Zipcar reports first quarterly profit

The car-sharing company completed a UK acquisition, expanded its university program and launched a Facebook application in the third quarter.

By Trefis Nov 7, 2011 1:01PM
After suffering losses for several years, Zipcar (ZIP) has posted its first-ever quarterly profit on healthy membership growth of 25%.

The world's leading car-sharing network completed its U.K. Streetcar acquisition during the quarter, expanded its university program to 36 new campuses and launched a Facebook application for members.

It also joined forces with Ford (F) in a two-year partnership, making the automaker the largest vehicle source for its university program. Zipcar went public in April and has witnessed steep top-line growth from rising membership; it now serves some 650,000 members with a fleet of 9,000 vehicles.

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Aside from competing with traditional rental companies and sharing services, such as Connect by Hertz, Enterprise's WeCar, U-Haul's UCarShare and City Car Share, Zipcar also faces new threats from low-cost, peer-to-peer sharing services like RelayRides and GetAround.

See our complete analysis for Zipcar's stock

Strong growth momentum continues

Zipcar continued strong momentum in its third quarter with revenue growth of 24% and membership growth of 25%. With expansion into new college campuses, Zipcar also made significant fleet investments, boosting its fleet size to nearly 9,500, up from 8,500 a year ago.

Average Number of Members per Year for Zipcar North AmericaThe company completed integrating its acquired Streetcar operations in the U.K. ahead of schedule, preparing its base for further expansion in new markets in France and Germany. In the U.S., it added services in 36 new college campuses to reach a total of 250 institutions nationwide.

Zipcar is likely to add two to three new markets every year from 2012.

Optimistic about margin improvements

The key cost-performance metric, usage revenue per vehicle per day, increased 8% to $65 from $60 in the prior-year period. Fleet operation costs remained higher -- largely due to fleet expansion into new campuses -- and is expected to drop as a percentage of revenue as penetration levels improve.

We are optimistic about a gradual improvement in operating margins as Zipcar transitions from leasing its vehicles to purchasing them, and as the revenue mix shifts toward higher membership fees. Fee revenue represented 13.6% of total revenue in the third quarter compared with 11.4% in the prior-year period. In the coming years, Zipcar expects fee revenue to contribute more than 17% of the total revenue and usage revenue to contribute the remaining 83%. This will lead to an increase in profit margins, as fee revenues have more than 90% gross margins -- much higher than those of usage revenues.

Zipcar's North America EBITDA Margin

We have a revised Trefis price estimate of $25.87 for Zipcar, about 30% ahead of the market price.

Tags: FZIP


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