I’m looking at this for a potential long. Longs aren’t my thing. I tend to focus on the negative and the risks. I always thought this business was a great idea. I think Millenials would rather spend money on an iPhone vs a fancy new car. So this just makes sense to me in the future when we don’t have enough money to afford cars, especially in major urban areas.
I’ve never gotten to use the service. So would like input from those of you who have.
If you live in an urban area 9 dollars an hour for a car rental seems like a solid deal to me considering you would pay much more to take a taxi. Hell, if could just drive myself to JFK for 9 dollars that would be an improvement over paying some guy from the third world 60 dollars and then another 10 in tip.
Earnings: Not particularly great here lately or in the near term. This is why the company isn’t trading at a big multiple. But there are plenty of expensive companies not making any money trading at huge multiples.
Market Cap: Only around 600 million dollars. Cheap enough to be bought out buy a competitor especially if it dips further.
Problems:
1) Goodwill. Having a look at their BS I noticed a very large amount of Goodwill. Looking at the footnotes it appears it has mostly to do with an acquisition of Streetcar (UK). It’s a little more than a third of their Total Assets. No idea how to interepret this. But it would appear they overpaid.
2) Capital Leases: They got tons of these. Lots of risk there. Lots of fixed asset risk in general.
3) Competition. Although, their lack of profitability shouldn’t warrant much.
Good things:
1) Increasing Sales
2) Expansion possibilities. It seems a lot more people could be using this service than are currently doing so.
Some Science Fiction:
With Google now testing their automated cars in Nevada. I would love, love, love them to buy out zip car. With the right engineers working together on this it could make life a hell of a lot better.
You could order the car right to your door on your smart phone instead of needing to walk to the wherever the car is parked. No Pakistani driver needed. No tip required. Siri, drive me to the airport. No more yellow cabs ever again.
I dunno, dude. I’m a complete value investor cheapskate, so I rarely look at anything ‘sexy’, but I took a look. A few things I notice:
-Company’s growing sales at 35%, but most of this is purchased through acquisitions. That is expensive growth. I am almost 100% certain that any Zipcar exec would say, “Well, we’re not just buying sales, we’re establishing a network and scaling up the business and eliminating future competitors and attaining critical mass.” That may be, but ‘purchased growth’ needs to overcome a very high hurdle rate in order to be ‘worth it’. They appear to be paying pretty hefty premiums for the companies they’re buying. If that can’t finance these acquisitions internally (see below - doesn’t look like they’ll be financing much of anything till they turn profits), then the company is either going to be levered up further or shares you buy now are going to be diluted when they issue more. I’m not keen about either of those possibilities.
-As far as I can tell, ZipCar hasn’t turned an operating profit yet - or an accounting profit, for that matter (as judged by a quick read of their recent10-Q, 10-K and initial S-1). A roll-up strategy can be a great move, but I really like to see that the company doing the buying of its competitors is also the low-cost / most profitable operator. That’s probably not the case for Zipcar, but I’d want to compare them with some of the less sexy car rental services like Hertz, Avis, and so on to see just how profitable this business can be. Yes, I know, building a customer network / scaling up the business / heightening brand awareness / critical mass blah blah blah whatever. I really have a special loathing of companies that go public with only operating losses - taken as a category over the course of history, fast-growing-companies-with-operating-losses have absolutely crushed investers, historically.
-Valuation’s still high for me - despite a 60% drop over the past year. At present, you’re paying about 3.7x tangible book for this company, which is a lot to pay for a company that has only ever lost money, to date. You might say that book value isn’t the best yardstick for this company, but I would disagree there - this is an equipment rental company sorta built on a gym-membership model. The assets matter quite a bit, as does membership figures, as does the utilization rate of those assets - just like a gym. Incidentally, CTRL+F “utilization rate” didn’t turn up anything, but maybe they disclose their fleet usage statistics somewhere else?
I could do some further number crunching and see what expectations the street appears to have baked-in to the stock price at present, but honestly, I’d just pass until the price comes down further. At 2x tangible book, you might get better long-term results, but frankly, even then I wouldn’t love it. All-in-all, I’d steer clear of this. I may be proven wrong by history, but on balance of the probabilities (and what is investing but weighing probabilities and comparing them to price?) I see more to dislike about the stock at $10.65 than I do to love.
