Zipcar (ZIP) shares were falling off a cliff Friday -- tumbling 36% near noon -- as investors fled the car-sharing service after it reported worse-than-expected results and slashed its earnings outlook.

The company reported a net loss in the last quarter of $422,000, or 1 cent a share, narrower than the year-ago net loss of $5.6 million, or 17 cents a share. Revenue surged 15% to $70.8 million as Zipcar launched new services in Chicago, Austin and Toronto. Total members rose 21% to more than 731,000 at the end of the last quarter, which lagged the company's expectations. Analysts had expected a break-even quarter on revenue of $73.06 million.

Wall Street has been pessimistic about Zipcar for a while. Not only is it facing heightened competition from larger rivals like Enterprise Holdings and Hertz Global Holdings (HRTZ), the two largest car rental companies, along with some automakers, but there is evidence that business in its existing markets has reached saturation. For one thing, usage revenue per vehicle per day in the quarter was unchanged at $65 versus the year-ago period. Another worrisome trend is that selling, general and administrative expenses increased to 27.2% of revenue from 23.9% in the same period last year. During Thursday's earnings conference call, CEO Scott Griffith tried to put a positive spin on the results.

"While we were disappointed with our recent revenue performance and faced near-term challenges of driving member acquisition, we believe we're taking the steps necessary to improve our growth trajectory and we remain very excited about our long-term prospects," he said.

Unfortunately, that's easier said than done. Zipcar expects third-quarter revenue to be between $74 million and $77 million, lagging analysts' expectations of $81.5 million. Going forward, Zipcar "will be rolling out initiatives to accelerate adoption and expand our service offerings."  That means great deals for consumers and more pressure on Zipcar's margins. The faltering economic recovery isn't helping matters either.