1 Reason to Like Zipcar's Earnings

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Zipcar (NAS: ZIP) is off to the races today.

Shares in the company are up 26% as of this writing, on an otherwise flat session for the market. Apparently, investors found a lot to cheer in Zipcar's Q3 earnings results, which included 15% higher revenue, an 18% growth in members, and an expansion into Miami, the company's 20th major market. But buried deeper in the company's report is another encouraging number that I think deserves just as much attention: $70.

Buy me a member
That's what it cost Zipcar to acquire each new member it signed up in Q3. And for a membership-based business, it's a critical figure. The good news is that Zipcar's $70 per member outlay is down substantially from Q2's disastrous $89.


In that quarter, management took a gamble on an expensive broadcast radio campaign that fell flat. The result was a huge bump in marketing costs that failed to convert new members efficiently. SG&A spending leapt to 27% of Zipcar's sales on account of that bad bet, from the 24% booked the year before. Today's earnings report confirms Zipcar's progress in reversing that nasty trend.

But, despite the progress Zipcar just reported, the company's membership acquisition costs remain elevated. At $70, the new account cost is still up a blistering 30% from the year-ago quarter. Yet, the fact that the company signed up over 30,000 new drivers, while bringing its acquisition cost down, should be reassuring to investors who were worried the cost spike wasn't a one-time event.

Foolish takeaway
While it's encouraging to see Zipcar take control of its marketing costs, I'd like to see the figure get closer to the $55 it booked last year before calling this a win. And the company is testing new membership models -- like monthly options in addition to yearly -- that just might make that happen. But until it does, the company's lack of consistent profitability still has me passing on the stock, even if there's plenty to like about this earnings report.

Despite today's pop, Zipcar is still down big this year. Is Zipcar's crashing share price a sign to abandon ship, or should you back up the (rental) truck and buy more today? Our top Zipcar analyst will help you answer that question and tell you what everyone is missing about Zipcar today in his premium research report on the company. Click here now for instant access.

The article 1 Reason to Like Zipcar's Earnings originally appeared on Fool.com.

Fool contributor Demitri Kalogeropoulos has no positions in the stocks mentioned above. The Motley Fool owns shares of Zipcar. Motley Fool newsletter services recommend Zipcar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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