High Gas Prices Set Stage for Zipcar IPO

Perfect Timing for Zipcar to go Public

By
Monday, April 4th, 2011

It's no secret that I love high gas prices.

I love listening to the talking heads on the local news stations mindlessly lament about the “pain at the pump”.

I love watching the “on-the-street” interviews with clueless soccer moms sipping their $8 lattes, complaining about how they don't know how they're going to feed their kids when it costs $70 to fill their 20 mpg SUVs.

And I love watching the trend-chasers on Wall Street scramble to find a way to capitalize on the whole thing.

Of course, if half these guys would pull themselves away from their overpriced office suites long enough to take in the big picture — instead of acting like a bunch of cocky middle school kids with ADHD — then they would know that high gas prices are no longer random blips on their computer screens... but rather, definitive indicators of what's in store for the future.

And they would position their portfolios accordingly.

This is what we've been doing for nearly a decade now — and the result has been a steady flow of double- and triple-digit gains in alternative energy.

Embrace this Trend Before Wall Street Figures It Out

About a year ago, I told you about a company called Zipcar. This is a car sharing company that announced last year it was planning to go public.

Well last week, the company finally priced its IPO.

Coming in at between $14 and $16 a share, 8.3 million shares will net about $89 million.

Now why should you care about this IPO?

Because Zipcar's success is bolstered by tough economic times and high gas prices — two things that aren't going away anytime soon.

Now before we get into the nuts and bolts, let me first explain what car sharing is.

As I wrote in last year's piece:

Car sharing is a mode of car rental where consumers rent cars for short periods of time, often by the hour. They are attractive to customers who make only occasional use of a vehicle.

Now while those who live in the suburbs or in rural areas pretty much have to drive everywhere (and do need their vehicles on a daily basis), those who live in our nation's cities often rely on public transportation.

You see, the advantage to living in the city is that everything you need is typically within a close distance. In fact driving anywhere in the city rarely makes sense, since drivers have to not only pay for gas, but also shell out small fortunes for parking.

Nonetheless, many who live in the city still need cars for those occasions when mass transit or a bike ride isn't an option.

And that's where car sharing comes into play, offering roughly 60 million American city dwellers an opportunity to avoid the hassles of owning a car (i.e. insurance, registration, parking, etc.), and save quite a bit of money in the process.

Zipcar members don't even have to pay for gas!

Talking to a handful of Zipcar members in my neighborhood, this is what actually helped seal the deal for them.

And apparently, the average yearly savings for those who use Zipcar's car sharing service has come in at around $6,000 a year compared to car ownership.

Yes, higher gas prices and tough economic times are actually good things for car sharing services like Zipcar. And it is this combination that will help the car sharing market grow quite rapidly over the next few years.

In fact, Frost and Sullivan reported that revenue from car sharing programs in North America are expected to increase from $253 million in 2009 to $3.3 billion in 2016!

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Bulking Up

Despite the fact that the car sharing market is going to experience robust growth over the next decade, it's still not a cheap business to run...

Buying new cars and maintaining fleets ain't cheap. And most analysts agree that for Zipcar to be successful, it'll have to significantly bulk up its membership.

It should also be noted that, much like most companies going public these days, Zipcar has posted losses every year since it started.

And I wouldn't hold my breath for those losses to disappear anytime soon.

That being said, Zipcar has very limited competition — close to a half million paying members and revenue for last year was $186.1 million. It's the leader in the car sharing game, and is probably the only car sharing service that could even pull off an IPO.

Whether or not it'll prove to be successful remains to be seen. But we'll certainly watch this one closely.

Zipcar will trade on the NASDAQ, under the symbol ZIP.

To a new way of life, and a new generation of wealth...

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Jeff Siegel
Editor, Energy and Capital


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