Why Zipcar's IPO May Sputter
Zipcar is an easy company to love. Its car-sharing service helps people get around without having to own a car, and that's good for the planet.
On the other hand, its proposed $75 million initial public offering is less of a love affair. In essence, unprofitable Zipcar is asking investors to go back to the bad old days of buying a dream rather than a proven success story.
The company has plenty of scale, but still hasn't turned a profit. With a fleet of 7,000 cars and operations in 13 major cities and on many college campuses, Zipcar ought to be at the point where we can see the model makes money. But Zipcar has yet to make a dollar, its IPO filing shows. Zipcar has been on an acquisition tear, snapping up competitors in Spain and the U.K. Zipcar managers are clearly trying to make sure nobody else can dominate their niche. But rapidly expanding an unprofitable model is a dice roll that may or may not pay off. On the plus side, U.K.'s Streetcar was operating pretty much at breakeven, so maybe its model can teach Zipcar something about how to squeeze out costs.
Some of Zipcar's competitors are nonprofits such as Chicago's I-GO, which should set off some warning bells. Yes, city managers love car-sharing services because they can help reduce traffic congestion. People love car-sharing because they don't need expensive, traditional car insurance and they save compared with owning a private car. But neither of those factors means there is necessarily a profitable business in providing those shared cars.
Operating a car fleet is very expensive. Zipcar reports that they need to replace each car after two or three years in service. There's huge fixed costs here that expansion won't change, as each market needs its own car fleet. So far, Zipcar has racked up nearly $30 million in debt. Even excluding its acquisition costs, it showed an operating loss in the past year of nearly $6 million on $131 million in revenue. That doesn't exactly inspire confidence that Zipcar's management has figured out how to make money in car-sharing.
Zipcar has proved that it provides a valuable service that people and cities like. Some 400,000 members have signed on. But so far, it hasn't proven it offers a solid investment opportunity for shareholders.
Photo via Flickr user Andrew Currie