Boston University Student Research: Zipcar, Inc

Car Sharing Industry
Boston University Student Research

This report is published for educational purposes only by students competing in the CFA Institute Research Challenge.
Zipcar, Inc.
Recommendation: BUY Price Target: $19.45
Date: Dec. 12, 2011
Ticker: ZIP (NASDAQ) Price: $14.28 (As of 12/09/11)
Earnings/Share (Normalized to 42.48mm weighted average diluted shares outstanding) Mar. Jun. Sept. Dec. Year 2008A 2009A 2010A 2011E
P/E Ratio
$(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)
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 worlds leader in car sharing through aggressive expansion into markets like Europe, growing membership at a projected CAGR of 17% through 2016. Zipcars 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 Zipcars 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. Zipcars 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 Companys 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 Companys 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 S&P 600
Oct-11
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
Source: CapitalIQ
CFA Institute Research Challenge

Car Ownership vs. Zipcar Costs Per Year
$6,000 $5,000
Cost in USD
December 12, 2011
BUSINESS DESCRIPTION
Zipcar has grown revenues and membership rapidly but has so far made slow progress towards profitability. Zipcar, founded in 2000 and based in Cambridge, Massachusetts, operates the worlds 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 $Car Ownership Zipcar $$455 $720

$384
Private Ownership Zipcar Public Transit Taxi

Conventional Rental
$4,733 $$720
$192
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.
$-
$200
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
Monthly Loss Per Vehicle

$2,500 Revenue: $1,888 $2,000
SG&A
R&D Membership Services Depreciation Parking
$1,500
$1,000 $500 $-
Insurance
Gas Loss: 18.1% Maintenance
$(500) $(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.
Cost Driver s: ZIPs 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).
Usage Revenue Per Vehicle Per Day

$100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Sep-09 Apr-11
y = 0.013x - 503 R = 0.722 Dec-12 Aug-14 Mar-16
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. 2
Actual
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.

Market Segments (2011)
Universities Individuals Govts/Businesses
December 12, 2011
10%
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 ZIPs fleet, providing a steadier source of income, since they use cars during weekday hours when individual customers are not using them (see Figure 4).
55%
35%
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). Cities: The Established1 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 Canadas 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).
Figure 4: Zipcar has a diversified customer base and has been shifting its focus to businesses. Government and Business market shares are team estimates.
Geographic Market Segments (2010)

17% 6% CA 77% US
UK
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
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.
Tot. Compens. Revenue
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

Competition
Type of Service Traditional Car Rental Business Model 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 Players Hertz, Avis, Enterprise
December 12, 2011
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, ZIPs 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 others profits (see Exhibit 9 in the Appendix for Porters Five Forces Analysis).
Car Sharing and Co-ops
Zipcar, Car2Go, Victoria Car Share
Peer-toPeer (P2P)
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.
MARKET TRENDS
Intense urban congestion leads to governmental action that supports car sharing. London charges a 10 congestion fee for traveling major roads, while green2 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.
Impact on Congestion Charge in London on Frequency of Travel

100% 90% 80% 70% Never
60%
50% 40%
Less frequently
30%
20% 10%
1x or more a month
1x or more a week
Before After
0%
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.
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
Searches (Millions)
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 Googles Global Monthly keyword searches in comparison to competitors names and general industry terms (see Figure 9).
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.

Zipcar Yelp Ratings
Great (4+ Stars) Neutral (3 Stars)
December 12, 2011
Negative (2- Stars)

70% 60% 50% 40%
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).
30%
20% 10% 0%
Competition
ZIPs 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%
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 Zipcars leadership. The rest of the industry is made up of smaller players with 5,000 or fewer members (see Figure 11). 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.
Connect by Hertz 3.3%

Car2Go 5.0%
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
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).
Competitive Positioning Map

Cost Leadership
Differentiation
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 Companys future earnings will be driven by growth in capacity utilization coupled with an increase in share of revenue from fees: Future Cash Inflows = (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 Zipcars 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, ZIPs 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 Companys international strategy focuses on congested cities with average GDP per capita of $34,000 to $71,000. 5
Narrow Market
Broad Market
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.

