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I'm struck by how much lower the valuation is than for the purely web based companies. Zip car has been operating for 12 years and looks like it will be operati

by ollysb 14y ago

I'm struck by how much lower the valuation is than for the purely web based companies. Zip car has been operating for 12 years and looks like it will be operating for a long time to come. Even with facebook there's a question mark around whether or not it will be operating in another 10 years.

Mvandenbergh 14y ago
The main reason for that is that scaling works so differently. A purely web based company that hits on a really good operating* model can potentially scale whole orders of magnitude in a short period with relatively limited additional investment. ZipCar can't do that because their growth is constrained by the need for expensive assets (cars). Even if they were popular enough to expand by a whole order of magnitude over the course of a year they would require a huge injection of additional cash from additional equity sales or lending. As a result, it just isn't really possible for ZipCar undergo the huge upside that a web-only company can.
- Mvandenbergh 14y ago
  (*) I wouldn't call an operating model that doesn't produce revenue a business model
- ollysb 14y ago
  The problem is they scale down just as quickly. Currently they're sold with valuations that speculate about the potential profits according to their level of engagement. In many cases they'll scale down before they ever deliver on the kinds of profits that would justify their price tag.
  - dasil003 14y ago
    True, but it will take a few more decades before the market gets as comfortable valuing web companies as they are at valuing rental car companies. A big part of the valuation is simply unknown upside of the web in general and business models that will emerge. We like to laugh at the excesses of the dotcom boom, but the uncertainties that drove the insane valuations are still at play on a smaller scale.
  - sliverstorm 14y ago
    This all fits perfectly fine. High reward, high risk.
jonknee 14y ago
The valuation is actually quite high and in the range of a lot of web companies. Zipcar is not new and has established revenues and profits. With this buyout the company has a 112 P/E, comparable to what Netflix is valued at (116 P/E). The difference with purely web companies is Zipcar has a lot of fixed costs, if they want to expand to double the amount of users they will have a ton of capex to double the amount of vehicles (yes, you can probably squeeze a few more hours of usage into a car, but like planes there is a fixed number of hours any given vehicle can be generating you revenue per month). Web companies also see infrastructure costs dropping over time while Zipcar sees the opposite (after accounting for economies of scale, cars are not getting cheaper year after year).
- jakarta 14y ago
  Your argument is pretty flawed. On an ev/ ebitda basis zip car traded close to rental peers pre acquisition, 12x for zip versus 10x for Avis which had a mature business. Zip spends 25% of sales on capex which inflates D&A making net income superficially low and the pe appear ultra high

by ollysb 14y ago

Mvandenbergh 14y ago

The main reason for that is that scaling works so differently. A purely web based company that hits on a really good operating* model can potentially scale whole orders of magnitude in a short period with relatively limited additional investment. ZipCar can't do that because their growth is constrained by the need for expensive assets (cars). Even if they were popular enough to expand by a whole order of magnitude over the course of a year they would require a huge injection of additional cash from additional equity sales or lending. As a result, it just isn't really possible for ZipCar undergo the huge upside that a web-only company can.

Mvandenbergh 14y ago
(*) I wouldn't call an operating model that doesn't produce revenue a business model
ollysb 14y ago
The problem is they scale down just as quickly. Currently they're sold with valuations that speculate about the potential profits according to their level of engagement. In many cases they'll scale down before they ever deliver on the kinds of profits that would justify their price tag.
- dasil003 14y ago
  True, but it will take a few more decades before the market gets as comfortable valuing web companies as they are at valuing rental car companies. A big part of the valuation is simply unknown upside of the web in general and business models that will emerge. We like to laugh at the excesses of the dotcom boom, but the uncertainties that drove the insane valuations are still at play on a smaller scale.
- sliverstorm 14y ago
  This all fits perfectly fine. High reward, high risk.

jonknee 14y ago

The valuation is actually quite high and in the range of a lot of web companies. Zipcar is not new and has established revenues and profits. With this buyout the company has a 112 P/E, comparable to what Netflix is valued at (116 P/E). The difference with purely web companies is Zipcar has a lot of fixed costs, if they want to expand to double the amount of users they will have a ton of capex to double the amount of vehicles (yes, you can probably squeeze a few more hours of usage into a car, but like planes there is a fixed number of hours any given vehicle can be generating you revenue per month). Web companies also see infrastructure costs dropping over time while Zipcar sees the opposite (after accounting for economies of scale, cars are not getting cheaper year after year).

jakarta 14y ago
Your argument is pretty flawed. On an ev/ ebitda basis zip car traded close to rental peers pre acquisition, 12x for zip versus 10x for Avis which had a mature business. Zip spends 25% of sales on capex which inflates D&A making net income superficially low and the pe appear ultra high