DETROIT -- Wall Street has accepted the concept of car-sharing, but questions remain on whether many Americans are willing to forgo car ownership.
Zipcar Inc., the largest car-sharing company in North America, emerged from its initial public offering Wednesday with $174.3 million, thrashing analysts' expectations and the car-sharing company's own intentions.
After Zipcar's first day of trading Thursday, the company has a market value of $1.12 billion, Bloomberg reported today.
Zipcar offers car sharing by the hour to members in 50 cities in the United States, Canada and the United Kingdom and on 150 college campuses. It owns and operates an 8,000-vehicle fleet representing 30 makes and models, including hybrids and pickups.
Between 1994 and 2008, 50 car-sharing programs began in North America, of which 33 were still operational, according to a study by the University of California, Berkeley. In July 2008, the active companies claimed more than 31,800 members, the study said.
To put the expansion of car-sharing into perspective, Zipcar now claims 500,000 members in North America and the United Kingdom.
A hit on Wall Street
With numbers like that, Wall Street took notice this week.
In early April, a Zipcar filing with the U.S. Securities and Exchange Commission said the company sought to raise $89.2 million, offering 8.3 million shares at $14 to $16 per share. Instead, it sold 9.7 million shares at $18 each, according to a company release. The main underwriters on the deal were Goldman Sachs and J.P. Morgan.
Because Zipcar offered 6.7 million shares and investors offered 3 million, Zipcar itself will not realize the entire $174.3 million brought in by the IPO. According to investment advising firm Renaissance Capital LLC, Zipcar stockholders will take home 31 percent of the proceeds, or $54 million. This would leave $120.3 million for the company.
One of Zipcar's major investors is America Online co-founder Steve Case, whose venture capitalist company Revolution LLC owns about 18 percent of the company, according to Bloomberg. That would make his stake valued at $199 million, the wire service said.
The company did not respond to requests for comment.
In a release issued Thursday on its Web site, Zipcar said it intends to use the net proceeds from the offering for repayment of certain debt, business expansion and working capital.
Zipcar shares opened for the first day of trading Thursday, and began trading at $29 on Nasdaq, 61 percent higher than the IPO price. Shares closed the day at $28.00.
Today, Zipcar stock closed at $27.16, down 3 percent from Thursday's close.
Still in the red
Despite its IPO success, the Cambridge, Mass., company has not turned a profit since it was founded in 2000. Zipcar reported revenue of $131.2 million in 2009 and $186.1 million in 2010. But high operation costs led to net losses of $4.7 million in 2009 and $14.1 million in 2010.
Mary-Beth Kellenberger, an automotive and transportation analyst with Frost & Sullivan, says Zipcar's operating losses are not unusual for a company that has had to create a market from the ground up.
"They've been doing this business for about 10 years and they're the ones who've had to slog it out and grow the interest and knowledge and awareness of car-sharing from the beginning," Kellenberger says. "Other companies that are coming into this market are certainly capitalizing on what they've done."
Although investors may be convinced of Zipcar's viability, Kellenberger says the company still needs to prove it can convince a significant number of Americans that they don't need to own a car. There is a strong opportunity to grab favor with older consumers who don't need a car full-time, and with young adults who prefer to travel around and don't want the burden of car ownership, she says.
Ultimately, acceptance will come down to convenience and cost-effectiveness, Kellenberger says.
"What we have seen, there's certainly enough interest in the business model and the type of service they're delivering," she says. "In this case, what you're trying to prove to the average vehicle driver is that there is a cost savings so significant that it's worth altering your behavior completely in order to capitalize on major savings or lifestyle changes."