul’s UCarShare and City Car Share.

See our complete analysis for Zipcar’s stock

Expanded Presence And Fleet But Membership Growth Slow

Last quarter, Zipcar expanded its car sharing services in White Plains (NY), San Jose, Austin (TX). It added Zipvans in Chicago and Toronto, taking Zipvan count to 165 in North America and 200 in the UK. It also expanded its European footprint to a third market with the acquisition of Austria-based Denzel Mobility car sharing service, operating as CarSharing.at, which serves 10K members across Vienna, Innsbruck and Graz with a fleet of nearly 200 vehicles. Nonetheless, the car sharing company achieved lower membership growth than it had previously anticipated. The fast entry of several big competitors in the hourly rental market is likely to have also slowed down membership growth.

Member Acquisition Costs Rise As Competition Thickens

Much higher competition levels in several of Zipcar’s major markets also made it costlier for the young company to acquire new members last quarter. This reflected in the metric ‘Cost per new account’ that sharply rose to $81 during the first half of 2012, up from $61 during the same period last year.

Most of these new entrants offer relaxed or no membership fee as well as one-way rental options. Zipcar responded to the increased heat by launching flexible monthly membership pilot programs in a few markets like Chicago and Toronto to attract a wider membership base as well as aggressive marketing through Groupon deals. It is now focusing on maximizing returns on its marketing spend, and get more aggressive in rolling out initiatives to accelerate adoption of its services and reignite member growth.

Lowers Outlook

Zipcar now expects to earn $272 million to $278 million in revenues in fiscal 2012, down from previous estimate of $290 million to $296 million. Its adjusted EBITDA forecasts also cooled off to $12-16 million, from the previous $16-20 million.

We are in the process of revising our $18 Trefis price estimate for Zipcar.