1/2/2013 6:37 PM ET|
Will Zipcar lose its cool after selling to Avis?
The car-sharing service struggled for years before selling itself. It will need to work to maintain its cachet with customers.
Unfortunately, Wall Street was immune to the charms of the car-sharing service. Before Wednesday's announcement, shares of Zipcar had plunged 73% from the close of their 2011 debut. The stock traded Wednesday at $12.22, a 48% jump from Monday.
Zipcar's stock lagged because its financial performance was mediocre. Even though it has consistently reported double-digit revenue gains, profitability proved elusive. Zipcar earned $4.3 million, or 10 cents a share, in the latest quarter, and expected profit ranging from break-even to $3 million in the current period. There seemed to be little hope that Zipcar's financial situation would get better; the company even warned in its prospectus that "we expect to incur significant future expenses as we develop and expand our business, which will make it harder for us to achieve and maintain future profitability. "
While the sale to Avis will shore up Zipcar financially, the bigger challenge will be in convincing its fiercely loyal customers that it is the same car-sharing service they have grown to love since its founding in 2000. That's going to be difficult, given that part of Zipcar's allure is that it was a plucky upstart, doing battle against the automakers and dealers pushing every red-blooded American to have a car of their own even it might not make financial sense. That sort of image becomes a tough sell once Zipcar is part of Avis, which has a market value of about $2.2 billion.
Avis has to tread carefully with Zipcar to avoid wrecking what made the company special in the first place and worth buying: its culture. This is a lesson that some companies have learned the hard way. Snapple was once seen as plucky upstart in the beverage industry dominated by giants. The company even went by the name Unadulterated Food Corporation. Then it moved to the big leagues and disaster struck.
Snapple's original owners first sold their company for $1.7 billion to Quaker Oats in 1994, a deal that the Los Angeles Times dubbed "one of the worst flops in corporate-merger history." Tiarc bought Snapple at the fire-sale price of $300 million in 1997. Three years later, Snapple Beverage Group was purchased by London's Cadbury Schweppes. Snapple is now part of the Dr Pepper Snapple Group (DPS).
Avis is well aware of the challenges its facing. Once the acquisition closes, which is expected in the spring, Zipcar will operate as separate unit under Zipcar's existing management team of CEO Scott Griffiith and President Mark Norman. Zipcar is also going through with plans to move to its new headquarters in Boston.
Zipcar will have to convince its 760,000 customers in the U.S., Canada and the U.K. that its the same car-sharing service they have grown to rely on, even though it may not be an underdog. It may not be as easy as it sounds.
--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr
More on Money Now
- More bruising budget battles are coming
- Netflix CEO gets 100% raise
- Paychecks shrinking despite fiscal cliff deal
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The Dow, Nasdaq, and S&P 500 hover just north of their respective flat lines, while the Russell 2000 sports a solid gain of 0.6% after showing relative weakness yesterday.
Yesterday, the small-cap index reclaimed its 100-day (1150) and 200-day (1151) moving averages, but could not overtake the 50-day moving average (1152), which served as the session high for the index. Today, however, the Russell 2000 has climbed above that level and currently trades near the middle ... More
More Market News
An interest rate tease in The Wall Street Journal sends the market into an optimistic tizzy -- but one that doesn't end quite at the top.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'