May Idea of the Month: Catching a Falling Star
by Travis Johnson, Stock Gumshoe | May 18, 2012 4:38 pm
Looking for growth in a 2011 IPO that lost its zip
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Source URL: https://www.stockgumshoe.com/2012/05/may-idea-of-the-month-catching-a-falling-star/
I’ve been long on ZIP for a while and am thinking about buying more shares. This is a great article that doesn’t build up any of the hype by just giving the cold hard facts. Basically Travis it’s your super power that I have enjoyed reading! I think you hit on a lot of important pieces but I wanted to add a few.
It is true that Hertz and Avis are probably their biggest threats but I think the problem they face is an innovators dilemma. The more they profit from this model the more they cut into their traditional business. How far into that can they comfortably go?
The future innovation in this market that will ultimately happen. I compare this company a lot to Netflix. Originally netflix was a mail DVD company and once they pivoted into the streaming business the stock took off. Zipcar has the same opportunity on two fronts.
First is the ability for individuals to rent out their own cars and why shouldn’t Zipcar take advantage of this? There are a couple of Valley startups doing this and Zipcar is an investor in one called Wheelz. So they are already hedged and very aware of this opportunity. Just imagine a Zipcar company that doesn’t have the extremely expensive capital investment of cars? What does that do for revenue and profits? The question is not if this will happen it’s just about how big that market would be. How comfortable are people to rent out their own cars to make a few more bucks a day?
The second really exciting front is cars that drive themselves. Google has been working on the technology for a while and it’s really been getting a lot of news in the last few weeks. Take a look at this article for a taste.
http://www.pcmag.com/article2/0,2817,2404199,00.asp
Now we have to hope that the people at Zipcar are smart enough to put this together, but bear with me for a minute. They have the technology to let you reserve a car from your smart phone already. What if they could connect that with GPS + a car that could drive to your location and pick you up? Not only do we not need taxis anymore but there is even more reason why we don’t need to own a car! It’s a little Blade Runner freaky but Zipcar potentially is the right company in the right market to take advantage of that revolution!
So those are a couple of future ideas that if either sticks really makes this company and stock take off. Like you I watch this stock closely and have been disappointed with the market reaction to it. I can’t help but believe they are onto something BIG. I just keep holding out and I guess buying on the big dips here.
Oh one other detail that I wanted to add. Europe is critical to their growth. It’s why they took a controlling stake in Streetcar as you mentioned but also owns a strong interest in Avancar in Spain. Europe is very densely populated which is perfect for Zipcar. Unfortunately the horrible economy probably isn’t helping but it could also be helping a ton because people can’t afford cars and are looking for alternatives. I really don’t know all the details over there but you have to think it has tons of potential for them that they are trying to maximize.
Back to FaceBook IPO pricing. I am wondering if they actually got it right. That is, the company squeezed almost every penny they could out of the IPO, rather than let it go to the market? They could have let it be priced lower, and the stock would likely have risen, providing a significant gain on the first day of trading. But then the company would have lost out on the extra cash infusion. Is this a new type of IPO, wherein the stock is priced appropriately, and being in on the IPO is not that much of an advantage?
I don’t know if we can extrapolate much — companies almost never manage to hold off on going public for this long, there just aren’t IPOs of $100 billion companies, so it’s hard to compare. Facebook did trade at near $50 in the secondary markets a couple months ago, but I guess we’re learning that that was at least partly the scarcity impact.
But yes, this is what companies should want from their underwriters — they should want not a pop that benefits aftermarket traders but a full pricing that gets them and their venture backers who sell shares maximum cash. And, frankly, they should want the underwriters to be left holding the bag just a little bit, too, to make sure they get that maximum payout.
Great minds think alike 🙂 — ZIP just initiated at a Buy by Morgan Stanley, which is why the shares are moving: http://blogs.barrons.com/stockstowatchtoday/2012/05/22/hertz-zipcar-rise-after-morgan-stanley-initiations/?mod=yahoobarrons
Hey Travis,
SILU sold off today and then bounced back a bit. Do you like it at this price level (around 1.40)? Do you have any idea why they had a big sell off?
Thanks
I still own the shares, and thought about placing another order when it was falling into the $1.30s on no apparent news. Don’t know why the stock sold off, though it is sensitive to the gyrations of junior mining stocks since those are most of its borrowers, and to the distressed real estate market since they’re still lumped into the real estate group by most stock data systems and they do still have some real estate assets to offload.
ZIP got burned today. Had to close my position (I close if I drop 15%+ with relation to SPY), will wait and watch.