Growth Projections
Penetration by 2016 Established Markets ~120 Other Cities in US Canada and UK Europe Membership CAGR (2011-2016)
December 12, 2011
2.1% 0.2% 1.5% 0.8%
13.1% 13.2% 12.3% 13.8%
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.
Figure 13: Our penetration and membership growth projection is a key driver of capacity utilization.
Increase in the share of revenue coming from fees leads to higher margins . Zipcars 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. Zipcars OCF to sales ratio will reach 16% by 2016, up from 11% in 2011.
Target Price
Method DCF Description Exit Multiple and Perpetuity EV/Revenue Price $20.42 Weight 50%
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 Zipcars 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 Zipcars future earnings as: failure to increase capacity utilization, failure to penetrate new markets, increased competition, and absorption of higher input costs.
Trading Multiple (2.1X) M&A Multiple (3.0X) Total
$15.29
25%
EV/Revenue
$21.66
25%
$19.45
100%
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 Zipcars unique potential to grow revenue and margins. Both valuation methods have equal weights of 50% in estimating the target price.
Figure 14: After weighting our valuation methods we arrive at a one year target price of $19.45.
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. Zipcars 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.
December 12, 2011
DCF ANALYSIS
We estimated Zipcars 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 Cost of Equity Weight Cost of Minority Interest Weight WACC 3.70% 25.90% 10.51% 73.90%
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 Zipcars 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 industrys 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.
0.00% 0.20% 8.73%
Figure 15: We estimated our WACC to be 8.7 %.
SENSITIVITY
Zipcars 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). Zipcars 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
2008- 2011
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.
Projected
2012-2016
31.7% 29.3% 54.7% 37.7%
20.7% 20.3% 24.7% 17.0%
Figure 16: Our projected growth is consistently lower than historical growth in order to remain conservative.
December 12, 2011
Zipcars 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.
Margin Projections
Historical
2008-2011
Projected
2012-2016
EBIT Margin Average Fleet Costs as % of Rev
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).
(3%)
3%
79% - 66%
64% - 60%
Figure 17: Our projected margins are in line with historical numbers.
MARKETS PERCEPTION
While the market has celebrated good news like a government contract, we believe the market has discounted ZIPs share price too heavily due to worries about profitability. In October, ZIPs 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 Zipcars ability to produce positive earnings. However, we believe that near term losses does not negate future sustainable profitability. Zipcars launch of its Zipvan service was received with doubts. The market demonstrated a concern with Zipcars 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.
December 12, 2011
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 ZIPs 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 ZIPs 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 Zipcars 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 ZIPs 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.
December 12, 2011
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 ones 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 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. Zipcars 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.
Labor Gas
Insurance Third Party Service Providers
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 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
10
December 12, 2011
Exhibit 4 : Zipcar city statistics show that Zipcar targets cities with median incomes between $34,400 and $71,745 and high population density. Top 10 US Cities Population Population Density (people/sq mile) Number of Universities Median Income ($USD) People between 20 and 39 Min 66,194 3,153 12 34,400 160,206 Max 8,175,133 27,016 45 71,745 2,622,437 Median 619,278 10,590 18 47,134 245,390 All US Cities Population Population Density (people/sq mile) Number of Universities Median Income ($USD) People between 20 and 39 Min 1,357 62 0 13,385 420 Max 8,175,133 228,330 45 200,001 2,944,154 Median 71,943 3,263 3 39,427 33,485
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 Scott Griffith Chairman & CEO Background Boeing Information America The Parthenon Group Flexcar DaimlerChrysler Ford Leadership Examples 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 Brooks 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. 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
Mark Norman President & COO
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
Ed Goldfinger CFO
KPMG PepsiCo Spotfire Empirix Sapient
IPO readiness Obtaining and maintaining debt facilities Establishing a public- company level finance team Received a bonus of $119,753
11
December 12, 2011
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 Target EBITDA Attained Operating Income
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
2008
2009
2010
2011E
Operating Income Margin
EBITDA margin
Net Income Margin
12
December 12, 2011
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 Abroa d 2000 2005 US 2010 2015
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
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 50
Hours
40
30 20 10 0
Small Medium 1982 1992 Large 2002 Very Large
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
Fuel and Food Prices (1990-2010)