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I actually helped file the 503c for a non-profit competitor to ZIP, so have a good handle. I think that it is a good business model, but the difficult part is maintaining the quality of the inventory while not pissing off the customers. So, as opposed to a rental car agency that charges a bunch of money for a larger chunk of time ZIP shortens the duration of the leases. Fine, but the issue is that with greater driver turnover it can be easy for someone to mess up a car and for the damage to not be detected until well after the fact.
“Some people make shoes. Some people make houses. We make money and people are willing pay us a lot to make money for them.”
So what you’re telling me is we’re on the verge of Johnny Cab? The future is here.
Now get your ass to Mars.
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We’re already there. I’m certain the only reason Google hasn’t announced it is because they know they have to push this through a million different safety, legal, union, government redtape and prove to insurance companies that it is actually safer to not have a pakistani talking on his bluetooth device to his terrorist buddy driving our yellow cabs.
I’ve been to Pakistan. I know how these guys drive. I’d much rather have google drive for me than a pashtun looking to martyr himself on the FDR.
Next, we’ll have chicks with three nipples. Progress!
Formerly ChickenTikka - Member of the Order of the Righteous Rusty Hacksaw
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Yep there are bunches of these: i-Go
Think I’d rather just pay a competitive price than deal with hippies.
Formerly ChickenTikka - Member of the Order of the Righteous Rusty Hacksaw
Wats gonna become of my people then? :(
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According to David Ricardo, the increase in technology will allow them to get retrained and get even better jobs.
Formerly ChickenTikka - Member of the Order of the Righteous Rusty Hacksaw
I have been short since $14 and am enjoying a nice gain. There is nothing particularly brilliant about my short thesis, it’s just that the math does not pencil on ZIP and I think management is overly bullish and in the process of falling on their faces (which as of the most recent quarter appears correct).
At $14, the company was trading at 7x tangible book. The goodwill is irrelevant, you need to look at tangible – all the goodwill demonstrates is that they got bagged when they bought a competitor(s).
Who in their right mind would pay 7x tangible for this company? What do they have? They have some depreciating branded cars and some locations, which do not offer a competitive barrier to entry. And by the way, the competition is coming for them in a very public way. You have the CEO of Hertz publicly saying that they will beat ZIP with better economies of scale and a larger fleet. It is happening already and will continue to happen through FY12-13 as HTZ installs electronic gizmos in their cars and further rolls out their huge existing fleet into per hour rentals. They’ve had some problems with the website but it’s their market eventually, or their’s and Avis, etc., etc.
I do think ZIP will have a place in the market, but the company has not yet proven itself to be economically viable and the CEO is a clown show when he says that increased competition is going to help. Are you on drugs, dude? If you look at HTZ, the company already has very low returns on capital – ZIP is actually going to do worse over time most likely than HTZ given their small size. There is pretty much zero chance that increased competition is going to help them. The market is already established – everyone and their mom knows about Zipcar – so the idea that new entrants will expand the concept is delusional.
Someone might buy it out, but not at 7x TBV with slowing growth. Their Europe growth story sounds like a joke too – Europe has viable public transportation (unlike most of the US), so the market there is even smaller than in the US on a per capita basis, and people in Europe are gayer (a technical term – no stigma against riding Vespas and so on). I have not done serious work in the US but think it is likely they are overstating their eventual penetration rates. ZIP is a college and big city concept and NYC / SF / Boston / DC / etc. will probably saturate faster than most investors think, especially when competition starts. HTZ should gain share and create pricing pressure through brand / higher marketing budget / lower pricing scheme (including no up front fee). All of the people I know who use ZIP admit that they would just choose whichever service has convenient locations and lowest pricing (it’s a commodity at the end of the day). Some “Zipsters” will stay loyal, but most people don’t care. ZIP’s competitive response is going to be limited given that they are already not profitable and have a large amount of fixed assets and fixed leases.
I usually do much more detailed work than this, but ZIP seems like such a collossally bad investment at $14 that I was willing to take a small position “on form.”
Not sure where SuperSad is coming up with 3.7x TBV, since the recent 10-Q shows total equity of $222.6mm less 104mm of goodwill less 4.6mm of intangibles, for a tangible equity value of $114. Market cap today is $634 / 114 = 5.6x, which still seems very expensive. Maybe I missed something and it really is 3.7x, but that’s still too high.
I would close out the short over the next couple of quarters if ZIP growth re-accelerates organically or HTZ does not make incremental progress.
I hate this stock and hope it goes to zero. Few stocks have ever inspired as much revulsion in me as ZIP.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
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Any chance this goodwill gets impaired? It’s european which has to count for double gilbert grape impaired these days?
