Will this IPO Pay Off Better than the Tesla IPO?

Monday, June 28th, 2010

It’s amazing how much attention this latest Tesla IPO is getting.

The company goes public tomorrow, but they’ve been building this one up for months.

In the meantime, there’s another company that’s recently announced an IPO. And despite the lack of hype, it’s actually a pretty interesting story — and definitely worth a look.

You see, back in 2006, I wrote about a growing trend called car sharing, where I highlighted a car sharing company called Flex Car. Well, Flex Car merged with another car sharing company called ZipCar in 2007.

Now ZipCar is going public.

I’ll get to the nuts and bolts of this $75 million IPO in just a minute. But first, let’s take a closer look at this car sharing trend that’s gaining in popularity throughout the nation’s cities.

What is “car sharing”?

Wiki’s definition of car sharing is pretty accurate:

It is a mode of car rental where people rent cars for short periods of time, often by the hour. They are attractive to customers who make only occasional use of a vehicle.

While those who live in the suburbs or in rural areas pretty much have to drive everywhere (and do need their vehicles on a daily basis), those who live in our nation’s cities often rely on public transportation or — and hold on to your seats — walking!

The advantage to living in the city is that everything you need is typically within a close distance. In fact driving anywhere in the city rarely makes sense, since drivers have to not only pay for gas, but also shell out small fortunes for parking.

Nonetheless, many who live in the city still need cars for those occasions when mass transit or a bike ride isn’t an option.

And that’s where car sharing comes into play — offering city dwellers an opportunity to avoid the hassles of owning a car (i.e. insurance, registration, parking, etc.) and save quite a bit of green in the process.

According to ZipCar, the leading car sharing company in the United States, members of the service report an average monthly savings of more than $500 compared to car ownership.

So how does the ZipCar model work, and how profitable can ZipCar be for investors?

The ZipCar Model

It works like this:

You sign up for a ZipCar membership (a $50 annual fee). Once you’re approved, you get a membership card (a Zipcard) that you use to reserve a vehicle.

Whether online or over the phone, members choose the car they want — everything from BMWs to hybrids to MINIs to pickups — and request a particular time slot and the location from where they plan to pick up the car.

When you go to pick up your car, your Zipcard unlocks the doors. Then you drive off.

When you’re done, simply return the vehicle back to the spot where you picked it up.

It’s quite easy, and much more convenient and cheaper than renting a car… Because not only are the rates pretty competitive, but you get a few important bonuses with your membership, including:

• Gas – That’s right, ZipCar pays for the gas.
• Insurance – ZipCar provides coverage up to the state-mandated levels. So no, you don’t have to come out of pocket for that. Whereas with rental car companies, they always hit you up for those extra insurance fees.
• Miles – Each reservation comes with 180 free miles per day.

When you really start breaking down the costs of car ownership and car sharing, it’s easy to see why so many folks who don’t need a vehicle on a regular basis are going this route.

In fact, ZipCar says it took two years to get its first 1,000 members. Today, the company gets the same amount in just a few days. The potential here is pretty impressive.

ZipCar even makes a point to spell out the cost savings to potential members with a savings calculator.

All in all, it’s a pretty promising model with the potential for some serious growth, as more and more folks move to the cities and oil prices head north.

But is there…

Anything here for investors?

Like many companies going public these days, ZipCar has posted losses every year since it started.

And those losses are expected to continue this year and into 2011.

That being said, ZipCar’s got a nice little operation going – with limited competition right now.

For the three months ended March 31, ZipCar’s revenue climbed 22.5% to $33.24 million; although net loss did increase from $2.97 million to $5.3 million.

ZipCar also has a pretty sizable debt load with some pretty sizable interest rates. I have no doubt that a chunk of what it raises through its IPO will go to pay down some of the company’s debt.

But despite a history of losses and some uncomfortable debt (about $30 million worth), you can’t dismiss a company that boasts 400,000 paying members and more than $130 million in total revenue in 2009. Not in this market.

