Fueled Up, Zipcar Leads A Convoy Of Sharing Startups Down A Potholed Highway

Zipcar bullishly released its IPO this week. Now we'll see if the pioneer sharing business can lead a pack of others or act more like a minesweeper for nimbler, less-encumbered startups.

On one hand, Zipcar could end up driving a new sharing sector that includes businesses like Airbnb and Neighborgoods.net--it's a bright spot in an economy currently covered in the dust of renovation. And these types of startups get a boost from the dozen tech or social IPOs launched in the last year.

Zipcar's unexpectedly bullish IPO further added to the hope. Exceeding expectations by $4, at $18 a share, the company raised $174 Million to help maintain its most expensive cost, new cars.

But behind the sunshine, there's still the question of profit. Unlike younger, nimbler, smaller ridesharing businesses like Zimride.com and Relayrides.com, which connect car owners with rideseekers, Zipcar has huge capital costs. It warns in its own S-1 document filed in advance of this week's IPO that, "We expect fleet operation costs to increase as we expand the number of vehicles in our fleet to service an expanding membership base and support future revenue growth." Also in the required "Risks" section, it warns of deeper pitfalls:  

We have a history of losses, and we may be unable to achieve or sustain profitability. We have experienced net losses in each year since our inception, and we expect to incur net losses in 2010. We do not know if our business operations will become profitable or if we will continue to incur net losses in 2011 and beyond. We expect to incur significant future expenses as we develop and expand our business, which will make it harder for us to achieve and maintain future profitability. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not be able to achieve or maintain profitability.

It goes further from there, but does argue, however, "Over time, however, we expect these costs to decline as a percentage of revenue due to the achievement of increased efficiencies in our operations and as a greater percentage of our markets reach critical mass and vehicle usage levels increase."

To combat the increases, it opened up a separate LLC with $70 million for purchasing new vehicles.

And Zipcar says environmentally conscious Milliennials are deliberately driving less, 45% saying they prefer carpooling, public transit, or walking compared to 40% of Gen Xers. And Millennials say they're more likely to engage electronically with friends instead of driving to see them.

"What I can tell you is that the confluence of global trends such as increased urbanization, strained transportation infrastructure (i.e., lack of viable parking in major cities, too many cars on the road), general economic concerns of consumers and the need to reduce CO2 emissions all bode well for our business model," a Zipcar spokesperson tells Fast Company in a statement.

Still, the auto fleet remains a risk. And the same economic shifts that have presented sharing businesses with opportunities have caught Zipcar by surprise. It predicted profitability in 2009 after a multiple-fold revenue increase. But the rising cost of gas and the enormous expense of fleet updates have flatlined profits. In the nine months preceding September 2010, Zipcar spent $89 million of its $134 million revenue on fleet costs, such as new cars, insurance, and depreciation. At the end of 2010, it generated revenue of $186 million with a net loss of $14 million, and an accumulated deficit of $65 million.

 Despite the transparent risks, investors this week gave Zipcar a ringing endorsement--and along with it, the business of sharing. 

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[Thumbnail Image: Flickr user mvhargan]