The Wall Street Journal - Zipcar Files for an IPO
June 2, 2010
Zipcar Files for an IPO
By LYNN COWAN and BRENDAN CONWAY
June 2, 2010
Car-sharing concern Zipcar Inc. filed plans for an initial public offering of stock, a deal that could be a draw for investors looking for a business with a dash of eco-consumerism.
Car sharing, a rental alternative in which drivers pay for memberships that enable them to rent cars by the hour, is a hot area of the otherwise slow-growing global auto-rental industry. It has taken off in urban areas and college towns, where people don't own cars because it is too expensive or inconvenient, or because they don't need a set of wheels regularly.
Renting by the hour enables subway-dependant New Yorkers to run errands at large stores outside Manhattan, or college students to have occasional access to a car on campuses where parking is restricted, all through the use of a keyless entry card.
"Zipcar has proved that this is a real business," said Neil Abrams, president of Abrams Consulting Group Inc., which specializes in the auto rental industry.
Zipcar's business model is interesting enough that it could go public even in today's rough market, said Josef Schuster, founder of IPOX Schuster LLC, a financial-services firm specializing in IPO products such as indexes.
Zipcar hasn't set a date for its offering. It typically takes about three months from first filing to pricing, so the environment for IPOs could be improved by the time the company launches.
"It benefits from responsible urban living trends," Mr. Schuster said, referring to the rising interest among Americans in reducing their carbon footprints. "It's an alternative consumer discretionary business."
Zipcar's registration with the Securities and Exchange Commission sets an upper limit of $75 million on its filing, but the actual amount it raises could vary; registration levels are set solely to calculate filing fees.
The company hasn't set a date, price or share size for its offering. Zipcar wants to list on the Nasdaq under the symbol ZIP.
Zipcar is concentrated in 13 metropolitan areas and more than 150 college campuses in the U.S., Canada and U.K. It has identified 100 urban areas and hundreds of universities that could prove to be attractive markets for expansion.
It holds about three-quarters of the small but fast-growing car-sharing market, thought to be in the $150 million-to-$250 million range. Hopes are high for growth: One research firm has projected world-wide car-sharing revenue could hit $3.3 billion by 2016.
With the overall pie expanding, it may be some time before the big auto-rental companies, which have launched car-sharing services in recent years, grab a bigger proportion of the total market.
That is because the large auto renters' signature strengths—big fleets, for one—mightn't come into play for years. Zipcar has managed to dominate car sharing with a fleet of about 7,000 cars.
"I don't think anybody wants to displace Zipcar," said John Healy, research analyst at Northcoast Research, of Cleveland. "They all want to build new initiatives and grow this market. Maybe a few years from now it will become more competitive."
Hertz Global Holdings Inc. and closely held Enterprise Holdings are two notable market entrants.
Hertz has made clear it intends to challenge Zipcar in core urban markets and is targeting corporate and college campuses. Enterprise's efforts have aimed to build a car-sharing business into its network of about 5,000 locations in towns and suburbs. The company projects triple-digit car-sharing growth this year.
In April, Zipcar bought British peer Streetcar Ltd. for about $50 million. It recently sold $70 million in asset-backed securities to finance plans to expand its fleet. It plans to use its IPO proceeds to pay down debt and for other general corporate purposes, including the development of new services and funding the expansion of its fleet, according to its prospectus.
Founded in 2000, Zipcar's revenue has increased throughout the global economic downturn. In the first quarter, Zipcar's loss widened to $5.3 million from $3 million a year earlier, through revenue jumped 29% to $33.2 million.
The company has never been profitable, and it is still posting operating losses, which could make for a bumpier ride to the public markets, says Drew White, chief financial officer of financial-analysis software firm Sageworks Inc. "They're coming out at a time when investors are very conservative. Going public is not going to solve their fundamental business problem: they don't have a profitable model."
—Matt Jarzemsky contributed to this article.