Zipcar IPO: Antitrust, Oracle, No Profits & Other Tidbits from the S-1


The decade-old car sharing provider Zipcar (s ZIP), (one of our 10 greentech IPO picks) officially filed to raise $75 million in an IPO today. If you’ve been following Zipcar over the years, you know the company already stands as the heavyweight in a fast-growing industry. But thanks to the S-1 filing — a gift of disclosure which keeps on giving — we have a chance to dig into some new and interesting information about the car sharing network’s road so far and game plan for what lies ahead.

Previously undisclosed details about Zipcar include potential challenges from the UK’s antitrust authorities, information about how the company handles all that data about its fleet, as well as the fact that the company has never turned a profit (you probably could have guessed that):

Current Footprint, Room to Grow: Zipcar operates now in 13 major metropolitan areas and on more than 150 college campuses in the U.S., Canada and the United Kingdom. As many as 10 million residents, business commuters and “university community residents” of driving age live or work within a short walk of a Zipcar vehicle, according to the company’s estimates, yet only about 400,000 people have signed up for membership.

Zipcar, which says it has identified upwards of 100 metro areas and hundreds of college campuses as “attractive markets for car sharing,” looks to provide its car sharing service in “large, densely populated markets with high parking costs and strong public transportation systems.” London looks especially appealing. Zipcar anticipates that the city, where the company has just expanded its presence through the acquisition of Streetcar, could become “one of the world’s largest car sharing markets based on its commuting characteristics, financial burdens of car ownership, demographics and other factors.”

Revenue and Losses: Zipcar reports rising revenue over the last three years, including $131.18 million in 2009  — up slightly from $105.97 million in 2008 and $57.82 million in 2007. Revenue hit $33.24 million in the first three months of 2010, compared to $25.76 million in the same period a year earlier.

The company’s net losses dropped to $4.67 million in 2009, down from $14.52 million in 2008 and $14.44 million in 2007. During the first three months of 2010, Zipcar saw losses widen to $5.33 million, from $2.97 million in the same period a year earlier. A fraction of Zipcar’s revenue has come from sales of zero emission vehicle credits provided through state emissions regulations. The company recorded $3.3 million in 2009 from zero emission vehicle, or ZEV, credits sold to an unnamed third party.

Red Ink: As of March 31 of this year, Zipcar recorded outstanding debt of approximately $29.9 million, including $2.5 million on vehicle leases. The company says it has accumulated a deficit of $56.4 million since inception. Revenue per member on an annual basis has dropped to $429 in 2009, from $496 in 2008 and $522 in 2007 — a decline attributed in part to “the impact of economic conditions.” In the first three months of 2010, revenue per member amounted to $96, down from $92 in the same period a year earlier.

Reining in Forecasts: The research firm Frost & Sullivan has forecast that revenue from car sharing services could by 2016 reach up to $3.3 billion in North America and €2.6 billion (about $3.2 billion) in Europe, up from up from $253 million and €220 million ($269.7 billion) in 2009, respectively. Zipcar’s just slightly less optimistic, noting that it expects “the Frost & Sullivan market forecasts are more likely achievable by 2020.”

Behind the Scenes: Zipcar’s primary data center is located in Somerville, Mass., and it has a secondary data center in the UK that “can be brought online in the event of a failure” at the Somerville center. Zipcar spent a few paragraphs in its S-1 on the importance of cyber security, explaining that its reservation system software and data centers, are protected with “industry-standard commercial antivirus, firewall and patch-management technology,” are designed to “maintain real-time communication with encrypted message protocols and credit card data.” Zipcar writes in its S-1, “During the 12 months ended March 31, 2010, we processed over 2.6 million reservations and our reservation system was available 99.99% of the time.”

Building on Oracle: Zipcar says it has built its platform for managing reservations, vehicles and payments in multiple currencies using open-source web applications and a foundation provided by Oracle, which Zipcar believes gives it the flexibility to grow to global scale. Zipcar aggregates data about reservations and member services and feeds it into a centralized Oracle database for tracking and analysis meant to improve the allocation and availability of vehicles in its fleet.

