Zipcar Misses Out On $50M In IPO (ZIP, GS, JPM)

The popular car-rental service Zipcar ZIP is feeling the pain of shoddy underwriting. JP Morgan JPM and Goldman Sachs GS underpriced the deal costing the company $50 million as the price soared almost 70% above the IPO price. The underwriters sold Zipcar shares to institutional investors for $18 and it is currently trading around $28. Zipcar is unique because users can rent cars online months in advance or just minutes before a car is needed. Users must first be approved which usually takes less than a day to process. Zipcars are popular in large urban areas where it would be extremely costly to own a car and deal with the inconvenience of parking. Zipcars are also popular near college campuses where many students choose not to bring a car or are not allowed to due to college policies. Zipcar posts reasonable prices from $8 to $9 an hour or up to $72 a day, including insurance, gas, and 180 free miles. Not a bad deal. So how badly did JP Morgan and Goldman Sachs fail in their assessment of its popularity and value? Perhaps based on the financials, $18 a share made sense, but the underwriters likely underestimated the company's appeal and unique niche in the industry. The simplicity, accessibility, and affordability have allowed Zipcar to expand throughout many cities and even into the United Kingdom. While financials are important, it is crucial that underwriters assess other, non-quantitative aspects that add value to a company. Zipcar has successfully tapped a market for those who do not have use for car ownership and wish to make the car rental process as quick, cheap, and efficient as possible. Investors who were in on the IPO may be popping the cork on their fresh bottle of Cristal in celebration, but Zipcar has many challenges ahead. The company reports rising revenues since 2008 yet still reports operating and net losses and declares it expects a net loss in 2011 and cannot predict beyond that on profitability measures. Naturally, the company has high costs due to expansion efforts and once the infrastructure is in place, Zipcar can then start to thump its margins. Many individuals may be tempted to jump in on the action now, for fear of missing out on the “next big thing,” yet speculators may wish to proceed with caution. With an almost 70% return in one day, the probability of a similar return on day two are slim. Long-term investors on the other hand may consider adding this stock to his/her portfolio. With plans to expand into other cities and countries, the growth potential for Zipcar is huge. Neither Benzinga nor its staff recommends that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.