Car Sharing Industry
Boston University Student Research
This report is published for educational purposes
only by students competing in the CFA Institute
Research Challenge.
Date: Dec. 12, 2011
Zipcar, Inc.
Ticker: ZIP (NASDAQ)
Price: $14.28 (As of 12/09/11)
Recommendation: BUY
Price Target: $19.45
Earnings/Share
(Normalized to 42.48mm weighted average diluted shares outstanding)
Mar.
Jun.
Sept.
Dec.
Year
2008A
2009A
2010A
2011E
$(0.17)
(0.07)
(0.13)
(0.14)
$(0.08)
(0.04)
(0.12)
(0.13)
$(0.04)
(0.03)
(0.06)
0.02
$(0.05)
0.03
(0.02)
0.00
$(0.34)
(0.11)
(0.33)
(0.26)
P/E Ratio
NA
NA
NA
NM
Source: CapitalIQ, Student Research
GREEN LIGHT TO BUY ZIPCAR

We initiate coverage of Zipcar with a one-year price target of $19.45, offering a 36%
upside in comparison to a ten-year standard deviation of returns of the Small Cap
S&P600 Index of 20%. ZIP will maintain its position as the world’s leader in car sharing
through aggressive expansion into markets like Europe, growing membership at a
projected CAGR of 17% through 2016.

Zipcar’s value proposition will drive membership growth, which will in turn drive
revenues. Zipcar use is about 69% less expensive than owning a car, which is a strong
incentive for new members to join, especially when coupled with increasing costs of
living. We estimate Zipcar’s total revenue growth at 21% CAGR from 2011 through
2016, as a result of new members and increased vehicle utilization.

Increased utilization and growing fee revenues will drive margin expansion which
will boost earnings. Margin expansion will be driven by higher growth in fee revenue,
which we expect to reach 15% of total revenue by 2016, up from 14% in 2011. We
forecast EBITDA margin to be 16% by 2016, in comparison to 11% in 2011.

Zipcar’s strong solvency position provides room for additional expansion. With the
latest debt-to-equity ratio of 35%, Zipcar has an estimated 3.7% after-tax cost of debt.
The Company’s asset-backed security notes allow for lower rate borrowings, which can
be utilized for vehicle purchases. Zipcar has shown its ability to obtain additional term
loans of up to $40 million to finance acquisitions.

ZIP is an emerging story which makes it hard for investors to evaluate early in its
business life cycle, similar to a venture capital company. We believe this leads to a
misunderstanding of the Company’s potential and the low market valuation; however
when all variables are well considered, we are confident that ZIP is a BUY.
Market Profile
ZIP vs. S&P 600
(Apr. 2011 - Dec. 2011)
0%
-50%
Apr-11
Jul-11
ZIP
Oct-11
S&P 600
Source: CapitalIQ
52-Week Price Range
Average Daily Volume (USD mm)
Beta
Shares out (USD mm)
Market Cap (USD mm)
Institutional Holdings (USD mm)
Insider Holdings (USD mm)
Total Debt to Equity
Return on Assets (LTM, 3Q11)
Return on Equity (LTM, 3Q11)
$31.50/$13.87
0.36
1.17
39.3
561.2
233.1
19.0
0.35
0.3%
-7.8%
Source: CapitalIQ
December 12, 2011
CFA Institute Research Challenge
Car Ownership vs. Zipcar Costs
Per Year
$6,000
BUSINESS DESCRIPTION
Zipcar has grown revenues and membership rapidly but has so far made slow progress towards
profitability.
Cost in USD
$5,000
Zipcar, founded in 2000 and based in Cambridge, Massachusetts, operates the world’s leading car sharing
network. Zipcar went public in April of 2011 and has 72% of the car-sharing market share, which is only a
small decrease from its 75% market share in 2005 due to its continued domination of the industry. The
Company has achieved five-year CAGR of 48% in organic membership growth and the acquisitions of
Flexcar and Streetcar in 2007 and 2011, added an additional 11% to membership to each year.
$4,000
$3,000
$2,000
$1,000
$-
Private Ownership
Car Ownership
Zipcar
$4,733
$-
Zipcar
$-
$455
Public Transit
$720
$720
Taxi
$192
$384
$-
$200
Conventional Rental
Figure 1: Zipsters spend an average
$1,800 a year on transportation costs,
versus $5,500 per year for car owners.
Sources: Victoria Transport Institute, US
Dept of Transportation, Office of Fair
Trading, TaxiFareFinder.com
A key strength of the firm is the technology utilized in its operations.
Vehicles are reserved by phone, the internet, or through smart-phone applications and are unlocked with a
keyless entry card (Zipcard), using RFID technology. Fleet operations are supported by software that collects
real-time data on Zipsters and allows the Company to monitor vehicle usage and profitability.
As of 3Q 2011 the Company had operations in the United States, Canada, and the United Kingdom, and
about 650,000 members, 9,500 cars, 600employees, and a presence in over 130 cities including 15 major
metropolitan areas. Despite its revenue growing at a CAGR of 67% from 2005 to 2010, Zipcar is making
slow progress to profitability; net income margin of 1% was declared for the third quarter of 2011, but
guidance for 4Q2011 is for a net loss.

Services: ZIP provides an attractive value proposition for both individual and business
customers, which should encourage new members to join.

Fleet Rental: ZIP provides self-service vehicles in convenient locations for an annual fee of $60
plus an hourly rate of between $7.75 and $13.50 or a monthly fee of $50 and a 10% discount on
driving rates. Gas, insurance, and up to 180 free miles per day are included in the price. This results
in savings of about 69% versus owning a car, despite decreased convenience (see Figure 1 and
Exhibit 1 in Appendix).

FastFleet: “FastFleet” is a proprietary vehicle-on-demand software that ZIP leases to organizations
that manage their own fleet of vehicles, at a rate of $65 to $95 per car. This allows organizations to
track vehicles, analyze usage and diagnostic data, and improve efficiency, saving as much as
$1,250 a month per vehicle.
Monthly Loss Per Vehicle
$2,500
Revenue: $1,888
$2,000
SG&A
R&D
$1,500
Membership
Services
Depreciation
$1,000
Parking
$500
Insurance
$-
Gas
$(500)
Loss: 18.1%
Maintenance
$(1,000)
Figure 2: Zipcar currently experiences
an 11.5 % loss on each vehicle without
accounting for fee revenues, a loss they
need to address through increased
utilization.
Usage Revenue Per Vehicle Per Day
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
y = 0.013x - 503
R² = 0.722
Sep-09
Apr-11
Actual
Dec-12
Aug-14
Mar-16
Predicted
Figure 3: Historical revenue per
vehicle per day has been increasing.
Assuming a constant hourly rate of
$10, this means each car is being
used for more hours daily.
Cost Drivers: ZIP’s can distribute high fixed costs across its 650,000 members, and will increase
utilization to improve profitability.
ZIP achieves economies of scale through distribution of fixed cost such as gas, parking, and car purchases,
over its fleet (see Figure 2 and Exhibit 2 in Appendix). ZIP passes on gas price increases to customers, which
keeps its own costs down, while still offering a cheaper alternative to customers owning vehicles.
Increasing utilization per vehicle will lead to higher revenues per vehicle, which will mean higher
profitability as ZIP covers its fixed costs.

Revenue per vehicle per day is currently $65, which translates to utilization of 6.5 hours; both have
been increasing historically.

We believe this trend will continue as ZIP expands its corporate customer base, bringing more
weekday utilization (see Figure 3).

Additionally, we believe that management is capable of achieving their stated target utilization rate
of 9 hours, based on their record with past goals (see discussion of Management on page 4).
CUSTOMERS
Zipcar’s plan for increasing utilization includes a new focus on business and governments.

Individuals: Zipcar has traditionally targeted middle-class customers between the ages of 20 and
35, who do not own cars and live in densely populated cities. These customers usually utilize
Zipcar for weekend trips for social gatherings and shopping.

Universities: Zipcar operates in over 150 college campuses, offering car sharing to those between
the ages of 21 and 25 without the additional charges required by traditional car rental firms. As of
September 2011, universities make up 10% of the total revenue base.
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December 12, 2011
CFA Institute Research Challenge

Market Segments
(2011)
Universities
Individuals
Govts/Businesses
10%
Geographic Presence: ZIP sees increased profitability in established markets, but credible threat from
incumbents as it enters new markets. Zipcar targets cities with a large population between 20 and 40 years
old, with median household incomes between $34,000 and $72,000. Population density is a key factor for the
“established markets,” with an average of 10,590 people per square mile (see Exhibit 3 & 4 in Append ix for
Statistics on Zipcar cities).
35%
55%
Governments and Businesses: The Company partners with governments and corporations to
provide cars and fleet management services (FlastFleet). “Z2B” offerings have grown by 40% as a
share of revenues since 2005, with 10,000 small and medium sized businesses signed up as of July
2011. ZIP also offers reduced membership fees and weekday driving rates to companies and
governments who use ZIP’s fleet, providing a steadier source of income, since they use cars during
weekday hours when individual customers are not using them (see Figure 4).
Figure 4: Zipcar has a diversified
customer base and has been shifting
its focus to businesses. Government
and Business market shares are team
estimates.

Cities: The “Established”1 Zipcar cities are New York, San Francisco, Boston, and Washington
D.C. Revenue and net income in these cities have grown at CAGRs of 20.3% and 40.4% over the
last two years because of increased penetration and achieved economies of scale, especially with
regards to management and marketing costs.
o Zipcar utilization rates in San Francisco is higher than in other established markets, with
the city achieving weekday utilization of 5.7 hours, in comparison to 4.9 weekday hours
for the other three cities.
o We believe this is because San Francisco has embraced the collaborative consumption
trend ahead of other cities, and that this trend will continue to catch on (see discussion of
trends on page 4.)