I don’t like shorting something like this because of what happened with GRPN yesterday. They have one upbeat earnings session where management raises guidance and you lose your fckin shirt. I feel much more comfortable once their valuation is already > 10 billion because then it is hard for the market to just raise it another 5 billion.
Formerly ChickenTikka - Member of the Order of the Righteous Rusty Hacksaw
Agree strongly with your fundamental analysis. Agree on the tangible book portion. Where are you getting the market cap of $634mm? I just pulled it up on bloomberg when I had done this and just re-checked it now and have $398mm. That over our tangible book of $114mm gets us our 3.5x tangible book (stock price was $10.65 when I did this, so it was a higher multiple then). Am I missing something?
Not trolling, but genuinely can’t get to your answer with the figures I’m using. Are there more than 39.8mm shares out? That times our $10 closing price today gets me my 398mm market cap figure I’m using.
BV of equity of $223m is still less than mkt cap of almost $400m, so they still have a ways to go before impairment becomes an issue.
comment doens’t gel with goodwill impairment analysis. goodwill is impaired if the cash flows assumed in obtaining the goodwill has fallen materially over a period of time and are not likely to reverse.
you can basically do your own goodwill impairmen analysis based on ROI/ROA. just cause they didn’t write it down doesn’t mean its there…..
also, goodwill impairments doesn’t mean anything since it is after the fact and a non cash charge. if the company had written down 100% of its goodwill, that wouldn’t change the underlying existing business one bit…..
Frank’s correct, as far as I know. Goodwill impairment doesn’t have to do with where the stock trades relative to book. Goodwill impairment has to do with whether or not they’re earning an “acceptable return” on the goodwill. For a company like (everyone’s favorite example!) Coke, their goodwill really does earn a decent return - they’ve got a lot of valuable intangibles that don’t show up on the balance sheet, and these “hidden assets” enable the company to earn awesome returns on capital. For a company like ZIP, I would bit anyone here that every dollar of goodwill they have on the balance sheet is written down to zero within the next 5 years.
^ Actually, per what used to be known as SFAS 142, the first step a company needs to take to determine if a potential goodwill impairment exists is compare the fair value of the company to the carrying amount (book value). So, in this case, the FV>BV, therefore no impairment exists.
I haven’t done a thorough analysis of ZIP, but if the company is broken into multiple reporting units, that changes things. But testing for goodwill impairment with single reporting unit companies with an observable market price is as simple as I just described. It would typically be expected that a company (or the valuation firm that they hire) use other approachess to confirm that the quoted price is reasonable and should be relied upon, which very likely will consider the expected cash flows, but having done this work professionally for way too long, I can say with certainty that it is rare that the expected cash flows would produce a value much lower than the mkt cap implies.
Good catch. I use a FactSet datastream that populates into a custom template. Did not check with Bloomberg, but did do a quick check on Google Finance when I initially went short (have a shared Bloomberg in another room that I don’t always feel like waiting in line for). Interestingly both FactSet and Google are wrong with the same numbers. If you go to Google right now you can see that the stock is trading at $10.05 with diluted shares of 63.43mm for a market cap of ~$640mm, which is a P / TBV multipe of 5.6x. Prior to the decline it was closer to the mid-800 range (on these apparently wrong numbers), which was a 7x TBV multiple.
I actually think your numbers are correct but I am not sure why two sources have the same incorrect data (which is troubling, I will need to start triple checking everything from now on haha).
Doesn’t really change the thesis much, as the stock is still expensive at 3.7x. I am going to remain short for now, though this clearly has a lower margin of safety on the short side. The best shorts occur during the rotation between investor “camps” as momentum and growth players dump shares due to slowing momentum or disappointing growth, but where metrics remain too high for value players to get involved. ZIP clearly fits that category and the stock cannot get out of its own way as fast money investors puke the shares. How much longer that continues remains to be seen (although clearly the chart shows the trend is ongoing). The Street has some crazy numbers out there (one analyst has 2018 estimates that show the company doing 1.3B of revenue with 230mm of EBITDA – are you freaking serious Oppenheimer?! Who forecasts out that far??? lol), so I don’t expect the stock to get down to 1x TBV any time soon (which still may not be a value) until the numbers are proved to be patently false (if they are proven that way). That said, some “value” investors will likely step up to the plate at some point, possibly in the 2x+ book range. And of course if growth re-accelerates the stock will go up regardless of the valuation.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
Ah, mystery solved. Thanks for explanation. Good luck on your trade - keep us posted here. I don’t think I’d ever buy ZIP (at least not in the foreseeable future) but I am very interested in how the stock performs, as it’s an interesting gauge of market sentiment. As for myself, when stuff like ZIP and GRPN start going public, I get reaaaaaaaaaally leery.
