To get "Facebooked" will henceforth appear in the investors' dictionary, defined as someone who is stampeded into buying a new issue after it opens and never gets his or her money back.
Those who bought the hype about Zipcar (ZIP) just got Facebooked.
As TechCrunch notes, Avis says it is paying a 50% premium on ZIP shares with its $500 million buyout offer. And if you bought your shares recently, you'll make a profit.
I think Avis (NASDAQ:CAR) is getting a great deal. Zipcars live within a four-minute walk of my house, so when I was without a car over the holidays I rented one. It was a very pleasant experience.
I got what looked like a credit card in the mail and, after a simple online transaction, I held that card by the front window of the vehicle, which popped open. The key was on a retractable wire against the dashboard. The car was comfortable, it was new, and it worked well. When I returned it to its place, there was no follow-up. It was the fastest rental I've ever done, and the easiest.
ZIP has been profitable since its launch. For the three months ending in September, it reported net income of $4.32 million on sales of about $78.32 million. Stretch that over a full year and you find Avis is paying less than two times annual revenue for the company. The debt-to-asset ratios, meanwhile, are less than one-in-three -- about half the ratio the acquiring company, Avis, runs at.
ZIP won't add much to the top or bottom line, immediately, but the business model is proven and change is coming. As Google (NASDAQ:GOOG) continues to improve its self-driving cars, it's easy to foresee ZIP getting them, turning the company into more of an automated taxi service and offering the opportunity for spectacular growth. Even without that, it's a nice addition to the portfolio.
Still, those who bought the hype got burned. The company went public at $18/share, briefly rose above $27/share after the IPO, and has been on a steady downward trajectory ever since. Even with the 50% premium, those who bought IPO shares are losing one-third of their money. And those poor souls who bought the hype, and came in after the IPO, are losing more than half their investment.
There's a lesson here. Don't get Facebooked. Don't listen to investment bankers hawking an IPO. Don't buy hype, buy only results.
Be like Avis.