Countries: North American and UK revenues have grown at a three-year CAGR of 40.0% and
301.8% respectively, with the big jump in UK revenues coming from the acquisition of Streetcar.
o In Canada, operations have been slow, according to industry consultant, David Brook,
who said in an interview we conducted that the Company has struggled to take market
share from Canada’s incumbent, Modo Carsharing.
o However, in the LTM revenue growth in Canada has been the strongest out of the three
countries, growing at 38.7% (13.4% and 26.0% in the UK and US respectively), showing
that while it takes time Zipcar can be successful in new markets with strong incumbents
(see Figure 5).
Geographic Market Segments
(2010)
17%
UK
6%
CA
77%
US
Figure 5: Zip is conducting an
aggressive expansion to increase
presence in other countries while most
revenues still come from the US.
MANAGEMENT
YOY Change in Executive
Compensation, Revenue
and Members
(2009=Base)
2009
2010
142
120.9
100
100
Tot. Compens. Revenue
154.7
100
Appropriate compensation and skilled leadership should continue to drive financial performance.
Compensation is based on tangible objectives such as revenue, earnings, membership, and per car
metrics.

Executive compensation has increased 20.9% YOY; it is associated with an even greater percentage
change in revenue and members (see Figure 6).

Management has been effective in increasing revenue and membership and has improved
profitability metrics, supporting our forecast for strong future earnings (see Exhibit 5 through 7 in
Appendix).

Additionally, the Streetcar integration was completed ahead of schedule, leading us to believe that
management is conservative in its promises.
Members
Figure 6: While total executive
compensation has increased 20.9 %
from 2009 to 2010, this is justified by
a growth of 42.0 % and 54.7 % in
revenue and membership
respectively.
“Established Markets” are defined by Zipcar as the first four cities that Zipcar entered during the period of 2000-2005. Revenue and income before tax for these cities are
reported separately on Financial Statements.
1
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December 12, 2011
CFA Institute Research Challenge
Competition
Type of
Service
Traditional
Car Rental
Car
Sharing
and Co-ops
Peer-toPeer (P2P)
Business Model
Players
Firms own
fleets, rent to
individuals at a
daily rate,
charging extra if
under 25
Firms own
fleets, charge
yearly
membership
fees and
hourly/distance
usage rates
Car owners lend
to others for
hourly/distance
rates; firm is
middleman and
installs tracking
devices
Hertz, Avis,
Enterprise
Zipcar,
Car2Go,
Victoria
Car Share
RelayRides,
Get
Around,
Wheelz
Figure 7: ZIP competes with car sharing
companies in additi on to car rental and
peer to peer car sharing companies.
Impact on Congestion Charge in
London on Frequency of Travel
100%
90%
Never
80%
70%
Less
frequently
60%
50%
1x or more a
month
40%
30%
20%
1x or more a
week
10%
0%
Before
After
Figure 8: The enactment of a
congestion charge in London has
lead to a substantial decrease in the
frequency of travel in the western
extension zone.
INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING
INDUSTRY OVERVIEW
The car sharing industry includes companies that provide self-service cars to consumers who need them for
short durations and charge an hourly or daily rate. Competitors in this industry include traditional car rental,
peer-to-peer (P2P) car rental, and co-ops, with ownership of fleet and pricing models as the key
differentiators (see Figure 7).
While the number of players has increased, industry growth will keep rivalry low and pricing between
firms will remain independent.
Even as the number of competitors increases due to low barriers to entry, ZIP’s membership growth has seen
strong compounded annual growth from 2006 to 2011 of 38.7% in North America and 18.1% worldwide (see
Exhibit 8). This growth is good news for industry profitability because firms do not have to cut into each
other’s profits (see Exhibit 9 in the Appendix for Porter’s Five Forces Analysis).
MARKET TRENDS
Intense urban congestion leads to governmental action that supports car sharing.

London charges a £10 congestion fee for traveling major roads, while “green”2 and nine passenger
vehicles are exempt.

We believe similar regulation will spread to other congested cities, and people will turn to car
sharing services to cope with it (see Figure 8 for effectiveness of congestion charge in London and
Exhibit 10 in appendix for congestion in the US)
Increasing collaborative consumption is driving customers to share resources, such as cars.

The US is seeing an increase in collaborative consumption; services such as peer-to-peer lending
and travel accommodations (aka “couch surfing”) rose 62% and 1200% YOY respectively.

This growth signals a change in consumption behavior from owning to sharing, an additional shift
that will benefit car sharing companies.
With gas and food prices in the United States increasing 198.5% and 31.7% over the last ten years, car
sharing offers a sustainable way to save (see Exhibit 11 in Appendix).

Living in the high density cities that Zipcar targets, such as San Francisco and New York is 1.5 and
2 times more expensive than the US average.

Car sharing can save users close to $4,000 annually in comparison to owning a car, which should
increase the rate of membership growth if ownership costs continue to rise.
Heavy Car Sharing taxes and fees may discourage users.

Nationally, the average tax imposed on car sharing is around 17.9% and 14.1% for a one-hour and
24-hour reservation, respectively.

While still less expensive in total than private car ownership, these charges may turn off customers.
Searches (Millions)
Car Sharing Global Monthly Keyword
Searches
Sustainability is good marketing, but not a profitable trend.
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0



While Zipcar states that sustainability is a driving trend in the industry, it will not be the biggest
driver of customers apart from being an impactful branding strategy.
According to the Journal of Marketing, while 40% of consumers say they are willing to purchase
green products, only 4% actually do when given a choice.
Nonetheless, according to a survey of college students’ perception of Zipcar, the Company scores 4
out of 5 in terms of environmental friendliness.
COMPETITIVE POSITIONING
Branding
While Zipcar has the strongest name in car sharing, the Company will balance availability of vehicles
to please customers while maintaining its focus on increasing utilization.
Figure 9: "Zipcar" had 1,743,356
global monthly searches versus "Car
Sharing,” which had 1,213,866, and
"Car2Go,” which had 924,793
searches in October.

Strong Brand Awareness: Strong brand power is illustrated by the outperformance of “Zipcar”
searches on Google’s Global Monthly keyword searches in comparison to competitors’ names and
general industry terms (see Figure 9).
2
Any car that emits less than 100 grams of Carbon Dioxide is exempt from London congestion charge; Zipcar has at least 8 vehicles that qualify for this exemption.
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December 12, 2011
CFA Institute Research Challenge
Zipcar Yelp Ratings
Great (4+ Stars)

Online Reviews are good, not great: Out of a sample of 633 Yelp.com ratings across the
established markets, Boston, NY, San Francisco, and Chicago, 57.8% of reviewers gave Zipcar 4+
stars (see Figure 10 and Exhibit 12 in Appendix). Most negative reviewers complained about the
unavailability of cars, which is a problem management has stated it will focus on as markets mature
and more members share the same fleet.

Over 90% of customers recommend ZIP: We conducted an anonymous survey in October with
141 respondents, 35% of which were either current or past users of Zipcar. Our results indicate that
over 90% of current and past Zipcar users would recommend Zipcar and its services to a family or
friend. This number, better known as the Net Promoter Score, is a critical metric Zipcar
management uses to measure customer satisfaction (see Exhibit 13 in Appendix).
Neutral (3 Stars)
Negative (2- Stars)
70%
60%
50%
40%
30%
20%
10%
0%
Competition
ZIP’s market leadership and competitive positioning should enable it to enter new markets with ease.
Figure 10: Zipcar Yelp ratings show
an overall positive perception of the
Company in its top established
markets.
Car Sharing Market Share by Members
(2011)
RelayRides, Cityzen
Cars, Higear,
Livop, Greenwheels,
Tamyca, and
Enterprise WeCar
1.9%
Connect by Hertz
3.3%
Car2Go
5.0%
Zipcar has positioned itself as a broad market differentiator, targeting a large market and charging premium
prices while offering more services. Zipcar has the largest fleet in the most number of locations and uses
advanced technology, enabling it to provide better service than competitors. Zipcar plans to maintain this
position via aggressive expansion plans.
Others
17.6%
While competitors may take members, they are unable to impact utilization, the main
determinant of profitability.
Zipcar
72.2%
Figure 11: Zipcar has72.2 % of the car
sharing market share, as measured in
members.
Source: tfl.gov.uk
Competitive Positioning Map
Differentiation
Narrow Market
Broad Market
Cost Leadership
ZIP holds 72% of the car sharing market share in 2011 (by membership), with the next biggest competitor
holding only 5%. While Car2Go, Connect by Hertz, and RelayRides are often cited as threats to Zipcar, it is
apparent that they have not made a significant dent in the market and should not pose a credible threat to
Zipcar’s leadership. The rest of the industry is made up of smaller players with 5,000 or fewer members (see
Figure 11).
Figure 12: ZIP is positioned as a broad
market differentiator; Car2Go seems to
be trying to edge into this space while
Connect by Hertz is concentrating on
maintaining cost leadership.
Connect by Hertz and Relay Rides pose the greatest threats in terms of competitive pricing. Hertz
offers a no membership or enrollment fee plan with One Way trips available. Relay Rides also offers
free membership and rates start at $5; in addition, cars generate an average of $250 per month with the
owners keeping 65% of revenues.
However, these players are competing on price while Zipcar is focusing on service. Moreover, the key driver
of profitability is utilization of cars, and while a loss in market share may decrease membership, we believe
Zipcar can sustain utilization rates, thus competition should not present a credible threat to company
performance (see Figure 3 on page 2).
INVESTMENT SUMMARY
We initiate coverage of Zipcar with a BUY rating and a one-year target price of $19.45, offering a
36% upside from its closing stock price as of December 9, 2011.
The Company’s future earnings will be driven by growth in capacity utilization coupled with an increase in
share of revenue from fees:
Future Cash Inflows = ƒ(Number of vehicles*Usage revenue per vehicle, Fee Revenue)
Implied capacity utilization growth will be driven by membership growth coupled with higher
weekday usage from business customers.

We project that Zipcar’s membership will grow at a 17.0% CAGR over the next five years, in
comparison to 53.3% CAGR from 2006 to 2011.

In addition, ZIP’s Z2B offerings increased 40% as a share of revenue since 2005 and are projected
to grow further, which will boost weekday usage hours.

Membership growth per vehicle and higher weekday utilization from business customers result in
increased usage revenue per the vehicle (see Figure 13 for forecasts).
While Zipcar may enter Asia in the long-term, we do not see Asia as target market for the next five
years.

