In a widely anticipated IPO, Zipcar (ZIP) went public on April 14 with the company’s stock closing 56 percent above its offering price on its first day of trading.
For those of you who aren’t familiar with Zipcar, the company offers car-sharing services to its members by providing self-service vehicles in reserved parking spaces that are convenient to where the company’s members live and work.
Zipcar’s members can reserve cars and trucks by the hour or for several days for competitive rates that include fuel and insurance. Hourly rates range between $7.50 and $15.25 per hour and between $66 and $113 per day, depending upon the type of vehicle rented, for any 24-hour period during the week. On weekends, the ranges are between $9 and $18.25 per hour and between $72 and $150 per day. Gas, insurance, and 180 miles of driving per day are included in those fees.
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The company’s members choose the make, model, type. and even the color of the automobile that they want depending upon their specific needs and desires for each trip and the available automobiles in their neighborhood. Once a vehicle is reserved, the member simply unlocks the vehicle with his or her keyless entry card and drives away. Upon returning the vehicle, the member locks the vehicle and walks away.
The company provides its services in 14 major metropolitan areas and on more than 230 college campuses in the United States, Canada, and the United Kingdom.
Zipcar shares one very important criterion with some of the better-performing stocks over the past 50 years: The company provides a service that virtually anyone could reason will likely be in big demand during the years ahead.
That’s because many people who live in large, congested cities, such as New York, Boston, and Chicago, as well as people that attend college, often have no need to own a car or to rent a car for more than a few hours. However, many of those same people do need a car or truck for a few hours on certain occasions. This is illustrated by the fact that Zipcar grew its revenues to $186.1 million during the year ended Dec. 31, 2010, from $30.7 million during the year ended Dec. 31, 2006.
Zipcar has not yet turned a profit, but the company substantially narrowed its losses during each of the past three quarters, to a loss of just 17 cents per diluted share during the quarter ended Dec. 31, 2010, from a loss of 95 cents during the quarter ended June 30, 2010.
If the company were to generate a profit and to then grow those profits at fast rates during the ensuing quarters, I would expect its stock price to rise sharply during those periods.
However, my experience suggests that investors should wait for persons who were able to buy ZIP at its IPO price of $18 to unload those shares and for that selling pressure to force down ZIP’s price before establishing a position in this potentially high-flying stock.
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