200 150 100 50 0 1990 2000 2010 3 2.5 2 1.5 1 0.5 0
Food Price Indices
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%
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%
14
Cars to Number of People and Gas Price ($)
Food Price Indices
250
3.5
December 12, 2011
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% 2-3 times/week 0%
No longer use 21% Once a week 2%
129 45 41
Total 141 129 44
Percentage 91.49% 34.88% 93.18%
Whole day 9%
6-8 hours 7%
Average Usage
Most Popular Cars

Mini Cooper 9.1% Nissan Sedan 18.2% BMW Sedan 36.4% Toyota Hybrid 36.4%
4-6 hours 2%
Less than 1 time/month 58%
1-2 hours 18%
2-4 hours 64%
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.
Potential Countries for Zipcar (2008)
GDP/Cap. (USD Thousands)
$60 $50
$40 $30 $20 $10 $-
GDP per capita (current US$)
Motor vehicles (per 1,000 people)
Potential Cities for Zipcar (2008)

GDP/Cap. (USD Thousands)
$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
Cars/Thousand of People
$70
900 800 700 600 500 400 300 200 100 0
December 12, 2011
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
14.0x
EV/Revenue multiple
R = 0.7154
12.0x 10.0x 8.0x 6.0x 4.0x

MHGC CHH HTZ UHAL ZIP NFLX AWAY OPEN
2.0x
DTG
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 Zipcars 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 Trading Multiples 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 $11.57
1,632 1,229 2,020 4,821
2,577 8,862 2,849 16,936
2,365 5,495 1,544 8,120
25.2% 15.5% 21.5% 15.2%
11.0% 7.3% 0.7% 8.7%
1.1x 1.6x 1.8x 2.1x 1.7x
$25.11 $37.44 $5.99 $48.37
2,023 2,193 184 9,295
1,851 2,321 666 11,492
217 628 220 5,433
16.6% 29.2% 9.3% 16.0%
39.6% 7.9% -5.9% 9.2%
8.5x 3.7x 3.0x 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 2.1x
16
December 12, 2011
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 Hotels 29-Mar-11 16-May-11 4-Apr-11 4-May-11 28-Mar-11 10-May-11 28-Feb-11 Close Date Target Buyer Seller Size (USD mm) 422 435 140 129 110 92 67 Implied EV Implied Equity Value 231 335 140 128 110 92 29 Total Consider ation 174 335 140 128 110 92 29 Median Car rental and Leasing 3-Dec-11 16-Dec-10 17-Jul-11 14-Jun-11 Implied EV/Rev.
15-Apr-11 1-Jun-11 23-May-11 10-May-11 6-Apr-11 27-May-11 30-Jun-11
One Park Boulevard 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
Hilton Worldwide Several financial holdings Morgans Hotel Group Starwood Hotels & Resorts Starwood CMBS I, LLC MPG Office Trust Sagamore Capital, LLC
475 430 140 129 110 92 67
4.7x 8.5x NA 4.2x 4.0x 4.5x 5.3x 4.6X
31-Dec-10 28-Jan-11 1-Sep-11 3-Oct-11
JJ Motorcars, Inc Scully Transportation Donlen Corporation Avis Europe plc
Tourism Holdings Ltd. Ryder System, Inc. The Hertz Corporation Avis Budget Car Rental
D. Schneider & H. Hagner NA G. Rappeport, N. Liace, etc. D Ieteren Car Rental, etc.
16 86 947 1,325
16 86 947 1,209
9 71 NA 636
9 71 NA 636 Median
0.8x 0.5x 2.7x 0.9x 0.8x
Auto Manufacturers 3-May-11 21-Jul-11 7-Mar-11 IT Market Disrupters 10-May-11 27-Apr-11 24-Mar-11 1-Feb-11 5-Jul-11 28-Mar-11 20-Jul-11 Zipcar 20-Apr-10
6-Jun-11 21-Jul-11 1-Apr-11
Wheeler Bros., Inc Chrysler Group LLC Classic Fire LLC
VSE Corp Fiat North America LLC Spartan Motors Inc
Wheeler Family and others additional 12.31% NA
220 625 5
182 7,305 5
162 5,077 5
162 625 5 Median
1.2x 0.2x 0.5x 0.5x
13-Oct-11 15-Jul-11 12-Apr-11 21-Apr-11 7-Nov-11 17-Jun-11 10-Nov-11
Skype Global SAVVIS, Inc Mortgagebot, LLC NaviSite, Inc Travelex Global Business GSI Commerce, Inc Insider Guides, Inc
Microsoft Corporation CenturyLink, Inc Davis + Handerson Corp Time Warner Cable Inc Western Union Co. eBay Inc. Quepasa Corp
Group of investors Investment fund Spectrum Equity Investors Group of investors Travelex Group Limited NA Group of investors
9,225 3,084 232 332 606 2,381 100
9,082 2,963 232 327 606 2,139 100
8,500 2,301 232 208 606 2,215 NA