The Company’s international strategy focuses on congested cities with average GDP per capita of
$34,000 to $71,000.
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December 12, 2011
CFA Institute Research Challenge

Growth Projections
Established
Markets
~120 Other
Cities in US
Canada
and UK
Europe
Penetration
by 2016
Membership
CAGR
(2011-2016)
2.1%
13.1%
0.2%
13.2%
1.5%
0.8%
12.3%
13.8%
Figure 13: Our penetration and
membership growth projection is a key
driver of capacity utilization.

Although Asian cities such as Tokyo, Singapore, and Hong Kong currently have these
characteristics, they are too far apart geographically to achieve the scale efficiencies that are
possible in Europe (see Exhibit 14).
Entrance into Asia also requires special regulatory relationships. Thus, Zipcar will prioritize
expansion into Europe and only enter Asia once these operations are under control, in five to ten
years.
Increase in the share of revenue coming from fees leads to higher margins . Zipcar’s aggressive
market penetration strategy results in total revenue CAGR of 20.7% over the next five years. We estimate fee
revenue to account for 15.3% of total revenue by 2016, up from 13.7% in 2011. Vehicle utilization
achievements coupled with 5-year fee revenue CAGR of 23.4% will support margin improvements. The
strategy is expected to increase EBITDA margin from 10% of total revenue in 2011 to 16% by 2016.
Continued revenue growth coupled with margin expansion will deliver positive free cash flows
beginning 2015. Zipcar is expected to generate $25.1 million in FCF in 2016, compared to a negative $35.7
million in 2011. We estimate FCF to further grow at 30% annually from 2016 to 2021. Zipcar’s OCF to sales
ratio will reach 16% by 2016, up from 11% in 2011.
Target Price
Method
DCF
Trading
Multiple
(2.1X)
M&A
Multiple
(3.0X)
Total
Description
Exit
Multiple
and
Perpetuity
EV/Revenue
Price
$20.42
Weight
50%
$15.29
25%
EV/Revenue
$21.66
25%
$19.45
100%
Figure 14: After weighting our
valuation methods we arrive at a one year target price of $19.45.
Our target price of $19.45 is a weighted average of Discounted Cash Flow and Multiples
Analyses. We developed a set of comparable peers from three industries, screening for similarities between
business models. Our DCF model is used to correct for Zipcar’s higher growth potential and its ability to
enhance its operational leverage (see Figure 14).
When stress tested for the simultaneous occurrence of four key risks we reach a combined
downside scenario price of $14.15, which would result in a HOLD recommendation. We prioritize
four major risks connected to Zipcar’s future earnings as: failure to increase capacity utilization, failure to
penetrate new markets, increased competition, and absorption of higher input costs.
VALUATION
We use two methods to value Zipcar: Multiples and Discounted Cash Flow (DCF) Analyses. The Multiples
approach reflects market sentiment in regard to Zipcar-style firms and acts to balance our DCF price. The
DCF model is linked to penetration rates for each market and recognizes Zipcar’s unique potential to grow
revenue and margins. Both valuation methods have equal weights of 50% in estimating the target price.
MULTIPLE ANALYSIS
Due to the lack of publicly traded car-sharing companies, we defined three groups of companies that we
believe are comparable to Zipcar. We also analyzed recent M&A transactions in similar groups and derived
another set of multiples. We then assigned 25% weights for comparable and transaction-based multiples in
calculating the final target price for Zipcar. Our assumptions are:



Zipcar is in a car rental business. We acknowledge the fact that Zipcar possesses similar types of
assets and liabilities, builds on comparable revenue model, and faces similar challenges as
traditional car rental companies.
Zipcar is a game changer. Zipcar’s model attempts to decrease the need for car ownership, which
would change customer lifestyle. This is similar to other market disrupters, including LinkedIn
(Networking), Netflix (DVDs), and OpenTable (Reservations).
Zipcar is focused on capacity utilization. In order to be profitable, Zipcar must attempt to
maximize the capacity utilization of its vehicles, similar to hotels.
We considered an EV/Revenue multiple of 2.1x to calculate our target price of $15.29 from trading
multiples. We believe this is a good multiple because of the high correlation between sales growth and this
multiple for comparable companies (see Exhibit 15 in Appendix).
We also analyzed M&A activity in five different industries and arrived at a median EV/Revenue
multiple of 3.0x. We evaluated 22 deals that closed during the last twelve months in the industries such as
car-sharing, car rental and leasing, auto manufacturing, hotels, and IT (see Exhibit 17 in Appendix for
precedent multiples). Our target price from precedent transaction multiples is $21.66.
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December 12, 2011
CFA Institute Research Challenge
DCF ANALYSIS
We estimated Zipcar’s value at $20.42 per share based on our DCF model. The driving metrics in our
model are the membership growth and vehicle utilization rates, which feed into revenue growth and
profitability.
Membership growth: Market specific penetration rates indicate that United States will account for 65% of
total members by 2016 with the other 19% coming from United Kingdom and Canada. The remaining 16% of
total members will come from expansion into new markets in Europe (see Exhibit 18 in Appendix for
detailed membership projections). We do not believe that Zipcar will enter Asia within the next five years as
explained earlier.
Weighted Average Cost of
Capital
Item
%
Risk Premium
6.49%
Beta Estimate
1.17
Risk Free:
2.92%
30 Yr Treasury
After-tax
Cost of debt
Weight
25.90%
Cost of Equity
Weight
10.51%
73.90%
3.70%
Cost of
Minority
Interest
Weight
0.00%
0.20%
WACC
8.73%
Figure 15: We estimated our
WACC to be 8.7 %.
Revenue will grow at a CAGR of 20.7% through 2011-2016 based on growing usage revenue
combined with increasing share of fee revenue, a trend supported by Zipcar’s historical performance.

Usage revenue reaches $525.4 million by 2016, a 20.3% CAGR over the next five years. Fee
revenue grows to 15.3% of total revenue by 2016, up from 13.7% in 2011. Membership growth
coupled with increase in business customers leads to higher usage revenue as well as increase in
fees.

Revenue growth combined with efficient cost control leads to expanding EBIT margin, which
drives consistently improving free cash flow. Free cash flow turns positive by 2015, and grows at a
30% CAGR through 2016-21.
Our WACC is estimated at 8.7% based on equity, debt, and minority interest. We further used three different
methods to estimate beta for Zipcar (see Exhibit 19).
Our DCF price: We calculated the DCF price of $20.42 using a combination of two methods: perpetual
growth rate and exit multiples method.

We apply two stage growth rates when calculating the terminal value. We computed 30% yearly
FCF growth through 2016-21. We further use a 3.0% perpetual growth after 2021 to reflect the
industry’s significant growth potential. That results in a target price of $20.61, which is weighted
50% into our DCF price.

We also applied an EV/Revenue exit multiple of 2.1x to FCF in 2016, based upon our trading
multiples analysis, which gives a target price of $20.23, also weighted 50% into our DCF Price.
SENSITIVITY
Zipcar’s ability to control expenses via operating leverage enhancements (capacity utilization)
and fleet optimization is a critical factor in our model. Historically, expenses (as % of sales) have
declined by 150 bps/year. To stress test our analysis, we apply a 75 bps upswing in expenses (as % of
sales) which results in a -45% change to our target price.
Sensitivity tests are also applied to valuation analysis inputs such as WACC, the perpetuity growth factor,
EV/Revenue multiples and operational drivers such as revenue and expenses. On a stand-alone basis, our
BUY recommendation holds under every test except for expenses (+ 75bps). Zipcar’s ability to gradually
enhance operational leverage as they increase market penetration will be crucial to translating top-line
revenue into EPS (see Exhibit 20)
Though unlikely, our ultimate best/worst case scenarios which are driven by the simultaneous occurrence of
all five sensitivities result in share prices of $34.65/$8.21.
Conservative Projections
CAGR
Revenue
Usage
Revenue
Fee
Revenue
Membership
Historical
Projected
2008- 2011
2012-2016
31.7%
29.3%
20.7%
20.3%
54.7%
24.7%
37.7%
17.0%
Figure 16: Our projected growth is
consistently lower than historical growth
in order to remain conservative.
FINANCIAL ANALYSIS
After performing a sanity check through the analysis of historical figures using 2008-11 experience we
strongly believe that our projections are achievable.
Revenue Growth: Our projections are conservative in relation to historical numbers and recent
developments provide compelling support for projections (see Figure 16).

Domestic revenue reached record $136.8 million for the nine months period ended September 30,
2011, presenting a 26.7% YOY. Established markets account for 75.3% of US revenue as of the
last reported date, and remain a main driver for the total US revenue with a 22.8% growth
compared to the same nine months period in 2010.
7
December 12, 2011
CFA Institute Research Challenge

Margin Projections
EBIT
Margin
Average
Fleet Costs
as % of
Rev 
Historical
Projected
2008-2011
2012-2016
(3%)
3%
79% - 66%
64% - 60%
Figure 17: Our projected margins are
in line with historical numbers.
Zipcar’s revenue from international operations increased $15.9 million, or 61.2%, for the
comparable nine months ended periods, driven by $2.7 million increase in revenue from Canada
and $13.2 million increase in revenue from United Kingdom.
Margins: ZIP has improved operational efficiency historically, which should lead to positive EBIT margins
by 2012. In addition, higher utilization rates coupled with an increase in fee revenue result in margin
improvements. We believe historical numbers are consistent with our projections, where EBIT reaches
positive margin by 2012, and equals 4% by 2016.
Cash Flows: Cash flow growth has remained strong up to 2011, a trend which we expect to continue. Cash
flows from operating activities turned positive in 2009 and reached $17.8 million for the nine months ending
September 30, 2011. We foresee this number will keep growing as the Company starts turning higher returns
on each of the vehicles. Unlevered free cash flow, however, is not expected to turn positive until 2015.
Balance Sheet and Financing: ZIP has a strong balance sheet, which places it in a favorable position for
expansion in the future. As 3Q2011, Zipcar had $88 million in cash, which is an adequate source of funding
for future expansions.

Historically, the Company was able to secure additional term loans for the total amount of $40
million to fund its acquisitions. However, Zipcar paid off those term loans after its initial public
offering, and its latest outstanding principal amount of debt equals to $75.3 million. It is comprised
of $50.0 million under ABS facility, and $25.3 million under Capital Lease Obligations (see
Exhibit 21for debt structure).

