Movers & Shakers
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Zipcar (NYSE: ZIP) Zips Out of the IPO Block
Zipcar priced its initial public offering (IPO) at $18 a share, which was the maximum it registered to reach. Demand for the shares proved even hotter on the open market, as the somewhat revolutionary rental car company intrigued seekers of disruptive technology.
If you don't understand why, look at the long-term charts of Netflix (Nasdaq: NFLX), Google (Nasdaq: GOOG), Amazon.com (Nasdaq: AMZN) and dare I forget, Apple (Nasdaq: AAPL). You know Wal-Mart (NYSE: WMT) and Home Depot (NYSE: HD) once fit into this group as well. The best fitting one word description for such deliverers of disruption is winner!
Zipcar calls itself a car-sharing company, but it looks to us like a rental car company with a novel idea. Zipcar members can rent a shared vehicle for as short as an hour, making them extremely convenient for city dwellers in need of a puddle jumper™ for a short hop, or move, or a date even. Whether Zipcar's novel approach allows it to steal more market share or not will depend on the strategic reactions of embedded renters, Hertz (NYSE: HTZ), Dollar Thrifty (NYSE: DTG) and Avis Budget (NYSE: CAR). Non-profit car-sharing programs are not going to be able to compete, based on capital constraints.
Zipcar has taken the hassle out of renting a vehicle. There's none of that nonsense about insurance or gasoline (sort of) to worry about. You're not going to run up the cost of rental by running a couple hours late either. Zipcar makes it easier, and Americans like easy. Therefore, it is the real deal as far as disruptive technology goes. And knowing the established firms all too well, it's my best guess they'll be late to change and so some will go by the way of Borders and Blockbuster.
And I disagree with some who say there are no barriers to entry and that there is therefore no first-mover advantage. Zipcar is established in the hearts, minds and parking lots of the college crowd, young Americans, adopters of new technology. Zipcar is in the limited space of metropolitan residential and commercial parking lots, like many of its established rivals, but ahead of any new entrant. It's got important locations locked up near mass transit hubs.
Brand loyalty is not likely strong with rental firms, at least not in my case from my personal dealings. In fact, I would like to stick it to a few by taking advantage of Zipcar, and I bet there are a lot of Americans who feel the same way. Haven't you ever booked a car with one unmentioned poorly run rental firm, and shown up to find a group of people like yourself all waiting for overbooked vehicles (Upper East Siders know exactly which place in the 80s I'm talking about)? It's happened to me more than once! Or, haven't you ever been charged an extra day for ten minutes by any of the established firms?
Trading in ZIP was not allowed to begin until after 11:00 AM, when the shares first traded hands on the open market at a price of $29, 61.1% above the IPO price. Pumped paper profits allured Zipcar shareholders to flip away, and so the shares eased lower from the open, closing at $28, still marking a 56% first day gain. Not a bad birthday zippy!
Zipcar raised over $174 million Thursday, which the company will put promptly to use in expansion efforts. Pre-IPO, ZIP only operated in 14 major metropolitan areas, and more than 230 college campuses across the U.S, U.K. and Canada. Hot market demand helped the stock close at a point that values the company over a billion dollars, based on market capitalization. That's a better opening day value then Amazon.com (Nasdaq: AMZN), which accomplished a market cap of $438 million.
The company is not yet profitable, though it boasts profitability within its early markets, which we assume include Boston, New York and Washington D.C. Therefore, we cannot compare it to industry rivals based on P/E or PEG based comparisons. We estimate it trades somewhere near 5.8X its 2010 sales. Hertz trades at 0.9 times its trailing twelve month sales, and the Rental and Leasing Services Industry trades at approximately 1.41X. The problem with this comparison, though, is that ZIP is an aggressive growth company, while the establishment operate like cash cows (fat slow ones). The established have been growing through merger recently, and we suspect they will be shrinking through market share purging.