8,500 2,301 232 208 606 2,215 NA Median 50
10.6x 3.0x 6.1x 2.5x 4.3x 1.6x 3.7x 3.7x 2.2x 3.7x
20-Apr-10
Streetcar Limited
Zipcar, Inc.
Group of investors
50
50
50
17
December 12, 2011
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 0.4% 0.3% 0.5% 1.5% 0.5% 0.5% Rate 1YR penetration NM NM NM NM +0.25% +0.02% 0.03% 2011E US members 5yr Organic Growth CAGR (US) *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 2016P members NM NM 105,905 40,444 21.2% 519,244 13.1% 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 NM NM NM NM 550,946 174,605 725,551 2014P members NM NM NM NM 617,187 197,019 814,207 2015P members NM NM NM NM 673,507 219,546 893,053 2016P members NM NM NM NM 719,795 242,185 961,980
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
2011E US members 5yr Organic Growth CAGR (US) *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
2016P members NM NM NM NM NM NM NM 172,686 115,393 8.4%
2011E US members 5yr Organic Growth CAGR (US) *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 City Paris Berlin Madrid Barcelona Rome Vienna Munich Milan Brussels Basel Total Europe members
2 cities per year 1.0% 0.5% Country France Germany Spain Spain Italy Austria Germany Italy Belgium Switzerland 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 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 2014P 1,162,826 16% 2013P members 42,043 14,096 6,645 6,533 NA NA NA NA NA NA 69,317 2015P 1,323,542 14% 2014P members 63,380 21,250 13,356 13,132 5,634 3,497 NA NA NA NA 120,250 2016P 1,477,882 12% 17.0% 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
$ $ $ $ $ $ $ $ $ $
Total Zipsters YoY Growth 5yr CAGR
2010A 540,484
2011E 675,081 25%
2012P 834,774 24%
2013P 998,693 20%
18
December 12, 2011
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 Zipcars historical prices starting from its IPO date in April. Source : BARRA and CapitalIQ.
Levered Beta BARRA Beta Regression Beta Average
1.19 1.35 0.97 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
Current Price Forecasted Price
WACC (+/-100 bps)
$18.19
$21.19
Perpetuity Growth (+/-50 bps)
$19.08
$19.89
EV/Revenue (+/-0.25x)
$18.40
$20.50
Revenue (+/-150 bps)
$17.85
$21.03
Expenses (+/- 75 bps) Best/Worst Case (Assumes all of above) $6.00
$10.78
$26.43
$8.21 $11.00 $16.00 ZIP Price per Share $21.00 $26.00 $31.00
$34.65
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 May-10 Outstanding Principle Amount as of FYE2009 FYE2010 MarJunSep3130302011 2011 2011 18,867 16,275 43,000 50,000 Coupon/Base rate 2% + 30-day Commercial Paper 9.00% 3.80 - 13.50% 11.20% Adjusted Rates 3.50% Floating Rate Yes Maturity --2015 Jun-12 Jul-13 2013 2013
ABS Note A
Revolving Credit Revolving Credit Capital Lease Term Loans
ABS Note B Capital Leases Loan and Security Agreement Loan and Security Agreement Loan and Security Agreement Notes Payable Total Principal Amount
May-10 NA May-08
3,249 8,216
10,000 27,604 4,984
10,000 23,421 10,000
26,342 -
25,343 -
9.00% 10.00% 11.20%
No Yes No
Term Loans
Jun-09
4,000
8,534
10,000
16.80%
16.80%
No
Term Loans
Mar-10
20,000
20,000
15.80%
15.80%
No
Bonds Notes
and
Apr-10
15,465
5,000 94,989
5,000 94,696
69,342
75,343
12.20%
12.20%
No
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 Zipcars historical debt structure, and concluded that the average of interest rates should be close to 10.0%. 19
December 12, 2011
Exhibit 22: In order to analyze ZIPs ability to repay debt, we used the traditional car rental industry as the closest industry compar able to assess Zips DEBT/EBITDA, which is calculated at 3.0x. Since the industrys 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) Median Latest Debt 75.3 LTM EBTIDA 25.0 DEBT/ EBTIDA 3.0
1,545.4 8,635.0 1,329.4 12,507.2
595.5 852.0 331.7 1,233.4
2.6x 10.1x 4.0x 10.1x 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