Based on a leverage coverage ratio analysis of comparable companies in the traditional car rental
industry, ZIP is in a better position to service its debt; its Debt/EBITDA ratio is 3.0x compared to
an industry median of 7.1x (see Exhibit 22 for leverage ratio analysis).
MARKET’S PERCEPTION
While the market has celebrated good news like a government contract, we believe the market has
discounted ZIP’s share price too heavily due to worries about profitability.



In October, ZIP’s stock increased with the news of a secured government contract. The
market recognized that this partnership would increase weekday utilization, a key to profitability.
In November, ZIP offered negative net income guidance for Q4, and the share price dropped
by 21%. This announcement only reinforced concerns about Zipcar’s ability to produce positive
earnings. However, we believe that near term losses does not negate future sustainable profitability.
Zipcar’s launch of its Zipvan service was received with doubts. The market demonstrated a
concern with Zipcar’s attempt to directly compete with U-Haul, the leader in the moving space. We
believe that this service will be appreciated by Zipsters, who responded in our survey saying that
moving was among their top motivations for using Zipcar.
Figure 18: Zipcar has generally underperformed the market due to investor worries about future
profitability.
8
December 12, 2011
CFA Institute Research Challenge
INVESTMENT RISKS
The combined effect of four downside risks brings the target price to $14.15, a 27% decrease from the
one-year target price of $19.45, which would result in a HOLD recommendation (see Exhibit 23).
Failure to Increase Capacity Utilization, High Risk – 35%
The key driver to improving profitability is ZIP’s ability to increase capacity utilization rates.

We estimate a 35% probability that ZIP will fail in its attempt to increase member usage and
optimize pricing. To accurately estimate these effects, we put a ceiling on revenue per vehicle per
day at $65, which was originally projected to be $90 by 2016.

Marketing expenses under SG&A also increased at an addition .025%, assuming that ZIP’s
marketing strategies would fail in increasing awareness for established markets.

This stress-test decreases the target price by 36% to $12.48, resulting in a SELL recommendation.
Failure to Penetrate New Markets, High Risk – 30%
To estimate the effects of an unsuccessful entrance into the European markets, we discounted the total
number forecasted members in Europe by 90% and increased the loss on sale cars, which still resulted in a
BUY recommendation with a new target price at $15.95, a decrease of 18%.
Increased Competition, Moderate Risk – 20%
New players are entering the car sharing industry at a rapid rate, with about 3 players entering into the
industry every year since 2000.

These firms pose a threat to Zipcar’s market share and future member growth.

We quantified this risk by decreasing total membership base by 15% and increasing SG&A
expenses by .5% every year.

This results in a SELL recommendation with a 30% decrease in the price to $13.70.
Absorption of Input Costs, Low Risk – 15%
Zipcar relies on partnerships and 3rd party vendors such as vehicle manufacturers, insurance companies, and
other maintenance providers to offer its car-sharing services at a competitive price.

An unfavorable turn in economic forces that affect these suppliers could increase ZIP’s fleet
operation expense growth by an additional .9% annually.

This stress-test still results in a BUY recommendation of $16.55, a decrease 15% from the one-year
target price.
RECOMMENDATION
After considering all risk scenarios, we reiterate our BUY recommendation. Looking toward the horizon, we
believe ZIP will continue to accelerate, leaving its competition in the rear view mirror.
These fundamentals, combined with attractive valuation, indicate a 36% upside to the stock.
9
December 12, 2011
CFA Institute Research Challenge
APPENDIX
Exhibit 1: While car sharing is more cost effective than private car ownership, it is still not as convenien t as having a car
available at one’s disposal. Combining car sharing with other forms yields similar convenience to private ownership.
Source: Victoria Transport Policy Institute.
Convenience of Different Transportation Modes
(1 = Least Convenient 3= Most Convenient)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Public Transit
Car Sharing
Conventional
Rental
Taxi
Private
Ownership
Exhibit 2: Zipcar partners with both local and national suppliers and is able to achieve cost savings from volume
purchases and logistical efficiency.
Supplier
Car Manufacturers
Parking
Labor
Gas
Insurance
Third Party Service
Providers
Cost
ZIP partners with major car manufacturers to yield savings on fleet (average cost of $20k per car).
ZIP pays for parking spots from local parking facilities and major parking companies such as Interpark, Inc.
(monthly parking per car averages around $600). Some municipalities and universities offer Zipcar free parking in
an effort to promote sustainable behavior.
Zipcar’s 593 employees are compensated based on their departmental functions (wages averages around $26k to
$60k).
ZIP absorbs the majority of fluctuations in gas prices, occasionally passing on increases to customers via higher
fees. ZIP partners with Wright Express, a business payment processor, to supply its vehicles with gas cards (for a
monthly fee of $2 per card).
Liberty Mutual provides car insurance to ZIP (for a cost of about $150 per car per month).
ZIP uses third party service providers for services such as maintenance ($33 per car per month) and data centers.
Exhibit 3: A correlation matrix run on number of cars Zipcar has in its top ten cities and nationally agai nst population
characteristics suggests that Zipcar targets dense urban populations.
Cities Characteristics vs. Number of Zipcar Cars
Cars
Population
Number of Universities
Number of College Students
Median HH Income
Population Density (per sq mile)
20 to 24 years
25 to 29 years
30 to 34 years
35 to 39 years
10
Top 10 Cities
1.00
0.65
0.37
0.47
0.54
0.90
0.64
0.65
0.65
0.65
All US Cities
1.00
0.67
0.56
0.46
0.10
0.11
0.49
0.53
0.51
0.47
December 12, 2011
CFA Institute Research Challenge
Exhibit 4: Zipcar city statistics show that Zipcar targets cities with median incomes between $34,400 and $71,745 and
high population density.
Top 10 US Cities
Min
Max
Median
Population
66,194
8,175,133
619,278
Population
Population Density
(people/sq mile)
3,153
27,016
10,590
12
45
Number of Universities
Min
Max
Median
1,357
8,175,133
71,943
Population Density
(people/sq mile)
62
228,330
3,263
18
Number of Universities
0
45
3
Median Income ($USD)
13,385
200,001
39,427
420
2,944,154
33,485
Median Income ($USD)
34,400
71,745
47,134
People between 20 and 39
160,206
2,622,437
245,390
All US Cities
People between 20 and 39
Exhibit 5: Zipcar is led by experienced executives whose compensation is directly tied to firm performance. The CFO, Ed
Goldfinger, has experience with data analytics, which he can apply to the decade of data Zipcar has collected. The COO,
Mark Norman, has experience with highly rapid growth in his prior car sharing company, which he may apply to Zipcar in
managing its expansion. Source: Zipcar Form 424-B4
Name and Title
Background
Leadership Examples
Scott Griffith
Chairman & CEO
 Boeing
 Information
America
 The Parthenon
Group
Mark Norman
President & COO
 Flexcar
 DaimlerChrysler
 Ford
In 2009, anticipated growth of 15-25% over the
next five years and so far ZIP has achieved
41.9% and 36.0% YOY growth in revenues
and 54.7% and 20.4% membership growth in
2010 and 2011.
Source: FastCompany.com
Mr. Norman was previously the CEO of
Flexcar, which was acquired by Zipcar in 2007.
Flexcar, a problematic company that expanded
too quickly before operations were finalized (20
cities in five years) and had technology
implementation setbacks.
Source: Zipcar Form 424-B4 and David
Brook’s “Car Sharing in North America”
Mr. Goldfinger was the CEO of Empirix, a
company that provided corporations “with
products and solutions in the areas of
functional and regression testing, load
testing, monitoring and management.” This
makes him a good fit for analyzing data
collected by Zipcar and implementing
appropriate actions.
Source: Frost and Sullivan, Movers and
Shakers Interview, September 2005.
Ed Goldfinger
CFO





KPMG
PepsiCo
Spotfire
Empirix
Sapient
11
Individual Compensation Objectives in 2010 (20% of
total bonus)

General oversight of the senior management team

IPO readiness and execution

Increasing brand awareness

Received a $360,000 bonus


Establishing and maintaining initiatives regarding
operational excellence
Improving the field operations structure
Management of our ongoing efforts to improve
the customer experience
Received a $159,670 bonus




IPO readiness
Obtaining and maintaining debt facilities
Establishing a public- company level finance team
Received a bonus of $119,753


