On Wednesday, Avis Budget Group (NASDAQ: CAR) announced it would acquire car sharing stock Zipcar Inc (NASDAQ: ZIP) for about $500 million, meaning it might be a good time to take a closer look at Avis and the remaining vehicle sharing players like Hertz Global Holdings (NYSE: HTZ) and AMERCO (NASDAQ: UHAL). However, an article in the Wall Street Journal pointed out that while car sharing has been revolutionary, it has not exactly been profitable for investors. In fact, three of Zipcar Inc's largest investors did not sell out in the IPO that sent the stock to $28 a share for a $1 billion market cap only to see shares hit as low as $5.90. A quick look at Zipcar Inc’s financials reveals that while revenue has been growing, the company also had net losses of $7,152k (2011), $14,125k (2010) and $4,644k (2009) for the last three reported years – hardly impressive, but margins have apparently been improving. One reason is the high capital costs required to operate an urban car sharing network which also requires huge numbers of members to make it more viable.
However, Nima Samadi, a senior analyst at IBISWorld, appeared on Bloomberg to say that he is more optimistic about Zipcar Inc’s future. That’s because Zipcar Inc can now use Avis Budget Group’s existing locations and fleet. Moreover and after Avis Budget Group failure to beat out Hertz Global Holdings to acquire Dollar Thrifty Automotive Group (NYSE: DTG) and its growing leisure market, it did not want to miss out on the growing car sharing market and its key demographic of young urban residents who tend to not own cars or can’t afford to in a slow economy. Avis Budget Group is up 93.7% over the past year and up 33.5% since the end of 2010.
So where does the deal leave Hertz Global Holdings? As the second-largest US car rental company by sales, Hertz Global Holdings launched Hertz on Demand in December 2008 in major global cities plus on a number of university campuses. In Hertz Global Holdings’ last earnings call, management did note that Hertz on Demand’s global membership was up over 170% to over 160,000 members, revenues were up globally over 70% thanks to 80% transaction growth in the US and utilization grew 11% in the USA and over 20% globally. Global revenue per vehicle also grew by over 15% on a fleet increase of 36%.
Investors should note though that on Wednesday, Hertz Global Holdings's $474,733,000 worth of 5.25% Convertible Senior Notes Due 2014 became convertible as the company's closing common stock price per share has exceeded $10.77 for at least 20 trading days during the 30 consecutive trading day period ending on December 31, 2012 (HTZ’s market cap stands at just over $7 billion). The notes will remain convertible until March 31. Otherwise and for what’s its worth, Cramer has been recommending Hertz Global Holdings – pointing out that Hurricane Sandy’s disruption of the rental car market in the Northeast (plus all of those privately owned cars that were destroyed) has led to higher rates. Hertz Global Holdings is also up 43.3% over the past year and up 7.7% over the past five years.
Finally, cars aren’t the only vehicle you can share. AMERCO’s subsidiary U-Haul International, Inc. rents U-Haul trucks and trailers plus offers self-storage rooms through a network of 1,450 Company operated retail moving centers and approximately 15,500 independent U-Haul dealers. In addition, U-Haul offers the U Car Share car sharing service targeted towards college students. AMERCO also owns the AMERCO Real Estate Company, Repwest (Formerly Republic Western) Insurance Company and Oxford Life Insurance Company – meaning its not just dependent on U-Haul plus the stock is up 45.7% over the past year and up 92.2% over the past five years.
The Bottom Line. It would appear that any form of car sharing is better left as a subsidiary or service of deeper pocketed companies like Avis Budget Group, Hertz Global Holdings and AMERCO rather than standalone firms like Zipcar Inc – something that investors should remember the next time a revolutionary concept has an IPO.