Current Price Failure to Increase Capacity Utilization (35%) Forecasted Price
$12.48
$19.45
Increased Competition (30%)
$13.70
$19.45
Failure to Penetrate New Markets (EU) (20%)
$15.95
$19.45
Input Costs (15%)
$16.55
$19.45
Reference Range
$14.15
$19.45
$12.00
$14.00
$16.00 ZIP Price per Share
$18.00
$20.00
20
December 12, 2011
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 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 Interest income Interest expense Other income, net Net Interest Expense EBT Excl. Unusual Items Loss attributable to no controlling interest EBT Incl. Unusual Items Provision for income taxes % taxes Net Income/Loss 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 FYE 2009 131,182 24% $131,182 FYE 2010 186,101 42% $ 186,101 2011E 242,125 30% $ 242,125 2012P 305,763 26% $ 305,763 2013P 387,985 27% $ 387,985 2014P 465,165 20% $ 465,165 2015P 543,385 17% $ 543,385 2016P 621,015 14% $ 621,015
93,367 10,414 103,781 $ 27,401 21%
122,634 15,114 137,748 $48,353 26%
158,782 19,891 178,672 $63,453 26%
195,928 24,741 220,669 $85,094 28%
243,571 31,592 275,163 $112,822 29%
286,906 37,910 324,816 $140,349 30%
330,804 44,167 374,970 $168,414 31%
374,958 50,552 425,510 $195,504 31%
2,314 29,973 990 $33,277
3,170 49,172 3,414 $55,756
4,151 58,625 4,122 $66,899
4,631 74,034 5,206 $83,870
5,474 94,136 6,605 $106,216
6,081 113,095 7,919 $127,095
6,540 132,655 9,251 $148,447
6,831 152,228 10,573 $169,632
137,058 $ (5,876) -4% 60 (2,457) 3,690 $1,293 $(4,583) 23 $ (4,606) 84 2% $ (4,644) $ (4,667) $ (4,690)
193,504 $ (7,403) -4% 47 (8,185) 1,731 $ (6,407) $ (13,810) (4) $(13,806) 311 2% $ (14,125) $ (14,121) $ (14,117)
245,571 $(3,446) -1% 87 (8,605) 801 $ (7,717) $ (11,163) 1 $(11,164) (264) -2% $ (10,898) $ (10,899) $ (10,900)
304,540 $1,224 0% 109 (9,548) 917 $ (8,522) $ (7,298) $(7,298) 0% $(7,298) $ (7,298) $ (7,298)
381,379 $6,606 2% 139 (10,594) 1,164 $ (9,292) $ (2,685) $(2,685) 0% $ (2,685) $ (2,685) $ (2,685)
451,911 $13,254 3% 166 (11,754) 1,349 $ (10,239) $3,015 $3,015 (1,055) 35% $4,071 $ 4,071 $ 4,071
523,417 $19,968 4% 194 (13,040) 1,521 $ (11,324) $8,644 $8,644 (3,025) 35% $11,669 $ 11,669 $ 11,669