December 12, 2011
CFA Institute Research Challenge
Exhibit 6: Management has been consistent with reach ing performance targets that drive the top line and have been
focusing on improving profitability. 2010 Target vs. Attained: Revenue $187.9mm vs. $187.5mm, EBITDA $15.5mm vs.
$16.1mm, Operating Income $5.2mm vs. $4.9mm.
2010 Performance Targets vs. Attained
(Target = 100%)
106%
104%
102%
100%
98%
96%
94%
92%
90%
88%
Revenue
EBITDA
Target
Operating Income
Attained
Exhibit 7: Profitability has seen a significant improvement historically and should continue to improve as management
focuses on these performance metrics, which are tied to their compensation.
Profitability Margins
(2005-2011E)
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
2005
2006
2007
Operating Income Margin
2008
2009
EBITDA margin
12
2010
2011E
Net Income Margin
December 12, 2011
CFA Institute Research Challenge
Exhibit 8: Car sharing companies launches have increased significantly over the last decad e (ZIP was founded in 2000).
Number of Car Companies Launched Per Year
(1990-2011)
3.5
3
2.5
2
1.5
1
0.5
0
1985
1990
1995
2000
Abroa d
2005
2010
2015
US
Exhibit 9: Porter's Five Forces Analysis suggests that the car sharing industry is currently a profitable industry for
incumbents, but these forces may change for the worse as industry rivalry increases with the entrance of more players.
Buyer power will also increase as customers will have more car sharing companies to choose from. Additionally, the high
threat of substitution demands that car sharing companies keep pricing from getting too high. Nonetheless, being an early
mover is an important advantage because while entry costs are low, brand and reach are important factors to customers.
13
December 12, 2011
CFA Institute Research Challenge
Exhibit 10: The average delay per traveler in the US per year has increase drastically, especially in cities with larger
population sizes. As city governments attempt to address this problem, car sharing seems like a viable option. Source: US
Department of Transportation
Yearly Hours of Delay per Traveler by City Population Size
(1982-2002)
70
60
Hours
50
40
30
20
10
0
Small
Medium
Large
1982
1992
Very Large
2002
Exhibit 11: Food and gas prices have increased 198.5% and 31.7% respectively since 1990, increasing the cost of living
and making car sharing an attractive cost saving proposition
250
3.5
3
200
2.5
150
2
100
1.5
1
50
0.5
0
0
1990
2000
Food Price Indices
Cars to Number of People
and Gas Price ($)
Food Price Indices
Fuel and Food Prices
(1990-2010)
2010
Gas Prices
Exhibit 12: Yelp ratings from top Zipcar cities show a generally favorable perception about company, but about 30% of
customers are dissatisfied with its services, suggesting that management must lower this number in order to retain
members who may now go to one of the many other car sharing companies.
City
Boston
NY
San Francisco
Chicago
Total
5 Stars
41
39.0%
21
25.9%
123
36.8%
41
36.3%
226
35.7%
4 Stars
24
22.9%
18
22.2%
68
20.4%
30
26.5%
140
22.1%
3 Stars
11
10.5%
16
19.8%
43
12.9%
10
8.8%
80
12.6%
14
2 Stars
6
5.7%
11
13.6%
22
6.6%
17
15.0%
56
8.8%
1 Star
23
21.9%
15
18.5%
78
23.4%
15
13.3%
131
20.7%
Total Ratings
105
100.0%
81
100.0%
334
100.0%
113
100.0%
633
100.0%
December 12, 2011
CFA Institute Research Challenge
Exhibit 13: We conducted a survey with 141 respondents, which enabled us to determine key metrics and assumptions,
such as net promoter scores, user utilization rates, and preferences.
Key Statistics from Zipcar Survey
Total Completed Surveys
Total Zipsters
NPS (Net Promoter Score)
Frequency of Use
4-5
1-3
times/month times/week
0%
16%
Whole day
9%
Total
141
Percentage
91.49%
45
41
129
44
34.88%
93.18%
Average Usage
6-8 hours
7%
2-3
times/week
0%
4-6 hours
2%
No longer
use
21%
129
1-2 hours
18%
Less than 1
time/month
58%
Mini
Cooper
9.1%
Toyota
Hybrid
36.4%
Nissan
Sedan
18.2%
BMW
Sedan
36.4%
2-4 hours
64%
Once a week
2%
Most Popular Cars
5+
times/week
3%
Exhibit 14: Europe is the best market for Zipcar to enter in the near future, as it is full of countries and cities with
favorable characteristics adjacent to each other. In comparis on, Asia only has three cities with these important
characteristics, and they are not geographically close, which would make achieving economies of scale more difficult. Top
locations were chosen based on income (ideal range in current cities is between $3 4,000 and $70,000, based on data in
Exhibit 4) and large presence of cars. Source: World Data Bank and NYC.gov.
900
800
700
600
500
400
300
200
100
0
$60
$50
$40
$30
$20
$10
$-
GDP per capita (current US$)
Motor vehicles (per 1,000 people)
$80
$70
$60
$50
$40
$30
$20
$10
$0
700
600
500
400
300
200
100
0
GDP per capita (current US$)
Motor vehicles (per 1,000 people)
15
Cars/Thousand of People
Potential Cities for Zipcar
(2008)
Cars/Thousand of People
$70
GDP/Cap. (USD Thousands)
GDP/Cap. (USD Thousands)
Potential Countries for Zipcar
(2008)
December 12, 2011
CFA Institute Research Challenge
Exhibit 15: We used the EV/Revenue multiple because of the high correlation between sales growth and this multipl e.
EV/Revenue and Sales growth relationship
16.0x
LNKD
EV/Revenue multiple
14.0x
R² = 0.7154
12.0x
10.0x
AWAY
8.0x
6.0x
OPEN
4.0x
MHGC
2.0x
DTG
CHH
ZIP
HTZ
UHAL
NFLX
0.0x
-20%
0%
20%
40%
60%
80%
Sales growth
100%
120%
140%
Exhibit 16: Upon analyzing trading multiples of companies that are comparable to Zipcar in different areas, we computed
a median EV/Revenue multiple of 2.1x. This median is a conservative estimate since companies demonstra ting our 21%
revenue growth forecast trade at levels over 3.0x, selecting a target multiple appropriate for Zipcar’s revenue growth (see
Exhibit 15). Numbers below are as of 12/09/11.
Company
Zipcar, Inc. (NasdaqGS: ZIP)
Traditional Car Rental
AMERCO (NasdaqGS: UHAL)
Avis Budget Group (NasdaqGS: CAR)
Dollar Thrifty Automotive Group (NYSE:
DTG)
Hertz Global Holdings (NYSE: HTZ)
Traditional Car Rental Median
Hotels & Time share
HomeAway, Inc. (NasdaqGS: AWAY)
Choice Hotels International (NYSE: CHH)
Morgans Hotels Group (NasdaqGM:
MHGC)
Starwood Hotels & Resorts (NYSE: HOT)
Hotels Median
Market Disrupters
LinkedIn (NYSE: LNKD)
Netflix (NasdaqGS: NFLX)
OpenTable (NasdaqGS: OPEN)
Market Disrupters Median
Price
$14.28
Market
Cap
561
Total
EV
549
LTM
Revenue
231
EBITDA
Margin
10.8%
1Yr Sales
Growth
36.0%
EV/
Revenue
2.4x
$83.24
$11.70
$69.58
1,632
1,229
2,020
2,577
8,862
2,849
2,365
5,495
1,544
25.2%
15.5%
21.5%
11.0%
7.3%
0.7%
1.1x
1.6x
1.8x
$11.57
4,821
16,936
8,120
15.2%
8.7%
2.1x
1.7x
$25.11
$37.44
$5.99
2,023
2,193
184
1,851
2,321
666
217
628
220
16.6%
29.2%
9.3%
39.6%
7.9%
-5.9%
8.5x
3.7x
3.0x
$48.37
9,295
11,492
5,433
16.0%
9.2%
2.1x
3.4x
$71.89
$70.89
$35.73
7,013
3,925
849
6,626
3,793
769
436
2,925
133
12.2%
14.8%
28.1%
117.3%
45.4%
52.3%
15.2x
1.3x
5.8x
5.8x
Trading Multiples Median
2.1x
16
December 12, 2011
CFA Institute Research Challenge
Exhibit 17: We analyzed 22 precedent transactions to market premiums paid for companies which we believe are similar
to Zipcar in different ways. This resulted in a median multiple of 30x.
Announced
Date
Close Date
Target
Buyer
Seller
Hotels
29-Mar-11
15-Apr-11
One Park Boulevard
16-May-11
1-Jun-11
4-Apr-11
23-May-11
4-May-11
10-May-11
28-Mar-11
6-Apr-11
10-May-11
27-May-11
28-Feb-11
30-Jun-11
Radisson Lexington