Like anything these days, the risk is real.

And ZipCar isn’t shooting out of the gates as a highly profitable company. If it was, I suspect there would be a lot more hype about this IPO…

The truth is that much of ZipCar’s success hinges on whether or not car sharing will continue to experience robust growth.

If you believe that car sharing is just one more logical evolution when it comes to personal transportation, then certainly this is the car sharing company to watch. If you don’t think this trend has any real teeth, then ZipCar is probably not for you.

Personally, I believe car sharing is proving to be another transportation alternative that has a legitimate shot at changing the personal transportation landscape.

So we’re going to keep a close eye on this one. And if an opportunity presents itself, we’ll be sure to let you know.

To a new way of life, and a new generation of wealth…

Even though hydroelectric power remains the world’s largest utility-scale renewable energy, there’s now a better, more efficient way to generate electricity from rushing rivers.

It’s called run-of-river hydro-power, and it’s quickly becoming the new mainstream for consumers and investors alike.

That’s partially because large-scale hydro-power gets little love from environmentalists in developed countries who say dams do too much damage to alluvial areas.

The reservoir-dam model also takes a hit as old, Depression-era engineering in this age of smart grids. No one wants to pitch a plan most Americans associate with Herbert Hoover!

Anyway, the best spots for dams have already been picked out and transformed by decades of surveying and construction. Developing countries may have room to build like beavers, but there are other obstacles to face.

On the way to becoming the world’s largest water-driven power station, China’s Three Gorges Dam project displaced over 1.2 million people and outraged everyone from ornithologists to archaeologists.

Three Gorges Dam itself is over six times as long as Hoover Dam, between Arizona and Nevada, and almost 50% larger than Washington state’s Grand Coulee Dam (pictured above) — America’s largest.

It’s too bad China looked down the historical stream —not up — when officials decided to dam the Yangtze.

If Beijing’s top brass had it to do over now, they’d see that run-of-river hydroelectricity is already changing the way the world gets power from water.

Take Canada, for example, where investors have taken single-day gains upwards of 20% on run-of-river’s political progress. . .

Run-of-River Scores a Win in Canada

In the province of British Columbia, run-of-river power has been run through the political mill lately.

The New Democratic Party stumped for a 6-month moratorium on private power projects that encompassed several clean energy technologies. Hydro was included on the forced dormancy list, so were wind and biomass (the local solar resource is negligible).

But the Liberal Party won, and Canadian clean energy investors didn’t just breathe a sigh of relief — they also propelled shares of clean energy companies to new highs.

Below, you see the layout of how run-of-river generation works:

This run-of-river design diverts some water into a pipe called a penstock, which channels the river water into turbines for generation. The water then goes back into the stream with little or no net effect on downstream water levels.

That’s perhaps the most salient difference between dams and ROR projects, in terms of environmental impact and the regulatory hoops specialty firms have to jump through.

Hoover Dam, that national landmark and symbol of how long hydro has given power to the American Southwest, has a generating capacity of just over 2000 MW.

If approved, BC’s biggest pending hydro array will be optimized to generate more than 1000 MW!

That’s enough to power 300,000 homes. But of course, it’s only a small piece of the puzzle to get British Columbia’s energy mix more accessible, localized, and efficient.

Moving Beyond British Columbia

The Liberal win keeps alive a process initiated by provincial utility British Columbia Hydro and Power that puts new, renewable generation sources up against each other.

BC Hydro projects consumer electricity demand growth of up to 35% before 2030.

Competition is good — we’re not looking for sweetheart stock plays here. We want winners.

Top bidders in BC are likely to include Finavera Renewable, Innergex Renewable Energy , Naikun Wind Energy Group , and Swift Power Corp.

But it does look like run-of-river technology is headed for the medal stand when it comes to expansion of electricity resources and access around the world.