I agree, I think the IPO market is one of the best leading indicators of future stock market performance. The stuff that went public in 2007 would make your head spin – Greek shipping companies leveraged to the hilt, SPACs that did incredibly stupid things (one that I remember being named Asia Time Corporation or something like that managed to blow up and I think was a complete wipe out – who buys a watch parts company in China with a SPAC? lol), etc., etc. I did a project post-Lehman in which I looked through all of the 2006-2008 IPOs to find orphans (good companies with no analyst coverage that were dumped en masse during the panic). Most were dogs but there were some real gems as well. In general, stuff that goes public and blows up within the first 2-4 years is a good place for value investors to look (not the ZIPs and GRPNs of the world though).
I’m wondering if the ZIP thing might be due to some shelf registration or something as they are likely going to have to raise equity soon and may have filed for that. It could be that the 63M is the DILUTED diluted count for the post-secondary offering. That’s all I could think of. Did not scan through for a shelf though so that may not be the case. Can’t think of another reason that two data sources would have the same wrong number.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
could be float vs. outstanding…..
either way….what do you value investors like at the moment? i’m in the charlie munger type so i don’t buy into cheap stuff for the sake of cheapness which i find most value guys do….
indeed, but will they allow one way rentals and airport dropoffs ?
amen to that
———————————————– Trust God and keep your powder dry ———————————————– Southern by the grace of God
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I like ZipCar but they don’t offer any cars with standard transmissions and the prior borrower almost always never leaves any gas in the thing.
NO EXCUSES
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http://www.trefis.com/stock/zip/articles/126582/car2go-arrives-to-challenge-zipcars-dominance-in-toronto/2012-06-15
This is probably not the definitive source of anything, but according to this website competition is heating up. Does anyone know how long ZIP is locked into its contracts for rental locations?
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
I love reading your posts, reading this one brought up an important question for me, when investers are using a tangible bv multiple to assess the relative value of a company what yardstick are they measuring it by. I assume comparable multiples vary amongst industries, is this true? Where do you find comparables for industries?
Thanks for the nice comment. Glad people read my wall-of-text posts.
Multples vary by industry, yes, but not as much as something like p/e or some other metrics. P/Es can also get fantastically distorted via one-time charges or a bad couple of quarters, so they bounce around a lot. One of the reasons that most value investors like P/tangible book is that it’s much more clear what you’re getting, and the metric will change over time much more slowly. P/Es can get hugely varied - some terrible companies out there deserve low single-digit multiples, and others deserve ones that are well in excess of 20 or even 30. So it’s possible that you’d have P/Es that are orders of magnitudes different [i.e. one company has a p/e of 3 and another, 30]. Price / tangible book doesn’t seem to vary that much - typically, you’ll find that price to tangible book stays in a narrow range of somewhere from 0.5x up to maybe like 2 or 3x? If it’s lower than that, you may be looking at a business in serious trouble, and if it’s higher than that, then it’s probably a business with some kind of competitive advantage that you haven’t factored in, in which case P/tgbl book may not be the best metric for it.
Comparable multiples vary among industries - yes, but it’s not as wide a spread as you’d think. Firstly, BV is usually far slower to change. Secondly, if you’re bothering doing the p/tangible book ratio, it’s because it’s a business where the tangible assets matter - if the company wants to grow past a certain point, they’re going to need to add capital. That’s not quite the case with Google, or Facebook, or Microsoft - these companies realize huge growth with very, very little additional capital. However, business like cement, or ball bearings, or copper wire, or whatever - these are almost always lower-return, capital intensive, plain-old-boring businesses that a lot of value investors end up looking at, and the amount of tangible assets that the company has to their name (and their condition!) matter.
Where do I get my comparables - I go and I hand pick comparables, and then I compute the numbers myself, in spreadsheets. Seriously. I know you can get info from bloomberg and factset, but I’ve had terrible experiences trusting the “comparable company metrics” from Bloomberg. I work in the small and microcap universe and most of our companies are extremely specialized. I will sometimes punch one up and see who bloomberg lists as comparables and I’m just blown away at how “off” the competitors they list are. So yeah, I typically wait until I’ve done some of my research, and then I decide who the “true” comparables are, and then I’ll go and put together my excel stuff around the 3-10 companies who are in similar lines of business.