Hotel
Royalton & Morgans
Hotels
W Chicago City
Center
The Westin Gaslamp
Quarter
Westin Pasadena
Hotel
NJA Hotel, LLC
Sunstone Hotel
Partnership
Diamondrock
Hospitality Co.
FelCor Lodging
Trust Inc.
Chesapeake Lodging
Trust
Pebblebrook Hotel
Trust
HEI Hospitality
Chesapeake Lodging
Trust
Car rental and
Leasing
3-Dec-11
31-Dec-10
JJ Motorcars, Inc
16-Dec-10
28-Jan-11
17-Jul-11
1-Sep-11
Scully
Transportation
Donlen Corporation
14-Jun-11
3-Oct-11
Avis Europe plc
Size
(USD
mm)
Implied
EV
Implied
Equity
Value
Total
Consider
ation
Implied
EV/Rev.
Hilton Worldwide
422
475
231
174
4.7x
Several financial
holdings
Morgans Hotel
Group
Starwood Hotels &
Resorts
Starwood CMBS I,
LLC
MPG Office Trust
435
430
335
335
8.5x
140
140
140
140
NA
129
129
128
128
4.2x
110
110
110
110
4.0x
92
92
92
92
4.5x
Sagamore Capital,
LLC
67
67
29
29
5.3x
Median
4.6X
Tourism Holdings
Ltd.
Ryder System, Inc.
D. Schneider & H.
Hagner
NA
16
16
9
9
0.8x
86
86
71
71
0.5x
The Hertz
Corporation
Avis Budget Car
Rental
G. Rappeport, N.
Liace, etc.
D Ieteren Car Rental,
etc.
947
947
NA
NA
2.7x
1,325
1,209
636
636
0.9x
Median
0.8x
Auto
Manufacturers
3-May-11
6-Jun-11
Wheeler Bros., Inc
VSE Corp
21-Jul-11
21-Jul-11
Chrysler Group LLC
7-Mar-11
1-Apr-11
Classic Fire LLC
Fiat North America
LLC
Spartan Motors Inc
IT Market
Disrupters
10-May-11
13-Oct-11
Skype Global
27-Apr-11
24-Mar-11
15-Jul-11
12-Apr-11
SAVVIS, Inc
Mortgagebot, LLC
1-Feb-11
21-Apr-11
NaviSite, Inc
5-Jul-11
7-Nov-11
28-Mar-11
20-Jul-11
17-Jun-11
10-Nov-11
Travelex Global
Business
GSI Commerce, Inc
Insider Guides, Inc
Zipcar
20-Apr-10
20-Apr-10
Streetcar Limited
220
182
162
162
1.2x
625
7,305
5,077
625
0.2x
5
5
5
5
Median
0.5x
0.5x
Group of investors
9,225
9,082
8,500
8,500
10.6x
Investment fund
Spectrum Equity
Investors
Group of investors
3,084
232
2,963
232
2,301
232
2,301
232
3.0x
6.1x
332
327
208
208
2.5x
606
606
606
606
4.3x
eBay Inc.
Quepasa Corp
Travelex Group
Limited
NA
Group of investors
2,381
100
2,139
100
2,215
NA
2,215
NA
Median
1.6x
3.7x
3.7x
Zipcar, Inc.
Group of investors
50
50
50
50
2.2x
3.7x
Microsoft
Corporation
CenturyLink, Inc
Davis + Handerson
Corp
Time Warner Cable
Inc
Western Union Co.
Wheeler Family and
others
additional 12.31%
NA
17
December 12, 2011
CFA Institute Research Challenge
Exhibit 18: We determined membership growth by analyzing the markets that Zipcar is in and the ones that it plans to enter. For European
cities, we assume that the Company will enter two cities per year, based on previously established metrics (such as income), starting with
the cities with the highest population. We also used historical penetrations rates at a declining rate for established markets and constant
penetration rates for the remaining markets. Total membership is forecasted to grow at a CAGR of 17.0%.
United States
2010 Population
10yr Pop
CAGR
Established markets
Greater Boston Area
4,552,402
New York City
18,897,109
San Francisco Bay Area
4,335,391
Washington Metro Area
5,582,170
Established T otal
33,367,072
Other ~120 Zipcar Cities
113,078,131
Total US members
Annual Decrease in Penetration
1YR
penetration
0.4%
0.3%
0.5%
1.5%
0.5%
0.5%
NM
NM
NM
NM
+0.25%
+0.02%
Rate
0.03%
2011P
members
NM
NM
NM
NM
389,134
130,110
519,244
2012P
members
NM
NM
NM
NM
474,892
152,302
627,194
2013P
members
2014P
members
NM
NM
NM
NM
550,946
174,605
725,551
NM
NM
NM
NM
617,187
197,019
814,207
2015P
members
NM
NM
NM
NM
673,507
219,546
893,053
2011E US members
5yr Organic Growth CAGR (US)
2016P
members
NM
NM
NM
NM
719,795
242,185
961,980
519,244
13.1%
*Market penetration rates as well as membership by segments are proprietory estimates of Boston University team.
Canada
T oronto
Vancouver
Total Canada members
2010 Population
5,741,419
2,391,252
8,132,671
3yr Pop
CAGR
1.8%
2.3%
2.0%
1YR
penetration
NM
NM
+0.15%
2011P
members
NM
NM
40,444
2012P
members
NM
NM
53,026
2013P
members
NM
NM
65,859
2014P
members
NM
NM
78,946
2015P
members
NM
NM
92,293
2011E US members
5yr Organic Growth CAGR (US)
2016P
members
NM
NM
105,905
40,444
21.2%
*Market penetration rates as well as membership by segments are proprietory estimates of Boston University team.
United Kingdom
Brighton
Bristol
Cambridge
Edinburgh
Greater London
Maidstone
Oxford
Total UK members
2010 Population
155,919
441,300
125,700
486,120
7,825,200
91,042
165,000
9,290,281
9yr Pop
CAGR
1.7%
0.5%
1.1%
1.4%
1.0%
0.2%
2.3%
1.0%
1YR
penetration
NM
NM
NM
NM
NM
NM
NM
+0.12%
2011P
members
NM
NM
NM
NM
NM
NM
NM
115,393
2012P
members
NM
NM
NM
NM
NM
NM
NM
126,623
2013P
members
NM
NM
NM
NM
NM
NM
NM
137,967
2014P
members
NM
NM
NM
NM
NM
NM
NM
149,424
2015P
members
NM
NM
NM
NM
NM
NM
NM
160,997
2011E US members
5yr Organic Growth CAGR (US)
2016P
members
NM
NM
NM
NM
NM
NM
NM
172,686
115,393
8.4%
*Market penetration rates as well as membership by segments are proprietory estimates of Boston University team.
Europe - New markets
Year 5 penetration target
Annual population growth
2 cities per year
1.0%
0.5%
City
Paris
Berlin
Madrid
Barcelona
Rome
Vienna
Munich
Milan
Brussels
Basel
Total Europe members
Country
France
Germany
Spain
Spain
Italy
Austria
Germany
Italy
Belgium
Switzerland
Total Zipsters
YoY Growth
5yr CAGR
2010A
540,484
Density
(per sq. mile)
54,300
10,082
13,994
41,417
5,565
10,707
11,290
19,010
16,857
19,301
2010
Population
10,354,675
3,471,756
3,273,049
3,218,071
2,761,477
1,714,142
1,353,186
1,334,077
1,089,538
169,536
2011E
675,081
25%
2012P
834,774
24%
$
$
$
$
$
$
$
$
$
$
Median
Income
56,000
32,000
40,000
49,000
34,000
41,000
44,000
47,000
43,000
42,000
2012P
members
20,917
7,013
NA
NA
NA
NA
NA
NA
NA
NA
27,930
2013P
members
42,043
14,096
6,645
6,533
NA
NA
NA
NA
NA
NA
69,317
2014P
members
63,380
21,250
13,356
13,132
5,634
3,497
NA
NA
NA
NA
120,250
2013P
998,693
20%
2014P
1,162,826
16%
2015P
1,323,542
14%
2016P
1,477,882
12%
17.0%
18
2015P
members
84,929
28,475
20,134
19,796
11,325
7,030
2,775
2,736
NA
NA
177,199
2016P
members
106,692
35,772
26,980
26,527
17,072
10,597
5,577
5,498
2,245
349
237,311
December 12, 2011
CFA Institute Research Challenge
Exhibit 19: We calculated the beta for Zipcar by using an average of three different betas versus the S&P500. We used a
levered beta based on comparable companies, a BARRA Beta, and a regression beta based on Zipcar’s historical prices
starting from its IPO date in April. Source: BARRA and CapitalIQ.
Levered Beta
BARRA Beta
Regression Beta
1.19
1.35
0.97
Average
1.17
Exhibit 20: Our sensitivity analysis shows that Zipcar's forecasted share price is most sen sitive to changes in expenses,
reflecting the fact that the Company has such high operating leverage.
Sensitivity Analysis on Weighted Valuation
Forecasted Price
Current Price
WACC (+/-100 bps)
$18.19
Perpetuity Growth (+/-50 bps)
$19.08
EV/Revenue (+/-0.25x)
$18.40
Revenue (+/-150 bps)
Expenses (+/- 75 bps)
Best/Worst Case (Assumes all
of above)
$6.00
$17.85
$21.19
$19.89
$20.50
$21.03
$10.78
$26.43
$8.21
$34.65
$11.00
$16.00
$21.00
$26.00
$31.00
ZIP Price per Share
Exhibit 21: The Company can easily access more credit to support expansion and operations plans through its large
revolving credit line.
Description
Type
Effective
From
ABS Note A
Revolving
Credit
May-10
ABS Note B
Revolving
Credit
Capital
Lease
Term Loans
May-10
Capital Leases
Loan and
Security
Agreement
Loan and
Security
Agreement
Loan and
Security
Agreement
Notes Payable
Total Principal
Amount