The company also has the backing of General Electric. Together, they’re lauching joint bids and developing synergies that could take successful application in British Columbia to GE’s worldwide operations.

On that note, let’s look westward from Canada, to the other side of the Pacific Ocean. . .

Run-of-River Hydro-power in the Philippines

Q: Which country is #2 in geothermal production, trailing only the U.S.?

A: The Philippines. And in another few years, the power-packed archipelago could overtake Uncle Sam.

The Philippines is drawing $10 billion over the next 10 years into its burgeoning renewable energy infrastructure… and that money will go toward more than just boosting an already impressive geothermal industry.

Run-of-river hydro-power companies will play an integral role in the island chain’s move to double its clean energy capacity.

With 1,081 potential hydroelectricity generation sites spread throughout the country’s 7000+ islands, it’s easy to see why the Philippines is part of a growing list of nations embracing run-of-river. “Mini-hydro,” as some call it there, uses generation sizes between 101 KW and 10 MW to expand efficient electricity access with minimal transmission distances.

Moreover, local hydro-power operators have the luxury of tapping into an established renewable energy infrastructure.

The Philippines: Rich in Renewable

The Philippines now gets 23% of its electricity from a combination of hydroelectricity, solar, wind, biomass, and above all, geothermal — up from 21% in 2005.

Rich underground energy resources have made it easier for the Philippines to move away from its two-pronged colonial past (first Spain called the islands its own, then the U.S. took over until 1946) and into relative energy independence.

To take autonomy a step further, President Gloria Arroyo launched a new Philippine Energy Plan in 2005 to propel the country to 60% self-sufficiency by 2010.

The Philippine government is dialing back on coal imports and oil and gas exploration. But like other countries with near-term plans to maximize existing petroleum resources, the shot-callers in Manila know renewable energy is the real long-lasting way to satisfy growing energy demand.

With Arroyo’s 2010 clean energy target fast approaching, it’s more and more evident that the government’s additional goal of doubling capacity will take more than geothermal alone.

And they’ve added a new goal, too: Energy Secretary Angelo Reyes says the national objective is “to double the power being generated from renewable sources, from 4,500 MW to 9,000 MW in 10 years.”

Over the same 10 years, homegrown and foreign firms will combine in joint venture investments — outsiders are limited to 40% stakes in any given RE project — that could exceed the $10 billion mark.

Our interest is piqued, too. Even with its thousands of islands, the Philippines makes up one big piece of the global clean energy puzzle. As for hydro-power, the country joins Canada, India, China, and others where run-of-river is transitioning from feasibility studies into practical implementation.

Hydro-power’s Part in the Indian Renewable Energy

India’s market for renewable energy and related technology is growing by 25% per year. India is a country full of rivers and streams.

In fact, rivers like the Ganges and Brahmaputra are the lifelines of the whole nation, connecting rural areas to urban and, with run-of-river hydro-power, linking undeserved areas to utilities and economic opportunities.

It takes a special kind of company, with plenty of local familiarity and technological know-how, to advance next-generation hydro-power in India. We think we’ve found just the company.

You see, there are dozens of Indian companies taking full advantage of renewable energy momentum right now. But there’s only one that boasts renewable energy assets totaling 140 megawatts — and can be bought and sold right here in the United States. . . just like any other stock in your portfolio.

But what’s really exciting about this company is that it’s moving quite aggressively on new run-of-river hydro projects. And for good reason.

In 2009, the company’s first two run-of-river hydro plants went online. Both are 25-megawatt plants, and both are expected to boost next year’s revenue by $19.8 million.

So it’s no surprise that a third run-of-river plant is currently under construction.

Of course, even though you can trade it right here at home, few investors have a clue that this Indian powerhouse even exists. Which is unfortunate. . . because this thing is a sleeping giant.

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Wind mill farm in Atlantic City, New Jersey - USA

Wind mill farm in Atlantic City, New Jersey - USA

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