The Streetcar Deal: Zipcar acquired buy UK car sharing network Streetcar earlier this year in a deal valued at the time at around $50 million. According to Zipcar’s S-1, the preliminary purchase price came to an estimated $62.2 million, including 8.2 million shares of common stock of Zipcar (valued at $43.1 million), $7.6 million in cash, $5 million in promissory notes and warrants to purchase 1.6 million shares of Zipcar’s common stock (valued at $6.5 million). Zipcar anticipates the estimated purchase price could increase or decrease by about $4.9 million, however, depending on the valuation of its common stock as of the April 21 acquisition date.

Security Risks: Zipcar anticipates that the process of integrating Streetcar’s information technology systems into the existing Zipcar systems “may complicate our information security efforts and could result in security vulnerabilities that we would not have had but for such acquisition.” The company notes that it deals with sensitive information including credit card and drivers license numbers, and it processed some 2.5 million reservations through its system in 2009 alone.

Rising Number of Lawsuits: Zipcar notes that it has “seen a rise in the number of litigation matters” brought against the company as it has grown over time, most of them related to incidents involving Zipcar members driving vehicles in the company’s fleet. The company has also been named in a class action lawsuit, and it has filed a motion to dismiss the complaint.

Streetcar founders Andrew Valentine (left) and Brett Akker (right) with Zipcar CEO and Chairman Scott Griffith (center).

UK Antitrust Authorities Sniffing Around: Zipcar’s move to acquire Streetcar, the UK’s largest car sharing provider, has caught the attention of antitrust authorities. The UK’s Office of Fair Trading, or OFT, sent Zipcar a letter last month seeking information information to allow the OFT to determine whether it’s entitled to review Zipcar’s acquisition of Streetcar. In the meantime, Zipcar says the agency has asked that Zipcar hold the two companies separately, potentially delaying or utterly derailing integration of the Zipcar and Streetcar.

According to the S-1, the OFT’s inquiry must be completed within about four months of announcing that it will undertake the review. Once the review is complete, then the agency can urge the UK’s Competition Commission to take a closer look at the transaction. Zipcar acknowledges that:

“If this were to occur, integration of our operations could be significantly delayed, and any synergies we expect to obtain from the acquisition could be delayed, if realized at all. The Competition Commission could, in its discretion, ask us to unwind the transaction if it determined that the transaction may result in a substantial lessening of competition in any relevant market in the United Kingdom. If this were to occur, our financial results would be adversely impacted.”

Dealing With the Toyota Recall: Large scale vehicle recalls could put a serious dent in Zipcar’s revenue. The company got a taste of that earlier this year, when concerns about certain Toyota (s TM) models prompted Zipcar to prohibit members from reserving Toyota Matrix vehicles in the 2009 and 2010 model years, as well as the 2010 Toyota Prius, while waiting “for Toyota to issue a resolution to the accelerator malfunction.” In the event of recalls simultaneously affecting a large number of vehicles (or of needed replacement parts being in short supply), Zipcar notes that it may not be able to keep the the recalled vehicles in circulation “for a significant period of time.”

Sizing up the Competition: Zipcar sees three types of competitors, including conventional car ownership, rental car companies and other car sharing providers. The company considers “traditional rental car companies that have recently begun car sharing services,” to be its main competition in North America, given their better-known brands and heftier “financial, technical and marketing resources,” which could allow them to undercut Zipcar on cost. Zipcar sees local and regional car sharing providers (both for-profit and not-for-profit) as secondary competitors.

FastFleet Off to a Slow Start: Zipcar’s software-as-a-service product for fleet management, which launched late last year with the name FastFleet, has been picked up so far only by government agencies in Washington, D.C. and Wilmington, Delaware. Zipcar says it has “a dedicated marketing group that is targeting additional government agencies and businesses.”

Images courtesy of Zipcar

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Mobility on Demand Takes Aim at Transit Networks’ “Last Mile”

Location-Based Services: From Mobile to Mobility

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