Outstanding Principle Amount as of
FYE2009 FYE2010
MarJunSep3130302011
2011
2011
18,867
16,275 43,000 50,000
Coupon/Base
rate
Adjusted
Rates
Floating
Rate
Maturity
3.50%
Yes
--
9.00%
No
--
-
10,000
10,000
-
-
2% + 30-day
Commercial
Paper
9.00%
NA
3,249
27,604
23,421
26,342
25,343
3.80 - 13.50%
10.00%
Yes
2015
May-08
8,216
4,984
10,000
-
-
11.20%
11.20%
No
Jun-12
Term Loans
Jun-09
4,000
8,534
10,000
-
-
16.80%
16.80%
No
Jul-13
Term Loans
Mar-10
-
20,000
20,000
-
-
15.80%
15.80%
No
2013
Bonds
Notes
Apr-10
-
5,000
5,000
-
-
12.20%
12.20%
No
2013
15,465
94,989
94,696
69,342
75,343
and
Interest rate on ABS facility is 2% plus 30-day Commercial Paper conduit interest rate. The lender charges additional 1% on
undrawn amount of the $50.0 million credit line. Zipcar annually buys a 3.5% interest rate cap.
Interest rates under Capital Lease Obligations are floating, and estimated to be in the range of 3.8 to 13.5%. We analyzed
Zipcar’s historical debt structure, and concluded that the average of interest rates should be close to 10.0%.
19
December 12, 2011
CFA Institute Research Challenge
Exhibit 22: In order to analyze ZIP’s ability to repay debt, we used the traditional car rental industry as the closest industry comparable to
assess Zip’s DEBT/EBITDA, which is calculated at 3.0x. Since the industry’s leverage coverage ratio is 7.1x, we believe Zipcar is more
than capable of paying off its current debt relative to the industry and achieve a cheaper cost of debt in the future from better credit
ratings.
Leverage Coverage Ratios
Company Name
Zipcar, Inc. (NasdaqGS:ZIP)
Traditional Car Rental Industry
AMERCO (NasdaqGS:UHAL)
Avis Budget Group, Inc.
(NasdaqGS:CAR)
Dollar Thrifty Automotive Group
Inc. (NYSE:DTG)
Hertz Global Holdings, Inc.
(NYSE:HTZ)
Latest
Debt
75.3
LTM
EBTIDA
25.0
DEBT/
EBTIDA
3.0
1,545.4
8,635.0
595.5
852.0
2.6x
10.1x
1,329.4
331.7
4.0x
12,507.2
1,233.4
10.1x
Median
7.1x
Exhibit 23: The biggest risk to our target price is the failure to increase capacity utilization, which could lead to a target
price of $12.48.
Investment Risks for Weighted Valuation
Forecasted Price
Current Price
Failure to Increase Capacity
Utilization (35%)
$19.45
$12.48
Increased Competition (30%)
$13.70
$19.45
Failure to Penetrate New Markets
(EU) (20%)
$15.95
Input Costs (15%)
Reference Range
$12.00
$19.45
$16.55
$19.45
$14.15
$19.45
$14.00
$16.00
ZIP Price per Share
20
$18.00
$20.00
December 12, 2011
CFA Institute Research Challenge
Exhibit 24: In our forecasted income statement, membership drives top line revenue growth , increased utilization
improves operating margins, and growing fee revenue enhances both. We forecast a gradual improvement in EBIT margins
while net income margins will only turn positive in 2014.
Income Statement
(Thousands)
Revenue
Growth
Total Revenue
FYE 2009
FYE 2010
2011E
2012P
2013P
2014P
2015P
2016P
131,182
24%
$131,182
186,101
42%
$ 186,101
242,125
30%
$ 242,125
305,763
26%
$ 305,763
387,985
27%
$ 387,985
465,165
20%
$ 465,165
543,385
17%
$ 543,385
621,015
14%
$ 621,015
93,367
10,414
122,634
15,114
158,782
19,891
195,928
24,741
243,571
31,592
286,906
37,910
330,804
44,167
374,958
50,552
103,781
$ 27,401
21%
137,748
$48,353
26%
178,672
$63,453
26%
220,669
$85,094
28%
275,163
$112,822
29%
324,816
$140,349
30%
374,970
$168,414
31%
425,510
$195,504
31%
2,314
3,170
4,151
4,631
5,474
6,081
6,540
6,831
29,973
49,172
58,625
74,034
94,136
113,095
132,655
152,228
990
3,414
4,122
5,206
6,605
7,919
9,251
10,573
$33,277
$55,756
$66,899
$83,870
$106,216
$127,095
$148,447
$169,632
137,058
193,504
245,571
304,540
381,379
451,911
523,417
595,142
$ (5,876)
-4%
$ (7,403)
-4%
$(3,446)
-1%
$1,224
0%
$6,606
2%
$13,254
3%
$19,968
4%
$25,873
4%
Interest income
Interest expense
Other income, net
Net Interest Expense
60
(2,457)
3,690
$1,293
47
(8,185)
1,731
$ (6,407)
87
(8,605)
801
$ (7,717)
109
(9,548)
917
$ (8,522)
139
(10,594)
1,164
$ (9,292)
166
(11,754)
1,349
$ (10,239)
194
(13,040)
1,521
$ (11,324)
222
(14,465)
1,242
$ (13,001)
EBT Excl. Unusual Items
$(4,583)
$ (13,810)
$ (11,163)
$ (7,298)
$ (2,685)
$3,015
$8,644
$12,872
Loss attributable to no
controlling interest
EBT Incl. Unusual Items
23
(4)
1
-
-
-
-
-
$ (4,606)
$(13,806)
$(11,164)
$(7,298)
$(2,685)
$3,015
$8,644
$12,872
Provision for income taxes
% taxes
Net Income/Loss
84
2%
$ (4,644)
311
2%
$ (14,125)
(264)
-2%
$ (10,898)
0%
$(7,298)
0%
$ (2,685)
(1,055)
35%
$4,071
(3,025)
35%
$11,669
(4,505)
35%
$17,377
-
-
-
-
-
-
-
-
$ (4,667)
$ (14,121)
$ (10,899)
$ (7,298)
$ (2,685)
$ 4,071
$ 11,669
$ 17,377
$ (4,690)
$ (14,117)
$ (10,900)
$ (7,298)
$ (2,685)
$ 4,071
$ 11,669
$ 17,377
($1.13)
4,167,887
($0.49)
29,031,776
($0.28)
38,904,375
($0.19)
38,904,375
($0.07)
38,904,375
$0.10
38,904,375
$0.30
38,904,375
$0.45
38,904,375
($1.13)
4,167,887
($0.49)
29,031,776
($0.26)
42,479,718
($0.17)
42,479,718
($0.06)
42,479,718
$0.10
42,479,718
$0.27
42,479,718
$0.41
42,479,718
(5,876)
5,310
$ (566)
NM
0%
131,182
(7,403)
13,602
$ 6,199
NM
3%
186,101
(3,446)
27,297
$ 23,851
285%
10%
242,125
1,224
37,429
$ 38,652
62%
13%
305,763
6,606
47,529
$ 54,136
40%
14%
387,985
13,254
57,534
$ 70,788
31%
15%
465,165
19,968
66,894
$ 86,862
23%
16%
543,385
25,873
75,085
$ 100,958
16%
16%
621,015
Costs and expenses
Costs of Goods Sold
Fleet operations
Member services and
fulfillment
Total COGS
Gross Profit
% margin
Other Operating Expenses
Research and
development
Selling, general, and
administrative
Amortization of
acquired intangibles
Total other operating
expenses
Total Operating Expenses
(COGS + Other)
EBIT/Operating Income
% margin
Preferred dividends
Net Income to Common Excl.
Unusual Items
Net Income to Common Incl.
Unusual Items
Per Share Items
Basic EPS
Weighted Average Shares
Outstanding (Basic)
Diluted EPS
Weighted Average Shares
Outstanding (Diluted)
Supplemental
EBITDA Adjustment:
EBIT
+D&A
EBITDA
% growth
% margin
Revenue
21
December 12, 2011
CFA Institute Research Challenge
Exhibit 25: Zipcar is well positioned to build strong asset base while maintain ing healthy levels of capitalization.
Balance Sheet
(Thousands)
ASSETS
Current Assets
Cash and cash equivalents
ST marketable securities
Accounts receivable, net
Restricted cash
Inventory
Prepaid expenses and other
current assets
Total current assets
Non-Current Assets
PPE
Depreciation
Property and equipment, net
Goodwill
Intangible assets
Restricted cash
Deposits and other noncurrent assets
LT marketable securities
TOTAL ASSETS
LIABILITIES
Current Liabilities
Accounts payable
Accrued expenses and other
liabilities
Deferred revenue
Current portion of capital
lease obligations and other
debt
Total current liabilities
Non-current liabilities
Capital lease obligations and
other debt, net of current
portion
Deferred revenue, net of
current portion
Redeemable convertible
preferred stock warrants
Other liabilities
Total Liabilities
SHAREHOLDER'S
EQUITY
Redeemable non-controlling
interest
Redeemable convertible
preferred stock
Total Stockholder's Equity
SHAREHOLDER'S
DEFICIT
Common stock
APIC
Accumulated deficit/income
Accumulated other
comprehensive loss
Total Stockholder's Deficit
Total Stockholder's
Equity/Deficit
Accrued expenses
TOTAL LIABILITIES AND
STOCKHOLDER'S
DEFICIT
TOTAL ASSETS
ASSETS
FYE 2009
FYE 2010
2011E
2012P
19,228
2,816
48
5,037
43,005
4,223
900
9,905
48,497
32,152
5,640
1,800
11,104
35,368
32,152
6,727
1,103
12,610
30,730
32,152
8,536
1,376
16,510
40,698
32,152
10,234
1,624
19,489
68,515
32,152
11,954
1,875
22,498
114,400
32,152
13,662
2,128
25,531
27,129
58,033
99,193
87,960
89,303
104,196
136,995
187,873
18,604
9,178
9,426
41,871
1,385
5,750
4,346
77,288
6,371
70,917
99,750
8,527
3,503
8,198
147,630
33,668
113,962
102,826
5,668
4,115
4,743
202,424
71,097
131,327
108,627
5,951
3,001
3,459
264,193
118,626
145,567
109,153
6,249
2,608
3,005
328,946
176,160
152,787
108,425
6,561
3,453
3,980
393,720
243,054
150,666
104,808
6,889
5,814
6,701
455,328
318,139
137,189
97,785
7,234
9,707
11,188
89,907
248,928
5,042
335,548
340,325
355,885
379,404
411,873
450,976
3,953
8,207
6,247
16,594
8,266
18,807
10,209
22,729
12,731
26,691
15,028
31,507
17,348
36,372
19,687
41,274
9,763
6,984
14,261
26,041
12,983
15,796
11,832
21,125
14,755
20,578
17,417
23,074
20,106
26,133
22,816
28,018
28,907
63,143
55,853
65,896
74,754
87,026
99,959
111,795
8,228
68,022
59,547
61,752
70,587
77,208
84,177
93,323
3,145
3,651
2,516
2,341
2,822
3,201
3,840
4,305
400
478
-
-
-
-
-
-
764
41,444
1,975
137,269
2,456
120,370
2,578
132,567
2,649
150,812
2,825
170,260
3,084
191,060
3,364
212,787
111
277
492
492
492
492
492
492
95,715
116,683
-
-
-
-
-
-
95,826
116,960
492
492
492
492
492
492
4
4,017
(51,093)
(291)
6
59,647
(65,380)
426
39
290,519
(76,493)
621
39
290,519
(83,792)
500
39
290,519
(86,477)
500
39
290,519
(82,406)
500
39
290,519
(70,737)
500
39
290,519
(53,360)
500
(47,363)
(5,301)
214,686
207,266
204,581
208,652
220,321
237,698
48,463
111,659
215,178
207,758
205,073
209,144
220,813
238,190
$89,907
$248,928
$335,548
$340,325
$355,885
$379,404
$411,873
$450,976
$89,907
$248,928
$335,548
$340,325
$355,885
$379,404
$411,873
$450,976
22
2013P
2014P
2015P
2016P
December 12, 2011
CFA Institute Research Challenge
Exhibit 26: Zipcar’s margin expansions will help fuel out growth projections.
Statement of Cash Flows
(USD in thousands)
Operating Activities
Net Income/Loss
D&A
Stock-based compensation expense
Other operating cash flows
Changes in Net Working Capital
