June 17, 2024

DealBook: Zipcar Soars in Market Debut

8:49 p.m. | Updated

For a few hours on Thursday, Times Square resembled an auto showroom.

The Nasdaq building loomed over brightly colored Mini Coopers, branded with green Zipcar logos. Scott Griffith, Zipcar’s chief executive, posed for photographs in a yellow car as the company celebrated a long-awaited initial public offering.

“I think we’re a company whose time has come,” Mr. Griffith said. “Certainly the window is open, and we went right through it.”

In an positive sign for the I.P.O. market, shares of Zipcar opened with a jump of 67 percent before settling to record a 56 percent gain on their first day of trading.

It was quite a standing ovation for a decade-old company that has yet to turn a profit.

Zipcar was not the only new stock to be warmly welcomed by investors on Thursday. Shares of Arcos Dorados, an Argentine-based chain of McDonald’s restaurants, surged 24.7 percent, to close at $21.20. The company, whose name is “golden arches” in Spanish, is the world’s largest McDonald’s franchisee, with 1,755 restaurants in 19 countries and territories in Latin America and the Caribbean.

Such big one-day pops are more evidence that the I.P.O. market, which was moribund during the financial crisis, is reviving.

So far this year, 40 initial public offerings have come to market in the United States, with proceeds exceeding $16 billion — more than double the amount in the same period for 2010, according to Renaissance Capital, an investment advisory firm. There are 154 companies in the I.P.O. pipeline, hoping to raise $35 billion.

A Zipcar outside NASDAQ on the car-sharing service's stock debut.Mike Segar/Reuters A Zipcar outside the NASDAQ on the car-sharing service’s stock debut.

Still, analysts caution, investors are not sinking money into I.P.O.’s indiscriminately.

Two other companies priced their offerings Wednesday night and went public on Thursday: the shipping company Box Ships and the steel services provider TMS International. Even though both priced their shares below their expected range. Box Ships ended the day down 8.3 percent, and TMS closed down 7.7 percent.

“Investors are not looking at these I.P.O.’s with starry eyes,” said Kathleen Smith, a principal at Renaissance. “Investors are being very selective; Zipcar is trading well because it is establishing a new market and they are profitable in a number of their early markets.”

Zipcar, while it is in the car rental business, may be a preview of how other technology I.P.O.’s will fare this year, some analysts say. The company is a consumer-oriented service with an extensive technology platform that incorporates smartphones with its mobile application.

Technology public offerings have performed reasonably well this year. The content provider Demand Media rose 33 percent on its first trading day, although shares have pulled back since peaking in March. And several highly anticipated offerings, like LinkedIn and Skype, are still in the pipeline.

“I would expect that there will be a lot of companies that look at this successful offering and make plans for follow-on offerings,” said Robert C. Kagle, a Zipcar board member and partner at venture capital firm Benchmark Capital, one of Zipcar’s first major investors.

In addition to Benchmark, Zipcar’s main investors are Revolution, led by the AOL founder, Stephen M. Case; Greylock Partners; and Smedvig Capital. Together, they own 36.7 percent of Zipcar. Revolution, which sold a portfolio company to Zipcar in 2007 for stock, remains its largest shareholder, with a 17.7 percent stake.

Zipcar is a capital-intensive business, with more than 8,000 vehicles across the United States. The service, which is most active in cities like Manhattan, Boston and San Francisco, requires users to sign up for an annual membership. Once enrolled, drivers can reserve cars, often located in public parking lots, and pay by the hour or day, with insurance and gas included.

The company, founded in 2000 and based in Cambridge, Mass., has blossomed into a popular service, operating in 14 major metropolitan areas with 560,000 members.

But Zipcar is not yet profitable.

According to a recent filing, Zipcar posted a net loss of $14.1 million in 2010 and a loss of $4.7 million for 2009. The company, which has accumulated losses of $65.4 million, said it did not expect to be profitable this year.

Still, revenue is growing. Sales rose 41.9 percent, to $186.1 million, last year. In its filing, the company said it planned to use the proceeds from the I.P.O. to pay down debt and for general business expenses.

Part of the reason Zipcar is saddled with losses is its aggressive campaign to build its network and thwart rivals, like Hertz, which started its own car-sharing program, Connect, in 2008. Zipcar is now in Canada and Britain, where it recently purchased Streetcar, a London-based competitor, and it is planning to open in two to three major markets a year, according to Mr. Griffith. Each new market requires significant overhead and then it requires about three years to reach breakeven. Still, Mr. Griffith said he was comfortable with the company’s trajectory.

“We’re taking a lot of actions to march towards profitability,” he said. “We’re integrating the acquisition, we’re going to reduce our debt quite a bit, so that will help move us in that direction, and we’re getting more leverage as our network grows.”

This post has been revised to reflect the following correction:

Correction: April 14, 2011

An earlier version of this post included incorrect earnings for Zipcar. The company reported a loss of $14.7 million in 2010 and a loss of $4.7 million for 2009.

Article source: http://feeds.nytimes.com/click.phdo?i=522097e9ddd58d93e3b304b2e03b0b9a

Speak Your Mind