Zip Car Performance Analysis
Zipcar is expanding rapidly since it was established in 2000. According to its latest 8-k form, for the 2012 first quarter, revenue increased 20% to $59. 1 million compared to $49. 1 million in the prior year period. Revenue growth resulted primarily from a 23% year-over-year increase in membership to more than 709,000 members at quarter end. But does it really have a sustainable growth to support its expanding and operation? We implement a rough accounting and financial analysis to evaluate its performance and forecast its future.
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Due to the high fleet cost and Selling, General and Administrative cost, Zipcar never achieved a net profit in its history. It had a net margin as (7. 5%) in 2010 and (2. 9%) in 2011, the trend is positive, showing the management’s effort to increase the revenue and decrease expenses. For the effectiveness of utilizing the assets, Zipcar achieved its asset turnover rate as 7. 0% in 2011, compared to 7. 5% in 2010. This down trend can also showed as Zipcar’s revenue per member went from $429 in 2009 to $392 in 2011.
This may results from the average 20% growth rate of members, and most of the new members did not use the hourly service as much as the old members. For the leverage, it was 4. 15 in 2010 and 1. 17 in2011, the result is positive, and showing that Zipcar’s strategy on decreasing financing cost on acquiring and maintaining the large scale of vehicles (Cut down on loan and acquire vehicles through Assets Backed Securities (ABS) Facility) has been working.
For the Return of Equity, even though it is still negative as (2. 4%) at the end of 2011, its loss on equity decreased almost 90% from 23. % in 2010. The investors may see it as a positive signal that Zipcar did its best to increase its profitability, and It implies a possibility that Zipcar may achieve other analyst’ estimated 2 million net incomes at the end of FY 2012. Since Zipcar’s core business is providing “wheels when people want them”, there are two factors determining the revenue of Zipcar, revenue per member and number of its membership. From the Exhibit1, Average revenue per member decreased from $410 in 2008 to $360 in 2011.
Going forward, revenue per member will continue to see further declines as membership grows. We assume that 2012 will have the same downside rate as 2011, (2. 5%). In this way, the average revenue per member will reach around $351 for 2012. For the growth of members, Zipcar has 0. 54 million members in 2010 and 0. 67 million members in 2011, with a growth rate of over 24%. But the latest 8-K form shows a growth rate of 23%, so we estimate the growth rate of membership in 2012 is the same as the first quarter, and the total members of Zipcar will be 0. 824 million.
With the estimated revenue per member, we will have estimated revenue as $289. 22 million. Be conservatively, we assume Zipcar hold the same profitability as 2011, the estimated loss will be $2. 1 million for 2012, increased from $1. 953 million in 2011(Exhibit 2). From the financial perspective, we use the PB ratio and PE ratio to estimate its growth rate. In the assumption, we use the 10-year Treasury bond rate as Risk Free rate as 1. 89%. For the equity risk premium, forward looking approaches, as well as more recent historical data, suggest an equity risk premium in the 3 to 5 percent range.
So we choose 3. 2% in this case. What’s more, we get the Beta as 0. 102 by using last one year’s monthly data of Zipcar’s historical price and the NASDAQ-100 stock index (Exhibit 3). In this way, from Exhibit 4, we get estimated growth rate from PB ratio as 6. 9%, estimated growth from PE ratio as 4. 5% and sustainable growth rate of (12. 9)%. These numbers support our forecast in accordance with the accounting data. Zipcar do have to solve its problem of cost management in operation and financing activities.
On the other hand, the stock price of Zipcar plunges since the beginning of 2012, reflect the investors’ negative expectation for the value of the company, considering the increasing fuel expense and appeals of buying a new car with huge cash discount from dealers and manufacturers and so on. Zipcar must provide solid performance, improved profitability of company, growth of memberships, a variety of new services and reasonable dividend policy in the future, to attract investors to buy in their stocks.