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Net Cash flow from operating activities
FYE 2009
FYE 2010
2011E
2012P
2013P
2014P
2015P
2016P
($4,690)
5,310
1,692
586
($14,117)
13,602
2,774
1,400
($10,900)
27,297
3,627
4,610
($7,298)
37,429
2,500
1,500
($2,685)
47,529
2,500
1,500
$4,071
57,534
2,500
1,500
$11,669
66,894
2,500
1,500
$17,377
75,085
2,500
1,500
(633)
(1,429)
785
1,864
2,906
$6,391
(516)
(3,776)
891
8,000
4,956
$13,214
(1,382)
(1,725)
2,015
3,757
(134)
$27,165
(1,087)
(1,507)
1,943
3,922
(1,150)
$34,131
(1,809)
(3,899)
2,521
3,962
2,922
$48,844
(1,698)
(2,979)
2,297
4,816
2,662
$65,604
(1,721)
(3,009)
2,320
4,865
2,689
$82,563
(1,708)
(3,032)
2,338
4,902
2,710
$96,462
2,009
(6,755)
(3,973)
($8,719)
8,424
(42,376)
(6,625)
($40,577)
12,299
(69,310)
(41,259)
($98,270)
15,531
(70,326)
($54,794)
19,708
(81,477)
($61,769)
23,628
(88,381)
($64,753)
27,601
(92,375)
($64,774)
31,545
(93,152)
($61,608)
250
83
$333
29,833
20,935
298
$51,066
(36,099)
113,291
$77,192
7,534
$7,534
8,288
$8,288
9,117
$9,117
10,028
$10,028
11,031
$11,031
Net increase/decrease in cash and cash equivalents
(1,995)
23,703
6,087
(13,129)
(4,637)
9,968
27,817
45,885
Cash and cash equivalents
Beginning of period
End of period
21,351
19,356
19,356
43,059
43,059
48,497
48,497
35,368
35,368
30,730
30,730
40,698
40,698
68,515
68,515
114,400
Investing activities
Proceeds from sale of PPE
Purchases of PPE
Other investing activities
Net Cash flow from investing activities
Financing activities
Proceeds from issuance of debt, net of principal payments
Proceeds from sale of Series G redeemable convertible pref stock
Other financing activities
Net Cash flow from financing activities
Exhibit 27: Zipcar is an aggressively expanding company in an industry that is still in the growth stage, thus it will
continue to see aggressive growth numbers in the near future before achieving a perpetual stable growth rate. We
assumed a two-stage growth model utilizing 30% free cash flo w growth for the first five years after 2016 and 3%
perpetual growth thereafter to calculate the terminal value. It should be noted that the terminal value given by this two stage perpetuity model is in line with the exit multiple terminal value, despite d epressed current market conditions.
Intrinsic DCF Analysis
(USD in thousands)
EBIT
- Taxes
Tax Effected EBIT
+ D&A
- CapEx (net)
- ∆ NWC
Unlevered FCF
TV: Perpetuity
Total Cash Flow
TV: Mult. (EV/Rev)
Total Cash Flow
2009A
2010A
2011E
2012P
2013P
2014P
2015P
2016P
(5,876)
(5,876)
5,310
(4,746)
3,493
(8,805)
(7,403)
(7,403)
13,602
(33,952)
9,555
(37,308)
(3,446)
(3,446)
27,297
(57,011)
2,531
(35,691)
1,224
428
795
37,429
(54,794)
2,121
(18,691)
6,606
2,312
4,294
47,529
(61,769)
3,697
(13,643)
13,254
4,639
8,615
57,534
(64,753)
5,099
(3,703)
19,968
6,989
12,979
66,894
(64,774)
5,145
9,955
-35,691
-18,691
-13,643
-3,703
9,955
-35,691
-18,691
-13,643
-3,703
9,955
25,873
9,055
16,817
75,085
(61,608)
5,210
25,084
1,338,293
1,363,377
1,313,595
1,338,679
23
December 12, 2011
CFA Institute Research Challenge
Exhibit 28: Key vehicle metrics from September 2009 through September 2011 help explain the feasibility of organic
growth in Zipcar’s business.
Key Metrics
Ending members
Quarterly growth
Ending vehicles
Quarterly growth
Usage revenue per
vehicle per day
Total revenue per
member per period
Cost per new account
Average monthly
member retention
Adjusted EBITDA (in
thousands)
Vehicles
Owned vehicles
Capital lease vehicles
Operating lease vehicles
Ending vehicles
Sep-302009
329,381
Dec-312009
348,932
5.94%
6,210
-4.28%
Mar-312010
366,535
5.04%
6,085
-2.01%
Jun-302010
470,320
28.32%
8,860
45.60%
Sep-302010
521,035
10.78%
8,541
-3.60%
Dec-312010
540,484
3.73%
8,250
-3.41%
Mar-312011
576,914
6.74%
8,216
-0.41%
Jun-302011
604,571
4.79%
9,480
15.38%
Sep-302011
649,627
7.45%
9,489
0.09%
55
55
54
59
60
59
57
65
65
$118.0
$104.0
$92.0
$104.0
$109.0
$97.0
$87.0
$ 103.0
$108.0
40
52
55
66
45
49
53
70
55
97.7%
97.8%
98.3%
97.9%
97.8%
97.9%
98.2%
97.8%
97.3%
555
-316
-2,601
323
2,924
3,575
-1,885
2,316
4,567
202
489
5,797
6,488
112
407
5,691
6,210
113
586
5,386
6,085
545
1,703
6,612
8,860
1,692
1,632
5,217
8,541
2,011
1,700
4,539
8,250
2,424
1,509
4,283
8,216
3,684
1,621
4,175
9,480
4,592
1,608
3,289
9,489
6,488
Exhibit 29: Vehicle and revenue forecasts are based on membership growth and assumed member/vehicle ratios. Usage
revenue per vehicle per day is determined by linear regressio n (see Figure 3). We also used a regression to forecast an
increase in the member/vehicle ratio. We established a cap on this ratio by assuming that if Zipcar plans to have each car
used for 9 hours per day, and that members use cars an average of 36 hours per year (determined through survey) then the
maximum ratio of members/car they can maintain is about 91. We also assumed that by 2016, fee revenue would not reach
management’s targeted goal of 17% share, so we discounted this number by 10%.
3 months
Sep-30-2011
Ending Members
Members/vehicle
Ending vehicles for the
period
Usage revenue per day
per vehicle
9,480
9,489
3 months
Dec-312011E
675,081
73
9,186
$65.00
$65.00
$65.11
649,627
12 months
2012P
12 months
2013P
12 months
2014P
12 months
2015P
12 months
2016P
834,774
74
11,344
998,693
78
12,855
1,162,826
82
14,216
1,323,542
86
15,408
1,477,882
90
16,421
$70.18
$75.24
$80.31
$85.38
$90.44
7.8%
7.2%
6.7%
6.3%
5.9%
$332,292,23
0
86%
$396,772,38
4
85%
$461,597,45
2
85%
$525,378,36
4
85%
Total usage revenue
per period
% of total revenue
assumption
$58,779,000
$54,719,027
86%
86%
$262,938,24
7
86%
Fee revenue
% of total revenue
assumption
$9,227,000
14%
$8,591,875
14%
$42,519,056
13.9%
$55,305,016
14.3%
$67,927,830
14.6%
$81,244,031
15.0%
$95,015,236
15%
$53,000
0.1%
$63,374
0.1%
$305,763
0.1%
$387,985
0.1%
$465,165
0.1%
$543,385
0.1%
$621,015
0.1%
$68,059,000
$63,374,277
$305,763,06
6
$387,985,23
1
$465,165,37
9
$543,384,86
8
$621,014,61
5
Other Revenue
% of total revenue
assumption
Total Zipcar Revenue
24
December 12, 2011
CFA Institute Research Challenge
Exhibit30: Our return of 36% definitely corresponds with a BUY recommendation since it is above the 10 year standard
deviation of returns of the Small Ca p S&P600 Index.
Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
S&P600 Annual Returns
232.2
6%
196.6
-15%
270.4
38%
328.8
22%
350.7
7%
400.0
14%
395.1
-1%
268.7
-32%
332.6
24%
415.7
25%
414.5
0%
Standard Deviation
10 Year
20%
Exhibit31: While debt is increasing, there is sufficient growth in operating cash flows to sustain strong liquidity and
solvency ratios.
Ratios
Liquidity
COGS/365
Days AR
Days AP
Asset Adequacy
Current Ratio
Quick Ratio
Cash Adequacy
OCF/Debt coming due
OCF/Current Liabilities
Solvency
Cash Adequacy
OCF/Total Liabilities
D/E
Asset Adequacy
Total Liabilities/Total Assets
Coverage
LTD/SE
Interest Coverage Ratio
Profitability/Growth
Sales Growth
ROE
ATO
Net Income Margin
ROA
Gross Margin
EBITDA Margin
COGS % Rev.
Op. Exp. % Rev.
OCF/Sales
2009A
2010A
2011E
2012P
2013P
2014P
2015P
2016P
$284
47
14
$377
44
17
$490
43
38
$605
45
38
$754
45
35
$890
45
35
$1,027
45
35
$1,166
45
35
0.94x
0.94x
0.92x
0.92x
1.78x
1.78x
1.33x
1.33x
1.19x
1.19x
1.2x
1.2x
1.37x
1.37x
1.68x
1.68x
0.92x
0.22x
0.51x
0.21x
1.72x
0.49x
1.62x
0.52x
2.37x
0.65x
2.84x
0.75x
3.16x
0.83x
3.44x
0.86x
0.15x
0.33x
0.10x
0.86x
0.23x
0.36x
0.26x
0.41x
0.32x
0.46x
0.39x
0.49x
0.43x
0.51x
0.45x
0.52x
0.46x
0.55x
0.36x
0.39x
0.42x
0.45x
0.46x
0.47x
0.19x
NM
0.63x
3.06x
0.29x
4.52x
0.31x
5.01x
0.36x
6.26x
0.38x
7.41x
0.4x
8.29x
0.41x
8.42x
24%
-10%
1.48x
-4%
-5%
21%
0%
79%
104%
5%
42%
-13%
1.1x
-8%
-6%
26%
3%
74%
104%
7%
30%
-5%
0.83x
-5%
-3%
26%
10%
74%
101%
11%
26%
-4%
0.9x
-2%
-2%
28%
13%
72%
100%
11%
27%
-1%
1.11x
-1%
-1%
29%
14%
71%
98%
13%
20%
2%
1.27x
1%
1%
30%
15%
70%
97%
14%
17%
5%
1.37x
2%
3%
31%
16%
69%
96%
15%
14%
7%
1.44x
3%
4%
31%
16%
69%
96%
16%
25
December 12, 2011
CFA Institute Research Challenge
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27
December 12, 2011
CFA Institute Research Challenge
Disclosures:
Ownership and material conflicts of interest:
None of the authors, or a member of their household, of this report holds a financial interest in the securities of this company.
None of the author(s), or a member of their household, of this report knows of the existence of any conflicts of interest that might bias the
content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The authors, or a member of their household, do not serve as an officer, director or advisory board member of the subject company.
Market making:
The authors does not act as a market maker in the subject company’s securities.
Ratings key:
Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns
of 15% or greater over the next twelve month period, and recommends that investors take a position above the security’s weight in the S&P
500, or any other relevant index. A SELL rating is given when the security is expected to deliver negative returns over the next twelve
months, while a HOLD rating implies flat returns over the next twelve months.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s)
to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The
information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute
investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a
recommendation by any individual affiliated with BSAS or the BSAS New England Investment Research Challenge with regard to this
company’s stock.
28