595,142 $25,873 4% 222 (14,465) 1,242 $ (13,001) $12,872 $12,872 (4,505) 35% $17,377 $ 17,377 $ 17,377
($1.13) 4,167,887 ($1.13) 4,167,887
($0.49) 29,031,776 ($0.49) 29,031,776
($0.28) 38,904,375 ($0.26) 42,479,718
($0.19) 38,904,375 ($0.17) 42,479,718
($0.07) 38,904,375 ($0.06) 42,479,718
$0.10 38,904,375 $0.10 42,479,718
$0.30 38,904,375 $0.27 42,479,718
$0.45 38,904,375 $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
21
December 12, 2011
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 2013P 2014P 2015P 2016P
19,228 2,816 48 5,037 27,129
43,005 4,223 900 9,905 58,033
48,497 32,152 5,640 1,800 11,104 99,193
35,368 32,152 6,727 1,103 12,610 87,960
30,730 32,152 8,536 1,376 16,510 89,303
40,698 32,152 10,234 1,624 19,489 104,196
68,515 32,152 11,954 1,875 22,498 136,995
114,400 32,152 13,662 2,128 25,531 187,873
18,604 9,178 9,426 41,871 1,385 5,750 4,346 89,907
77,288 6,371 70,917 99,750 8,527 3,503 8,198 248,928
147,630 33,668 113,962 102,826 5,668 4,115 4,743 5,042 335,548
202,424 71,097 131,327 108,627 5,951 3,001 3,459 340,325
264,193 118,626 145,567 109,153 6,249 2,608 3,005 355,885
328,946 176,160 152,787 108,425 6,561 3,453 3,980 379,404
393,720 243,054 150,666 104,808 6,889 5,814 6,701 411,873
455,328 318,139 137,189 97,785 7,234 9,707 11,188 450,976
3,953 8,207 9,763 6,984
6,247 16,594 14,261 26,041
8,266 18,807 12,983 15,796
10,209 22,729 11,832 21,125
12,731 26,691 14,755 20,578
15,028 31,507 17,417 23,074
17,348 36,372 20,106 26,133
19,687 41,274 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
3,145 400 764 41,444
3,651 478 1,975 137,269
2,516 2,456 120,370
2,341 2,578 132,567
2,822 2,649 150,812
3,201 2,825 170,260
3,840 3,084 191,060
4,305 3,364 212,787
111 95,715 95,826
277 116,683 116,960
492 492
492 492
492 492
492 492
492 492
492 492
4 4,017 (51,093) (291) (47,363) 48,463
6 59,647 (65,380) 426 (5,301) 111,659
39 290,519 (76,493) 621 214,686 215,178
39 290,519 (83,792) 500 207,266 207,758
39 290,519 (86,477) 500 204,581 205,073
39 290,519 (82,406) 500 208,652 209,144
39 290,519 (70,737) 500 220,321 220,813
39 290,519 (53,360) 500 237,698 238,190
$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

