Zipcar Prices IPO at $18, Above Range, Debuts Thursday

On the eve of Zipcar’s (s zip) Nasdaq debut on Thursday, the car sharing company priced its stock at $18 per share late Wednesday, well above the previous estimated range of $14 to $16 per share. At that price, Zipcar’s 9.68 million share raised $174.24 million for the company, far above Zipcar’s original estimates of a $75 million IPO.
The news is good for both Zipcar, which needs the funds to expand its user base, as well as Zipcar’s early investors, including Benchmark Capital, Greylock Partners, Smedvig Capital, and AOL (s aol) founder Steve Case’s Revolution LLC. The bullish pricing is also positive news for the future of car sharing, an early-stage industry that now includes a lot of city dwellers and college students who essentially use cars as a service, instead of owning them outright.
Zipcar, which has 560,000 members and was founded in 2000, filed for a planned IPO last June. Then back in December, the company raised $21 million in private financing, which — at least in my mind — called the planned IPO into question. That summer S1 came on the heels of Zipcar arranging to borrow $70 million under a one-year credit facility for the purchase of new cars for its U.S. fleet (through Zipcar Vehicle Financing, a wholly-owned subsidiary), and also came about six weeks after Zipcar acquired its largest competitor in the U.K., a car sharing provider called Streetcar.
Running a car sharing service is expensive and a high-capital business. Maintaining the fleet and buying new cars, sucks up a major portion of the sales. For the year ended December 31, 2010, Zipcar generated revenue of $186.10 million, with a net loss of $14.12 million. As of December 31, 2010, Zipcar had an accumulated deficit of $65.4 million, and in the company’s risk factors the S1 says, “We expect to incur a net loss in 2011. We do not know if our business operations will become profitable or if we will continue to incur net losses in 2012 and beyond.”
As of September 2010 (when I did this analysis), Zipcar had 8,541 cars in its fleet, most of which it leased, but 1,692 of which it owned outright. The Zipcar fleet is routinely being turned over, and that requires access to capital. Zipcar only keeps its cars, on average, two to three years, after which it sells the cars to the used car market. Zipcar is also constantly removing cars and adding cars to its fleet depending on seasonality (busier in summer and spring) as well as meeting its expansion plans. That’s a whole lot of vehicle financial transactions.
To move to lower-cost vehicle turnover and growth, last spring, the company established “Zipcar Vehicle Financing LLC, or ZVF,” which is “a special purpose entity wholly-owned by Zipcar,” that will be used to purchase vehicles. ZVF currently has $70 million available for vehicle purchasing, and Zipcar plans to increase the amount of owned vehicles in its fleet, compared to the amount of leased vehicles, which can provide a lower-cost way to manage its fleet.
Car sharing needs a lot more members to make it profitable, but analysts have been predicting the market will grow. According to Frost & Sullivan, the revenue from car sharing programs in North America will increase to $3.3 billion in 2016, up from $253 million in 2009.
A next generation of car sharing startups has already emerged in recent months focused on building car sharing around personal vehicles (owned by people in your community or neighborhood instead of an entity like Zipcar). Those companies include RelayRides, GetAround, and Spride Share, and if you come to Green:Net 2011 on April 21 in San Francisco, you can hear from RelayRides CEO Shelby Clark and Spride Share founder Sunil Paul. Think of neighbor-to-neighbor car sharing as Zipcar without the large capital overhead.