I use a zipcar competitor called Car2Go. I live in Austin, which was their second city to launch into. We have zipcar here too, but I’ve never used it.
Car2go is basically a bunch of SMART cars scattered around the city. If you’re within a 15 mile radius of downtown, there is one within a quarter mile walk of where you are. You can track them on your smartphone and they are easily identifiable because they are all blue and white. I absolutely love the service, and I actually own a car. I can drive one downtown for about $6, and park it for free in one of the designated parking spots. There are gas cards in the car in case you need to fill up. I paid $25 to sign up for the service, and other than that I just pay when I use it.
Its definately a service for quick trips or the spontaneous ride. There isn’t much of a public transportation system to compete with it here. I think this business model works very well, and as far as I can tell, they’ve been experiencing some good organic growth beacuse they’ve added to their fleet and spread to other cities around the world.
Zipcar seems like more of a rental service. I have no idea where or how you pick up a car, but one thing they’ve missed is having the cars be easily identifiable. I see a tiny logo on a random Toyota every now and then, but I wouldn’t know the difference between it and any other car. Seems like zipcar requires some planning and you can’t just randomly decide to pay $5 for a quick ride.
Just curious. I’ve always liked the P/BV multiple (tangible BV) for making comparisons, but only if the book value is not based on historical cost. For businesses with quickly depreciating assets, I’d guess that the BVs are closer to their MVs than those with longer average lives.
But I just don’t feel I know enough to do the adjustments for replacement cost vs. historical cost. How do you guys go about doing the adjustments? Do you just assume that historical cost is close enough? Do you just know your industry so well that you can figure it out? Is there some other way?
You want a quote? Haven’t I written enough already???
I think, and I may be out to lunch on this, the beauty of using historical cost BV for a company which decides to be more aggressive in the selection of their depreciation method is that the understated book values relative to MV or RC adds more of a margin of safety in a value investors assessment of the value of the company.
As for calculating the actual replacement cost and doing the adjustment, I have no idea and wish I knew myself. I am looking at a company that IPO’ed as an income trust in 2003 and blew up during the housing crash (its steel fabricator that sells fasteners for residential construction) The equity of the operating company is slowly being eroded and it will require another round of recapitalization again, if they decide to continue operating. The thing that intriques me is that the market cap is only around 6 million dollars and I can see the land one of their factories sits on from my apartment, its prime waterfront property. Under it’s current industrial zoning it would be worth 1-2 million an acre, but if they rezoned it high rise residential it would be a multiple of that and the factory is surrounded by multifamily residential, commercial on both sides of it. I just have no way of determining what an appropraite adjustment to the land value is, they bought the property in the 1960’s.
i don’t use BV unless its for insurers and banks……..
I just got back from a road trip across Texas (no zipcar, but I did rent a sick Mustang convertible for the drive). IMO Austin is one of the best cities in America – definitely in my top 3. I’m very jealous you live there. I stayed at the W Hotel on 2nd Street – fantastic area. Would move in a second if I could get a good finance job there.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
Historical cost is the most common reporting method for public companies. Rarely do I see market value assessments. You are correct in stating that one of the key questions is whether the deprecation rate is fair / accurate.
The answer to your question is fairly simple but the actual execution to derive sensible numbers is difficult.
Approach 1: You can call the company, hope management is honest, and make a back of the envelope determination of market value vs. cost and then try to support that with some light industry research / common sense. If there is a wide delta, you may have a decent long.
Approach 2: You can do extensive industry work including talking with suppliers, etc. to become an expert and understand the specific economics of the items within each line item (assuming you can get a break down from the company or the buckets are fairly self explanatory) and do a bottom up build out that way estimating fair value.
Either way, the only thing you know for sure is that your estimates will not be exact and may be off significantly. I would think you need a 50%+ discount from NAV to want to get involved in some kind of scenario like that to account for estimate error. It’s not my cup of tea due to the propensity for dishonest from management (rampant in smaller cap names where you are likely to encounter such a scenario), but I have seen successful investments made this way. It’s hard to execute on that line of questioning because you sound like a “private equity guy” and management tends to get a little nervous with such questions unless they know you well.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
RAGING mother fuckers on the short side.
Basically, this: http://www.youtube.com/watch?v=rY0WxgSXdEE (safe for work)
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
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