Jim Cramer notes his observation of a day-two follow through for hot IPOs. I'm just looking at Zipcar for the first time this evening, and S-1s are long, and time is short ahead of the start of the third period of the Flyers / Sabres series opener. If we were going to spend a few more days on this, we would want to look at the market opportunity, which the S-1 indicates is growing pretty darn rapidly. In fact, the market growth rate is 44% annually, if my back of the envelope estimate is right and the third party forecaster found in the S-1 is right. The problem is that this is the projection for the entire market, and the company itself tempers the third party growth estimate to 26% annually (that's still hot), projecting the $3.3 billion market to mature in 2020 instead of 2016.
It would take a few days of data review, interviews, analysis, forecasts and estimates to develop a DCF model worthy of trust here. So, let's just say that at this level of familiarity with ZIP, I would not be a buyer here without some more due diligence, though I would have wanted in on the IPO (thanks a lot for remembering me Wall Street). You can make up for it with Flyers tickets. Analysts covering ZIP or corporate representatives are welcome to send me a report to look over so I might update my view.
Article interests investors in Zipcar (NYSE: ZIP), Hertz (NYSE: HTZ), SBA Communications (Nasdaq: SBAC), Wesco (NYSE: WSC), Ryder (NYSE: R), Rent-A-Center (Nasdaq: RCII), Aercap (NYSE: AER), AMERCO (Nasdaq: UHAL), Dollar Thrifty (NYSE: DTG), United Rentals (NYSE: URI), Avis Budget (NYSE: CAR), GATX (NYSE: GMT), Textainer (NYSE: TGH), RSC Holdings (NYSE: RRR), TAL International (NYSE: TAL), Aircastle (NYSE: AYR), McGrath Rentcorp (Nasdaq: MGRC), CAI International (NYSE: CAP), Electro Rent (Nasdaq: ELRC), Fly Leasing (NYSE: FLY), SeaCube Container (NYSE: BOX), Marlin Business Services (Nasdaq: MRLN), Mitcham (Nasdaq: MIND), Willis Lease Finance (Nasdaq: WLFC) and AeroCentury (AMEX: ACY).
The day's other biggest gainers included Peoples Educational (Nasdaq: PEDH), China North East Petroleum (NYSE: NEP), Acorda Therapeutics (Nasdaq: ACOR), CDC Corp. (Nasdaq: CHINA), BANRO (AMEX: BAA), Repros Therapeutics (Nasdaq: RPRX), Bank of Carolinas (Nasdaq: BCAR), YRC Worldwide (Nasdaq: YRCW), On Track Innovations (Nasdaq: OTIV), SuperValu (NYSE: SVU), China Education Alliance (NYSE: CEU), SinoCoking Coal (NYSE: SCOK), Star Scientific (Nasdaq: CIGX), L&L Energy (Nasdaq: LLEN), Onstream Media (Nasdaq: ONSM), Evergreen Solar (Nasdaq: ESLR), ADA-ES (Nasdaq: ADES), Qihoo 360 (Nasdaq: QIHU), Oxygen Biotherapeutics (Nasdaq: OXBT), Majesco (Nasdaq: COOL), CombiMatrix (Nasdaq: CBMX), Sky-Mobi (Nasdaq: MOBI), Youku.com (Nasdaq: YOKU). The biggest losers included Fuwei Films (Nasdaq: FFHL), SPAR Group (Nasdaq: SGRP), ENGlobal (Nasdaq: ENG), Streamline Health (Nasdaq: STRM), Kingtone Wireless Info (Nasdaq: KONE), Kingsway Financial (NYSE: KFS), China Auto Logistics (Nasdaq: CALI), Pansoft (Nasdaq: PSOF), Continental Materials (AMEX: CUO), Inuvo (Nasdaq: INUV), Pan American Silver (Nasdaq: PAAS), Champion Industries (Nasdaq: CHMP), RXi Pharmaceuticals (Nasdaq: RXII), BankAtlantic (Nasdaq: BBXT), First Federal Bancshares of Ark (Nasdaq: FFBH), Ciber (NYSE: CBR), Perfumania (Nasdaq: PERF), Universal Forest (Nasdaq: UFPI), Sunrise Senior Living (NYSE: SRZ), Coeur d'Alene Mines (NYSE: CDE), Supreme Industries (AMEX: STS), Lee Enterprises (NYSE: LEE), Park Bancorp (Nasdaq: PFED) and Rada Electronics (Nasdaq: RADA).
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