Shares of Zipcar soared 66 percent in early Nasdaq trading on Thursday as investors sought to buy into the leader of the growing U.S. car-sharing industry.
Shares added $10.10 in their debut to trade at $28.40, after the IPO raised $174.3 million on Wednesday, having attracted enough demand to sell more shares and price above the expected range.
Nearly a decade old, Zipcar is a leader in so-called car-sharing, a service that allows people to rent cars at an hourly or daily rate and park in convenient reserved spots. The service is especially popular in urban areas and around college campuses, where fewer people own cars and parking is scarce and expensive.
“This interest in a green, socially responsible company underpinned by a high growth prospect is driving investor demand here,” said Josef Schuster, founder of Chicago-based IPO investment firm IPOX Schuster LLC. “It was a very well-marketed deal…It’s a unique story and for the time being it’s attractive.”
Zipcar’s model has caught on so well that larger car rental companies such as Hertz Global Holdings Inc, Enterprise Holdings Inc and U-Haul, owned by Amerco, have started rival car-sharing services.
But the sector is still in its infancy and Hertz’s and Enterprises’s segments dedicated to car sharing are just a fraction in size compared with Zipcar. Rising energy prices and expansion of metropolitan areas are giving car sharing and Zipcar a perfect opportunity for growth, analysts said.
“It is a model that is very attractive to fairly large segment of population,” said Avondale Partners analyst Fred Lowrance. “For people who don’t want to spend $25,000 on a car because they get to drive it only once a week, this is a great alternative.”
Zipcar is backed by venture capital investors including Steve Case’s Revolution Living, Benchmark Capital, Greylock Partners and Smedvig Capital.
The company has yet to become profitable, reporting an accumulated deficit of $65 million in 2010 and warning investors it expected a net loss in 2011 as well.
But Zipcar’s revenue has been climbing, growing 42 percent to $186 million in 2010 after adding 24 percent in 2009.
Zipcars are mostly found on the streets of 14 big cities and 230 college campuses around the United States, Canada and Britain. To expand further in European markets, Zipcar bought a British peer, Streetcar Ltd, in April 2010.
In February, the company also added former eBay Inc CEO Meg Whitman to its board.
The company said it planned to use the proceeds from the IPO mostly to pay down debt — in part to former Streetcar shareholders — but also to expand its business, marketing and service selection.
The company’s stockholders sold 1.4 million more shares than originally planned in the IPO, which priced at $18 per share, above the proposed range of $14 to $16.
Schuster said the relatively small size of the deal could have supported the soaring trading on the first day.
Goldman Sachs and JPMorgan led underwriters on the IPO.