Exhibit 26 : Zipcars 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 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 Net increase/decrease in cash and cash equivalents Cash and cash equivalents Beginning of period End of period FYE 2009 ($4,690) 5,310 1,692 586 (633) (1,429) 785 1,864 2,906 $6,391 FYE 2010 ($14,117) 13,602 2,774 1,400 (516) (3,776) 891 8,000 4,956 $13,214 2011E ($10,900) 27,297 3,627 4,610 (1,382) (1,725) 2,015 3,757 (134) $27,165 2012P ($7,298) 37,429 2,500 1,500 (1,087) (1,507) 1,943 3,922 (1,150) $34,131 2013P ($2,685) 47,529 2,500 1,500 (1,809) (3,899) 2,521 3,962 2,922 $48,844 2014P $4,071 57,534 2,500 1,500 (1,698) (2,979) 2,297 4,816 2,662 $65,604
December 12, 2011
2015P $11,669 66,894 2,500 1,500 (1,721) (3,009) 2,320 4,865 2,689 $82,563
2016P $17,377 75,085 2,500 1,500 (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 (1,995)
29,833 20,935 298 $51,066 23,703
(36,099) 113,291 $77,192 6,087
7,534 $7,534 (13,129)
8,288 $8,288 (4,637)
9,117 $9,117 9,968
10,028 $10,028 27,817
11,031 $11,031 45,885
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
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 (5,876) (5,876) 5,310 (4,746) 3,493 (8,805) 2010A (7,403) (7,403) 13,602 (33,952) 9,555 (37,308) 2011E (3,446) (3,446) 27,297 (57,011) 2,531 (35,691) -35,691 -35,691 2012P 1,224 428 795 37,429 (54,794) 2,121 (18,691) -18,691 -18,691 2013P 6,606 2,312 4,294 47,529 (61,769) 3,697 (13,643) -13,643 -13,643 2014P 13,254 4,639 8,615 57,534 (64,753) 5,099 (3,703) -3,703 -3,703 2015P 19,968 6,989 12,979 66,894 (64,774) 5,145 9,955 9,955 9,955 2016P 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
Exhibit 28 : Key vehicle metrics from September 2009 through September 2011 help explain the feasibility of organic growth in Zipcars 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 6,488 55 $118.0 40 97.7% 555 Dec-312009 348,932 5.94% 6,210 -4.28% 55 $104.0 52 97.8% -316 Mar-312010 366,535 5.04% 6,085 -2.01% 54 $92.0 55 98.3% -2,601 Jun-302010 470,320 28.32% 8,860 45.60% 59 $104.0 66 97.9% 323 Sep-302010 521,035 10.78% 8,541 -3.60% 60 $109.0 45 97.8% 2,924 Dec-312010 540,484 3.73% 8,250 -3.41% 59 $97.0 49 97.9% 3,575 Mar-312011 576,914 6.74% 8,216 -0.41% 57 $87.0 53 98.2% -1,885 Jun-302011 604,571 4.79% 9,480 15.38% 65 $ 103.0 70 97.8% 2,316 Sep-302011 649,627 7.45% 9,489 0.09% 65 $108.0 55 97.3% 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
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 managements 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 649,627 9,480 9,489 3 months Dec-312011E 675,081 73 9,186 12 months 2012P 834,774 74 11,344 12 months 2013P 998,693 78 12,855 12 months 2014P 1,162,826 82 14,216 12 months 2015P 1,323,542 86 15,408 12 months 2016P 1,477,882 90 16,421
Usage revenue per day per vehicle
$65.00
$65.00
$65.11
$70.18 7.8%
$75.24 7.2% $332,292,23 0 86%
$80.31 6.7% $396,772,38 4 85%
$85.38 6.3% $461,597,45 2 85%
$90.44 5.9% $525,378,36 4 85%
Total usage revenue per period % of total revenue assumption Fee revenue % of total revenue assumption Other Revenue % of total revenue assumption Total Zipcar Revenue
$58,779,000 86%
$54,719,027 86%
$262,938,24 7 86%
$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% $68,059,000
$63,374 0.1% $63,374,277
$305,763 0.1% $305,763,06 6
$387,985 0.1% $387,985,23 1
$465,165 0.1% $465,165,37 9
$543,385 0.1% $543,384,86 8
$621,015 0.1% $621,014,61 5
24
December 12, 2011
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 $284 47 14 0.94x 0.94x 0.92x 0.22x 2010A $377 44 17 0.92x 0.92x 0.51x 0.21x 2011E $490 43 38 1.78x 1.78x 1.72x 0.49x 2012P $605 45 38 1.33x 1.33x 1.62x 0.52x 2013P $754 45 35 1.19x 1.19x 2.37x 0.65x 2014P $890 45 35 1.2x 1.2x 2.84x 0.75x 2015P $1,027 45 35 1.37x 1.37x 3.16x 0.83x 2016P $1,166 45 35 1.68x 1.68x 3.44x 0.86x
0.15x 0.33x 0.46x 0.19x NM
0.10x 0.86x 0.55x 0.63x 3.06x
0.23x 0.36x 0.36x 0.29x 4.52x
0.26x 0.41x 0.39x 0.31x 5.01x
0.32x 0.46x 0.42x 0.36x 6.26x
0.39x 0.49x 0.45x 0.38x 7.41x
0.43x 0.51x 0.46x 0.4x 8.29x
0.45x 0.52x 0.47x 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
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27
CFA Institute Research Challenge Disclosures:
December 12, 2011
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 companys 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 t welve month period, and recommends that investors take a position above the securitys 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 companys stock.
28

