Kicking the Tires on the Zipcar IPO

Apr.13.11 | About: Avis Budget (CAR)

Founded in 2000, venture-backed Zipcar (ZIP) is the largest membership-based car sharing network in the world, with operations in the US, Canada and the UK. Its members have access to a network of 8,000 conveniently-located vehicles available for hourly or daily rentals, providing city dwellers and students with a turnkey solution for running errands or short trips. Zipcar has increased membership and revenues more than 10x since 2005 and, as the first mover in the emerging car sharing space, the company targets a projected global market opportunity north of $10 billion. Zipcar plans to raise $125 million by offering 8.3 million shares at a range of $14-$16. Existing shareholders are selling 1.7 million shares, representing 20% of expected deal proceeds. Goldman, Sachs & Co. (NYSE:GS) and J.P. Morgan (NYSE:JPM) are the lead underwriters on the deal, which is on the IPO calendar for the week of April 11.


Zipcar is a membership-based car sharing network with over 560,000 members (or Zipsters) and a fleet of 8,000 vehicles. It operates in 14 major metropolitan areas and more than 230 college campuses in the US and Canada (85% of sales), as well as the UK. The company generates revenue primarily from vehicle usage (88%) and $50-$60 annual membership fees (12%). Cars may be reserved by the hour ($7-$14) or by the day ($60-$100); rates include gas and insurance. Its vehicles have dedicated parking spaces interspersed throughout city neighborhoods and university campuses; most members live within a 5-10 minute walk of a Zipcar. Reservations can be made online, on a mobile device (e.g. iPhone app) or over the phone; members made 3.5 million reservations in 2010. Each Zipcar is equipped with a telematics control unit which allows for remote authorization, keycard access and fleet data collection.

For fiscal 2010, revenue increased 42% to $186 million due to an increase in reservations from new Zipcar members, and the April 2010 acquisition of UK-based Streetcar. Average membership grew 51% to 461,000, though revenue per member decreased by 6% to $402 as a result of an increasing mix of hourly reservations. Adjusted EBITDA turned positive at $4 million, thanks to an increase in vehicle utilization (vehicle operating costs declined from 71% of sales to 66%), which outweighed a 46% rise in recurring SG&A.

Key Issues

Zipcar has a history of operating losses due to the high fixed costs of fleet operations, including leasing, depreciation, parking and insurance. Management expects to incur a net loss in 2011 as the company continues to invest in vehicles and parking. Large rental companies Hertz (NYSE:HTZ), Enterprise and UHaul have all launched separately branded car sharing operations; Connect by Hertz has over 700 car sharing vehicles in New York, London and Paris. Additionally, Zipcar may incur losses if residual prices for its fleet vehicles fall.


Zipcar has an impressive track record of top line growth and targets a large-and growing market opportunity in the car sharing space. The company has posted two consecutive years of positive cash flow, and while it is investing aggressively in growth, its returns should scale nicely as increased membership drives higher vehicle utilization. Admittedly, its rapid expansion carries execution risk and high capital costs, and traditional car rental companies could eventually emerge as a significant competitive threat. Nonetheless, we believe Zipcar's first-mover advantage and compelling vehicle-level economics should support a growth multiple for this innovative consumer play.