Is Zipcar a Good Buy?

| About: Avis Budget (CAR)

By Elyse Andrews

One of the big news stories this week was about Zipcar’s (ZIP) initial public offering. The company, founded 10 years ago, has headquarters right near my house and I pass it frequently.

If you don’t know, Zipcar is a car-sharing service that’s popular in cities (like mine, Boston) and among college students–basically with people who are unlikely to own cars. Members can rent cars, located in convenient spots, at an hourly or daily rate and they pay an annual membership fee. This allows a lot of flexibility because the cars are parked all around cities/college campuses and eliminate the central car rental location that has been the previous industry standard. The hourly rental rate also allows non-car-owning people to rent the vehicles for short trips, like to go to Home Depot or IKEA, even the grocery store!

(I have many friends who have used the service with great success. They report on the easy-to-use system and frequent locations of the vehicles around the city.)

The company’s model has even attracted the attention of rental car industry leaders like Hertz (NYSE:HTZ) and Enterprise, which have expanded their businesses to include their own car-sharing services.

Zipcar had hoped to sell 8.3 million shares for $14-$16 each, but ended up selling nearly 10 million shares at $18 each for a total of $174.3 million raised. Not bad for a company that has seen mounting losses since its inception that totaled $65 million as of the end of 2010. And Zipcar has warned investors that nothing is likely to change in 2011, as it expects a loss this year as well.

Most of Zipcar’s losses are due to the fact that as a rental car company, it incurs many upfront costs (mostly purchasing and repairing cars). The company also acquired British car-sharing service company Streetcar to give it a presence in 14 major cities and over 200 college campuses in the U.S., Canada and the United Kingdom. Despite the losses, Zipcar’s revenue has risen recently, up 42% to $186 million in 2010 after climbing 24% in 2009.

Zipcar’s story is a good one; I’ve been attracted to it for years and have long anticipated its IPO. But at Cabot, we generally do not advise buying stocks that have just had their debut. We like to see stocks get a little trading history behind them before jumping on board and with Zipcar’s numbers still lacking, we’ll need to see some improvement in that area as well. This is definitely one to watch and possibly revisit once it gets a little more mature.