Boston University Student Research: Zipcar, Inc

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Boston University Student Research: Zipcar, Inc

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Car Sharing Industry

Boston University Student Research

Date: Dec. 12, 2011

Ticker: ZIP (NASDAQ) Price: $14.28 (As of 12/09/11)

$(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)

Source: CapitalIQ, Student Research

GREEN LIGHT TO BUY ZIPCAR

ZIP vs. S&P 600

Jul-11 ZIP S&P 600

CFA Institute Research Challenge

December 12, 2011

$4,000 $3,000 $2,000 $1,000 $Car Ownership Zipcar $$455 $720

Private Ownership Zipcar Public Transit Taxi

Monthly Loss Per Vehicle

Usage Revenue Per Vehicle Per Day

y = 0.013x - 503 R = 0.722 Dec-12 Aug-14 Mar-16

CFA Institute Research Challenge

December 12, 2011

Geographic Market Segments (2010)

Tot. Compens. Revenue

CFA Institute Research Challenge

December 12, 2011

INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING INDUSTRY OVERVIEW

Car Sharing and Co-ops

Zipcar, Car2Go, Victoria Car Share

RelayRides, Get Around, Wheelz

Impact on Congestion Charge in London on Frequency of Travel

CFA Institute Research Challenge

December 12, 2011

Negative (2- Stars)

Car Sharing Market Share by Members (2011)

Connect by Hertz 3.3%

Competitive Positioning Map

CFA Institute Research Challenge

December 12, 2011

2.1% 0.2% 1.5% 0.8%

13.1% 13.2% 12.3% 13.8%

Trading Multiple (2.1X) M&A Multiple (3.0X) Total

CFA Institute Research Challenge

December 12, 2011

0.00% 0.20% 8.73%

Figure 15: We estimated our WACC to be 8.7 %.

31.7% 29.3% 54.7% 37.7%

20.7% 20.3% 24.7% 17.0%

CFA Institute Research Challenge

December 12, 2011

EBIT Margin Average Fleet Costs as % of Rev

CFA Institute Research Challenge

December 12, 2011

CFA Institute Research Challenge

December 12, 2011

Insurance Third Party Service Providers

CFA Institute Research Challenge

December 12, 2011

Mark Norman President & COO

KPMG PepsiCo Spotfire Empirix Sapient

CFA Institute Research Challenge

December 12, 2011

Operating Income Margin