TechPulse 360

Zipcar’s IPO is likely to be an interesting test for clean-tech investing.

The company doesn’t make lithium batteries or solar cells. But it capitalizes on the same green product trends slowly taking shape in the United States and around the world.

Zipcar made a name for itself by convincing people to drive less and rely on car sharing networks when they do. And while it has racked up impressive sales, it is spilling red ink like an underwater oil well and forecasts more losses this year and possibly in the next several to come. So will it be a clean-tech Webvan or eventually a money gusher?

Zipcar had revenue of $131.2 million in 2009, but losses of $4.6 million. More red ink is on the way.

Wall Street may find out later this year as Zipcar said Tuesday it will sell about $75 million of stock to the public.

Some observers suggest the reception could be good despite the losses. Zipcar has built a brand and its cars are increasingly visible in the Bay Area, says Silicon Valley consultant Louis Gray. More importantly, losses at the company have been cut by more than half in the past year while revenue growth is about 30 percent a year.

Some companies “choose growth and seize opportunity” instead of hold down costs to generate profits, Gray says.

But professional investors are cautious. The company doesn’t have a new technology that differentiates it from its rivals – which are low-margin rental companies, such as Avis or Hertz, said one who asked to remain anonymous. It needs to show it can make money from invested capital – perhaps by selecting a typical market, such as San Francisco, and demonstrating  it can turn a profit. Then the task would be to translate that success into a formula it can apply to other markets.

“You don’t want to be another Webvan” and sacrifice profits for unrestrained growth, he said. The online grocer went bankrupt during the 2001 dot-com crash when it found it couldn’t turn a profit.

The venture capital-backed company claims its opportunities for expansion are stunning. Zipcar already operates what it claims is the world’s largest car sharing network, with operations in 13 metropolitan areas and on 150 university campuses in the U.S., Canada and the United Kingdom. It rents cars to a self-service clientele of 400,000 members, who pick them up in reserved parking spots and pay by the hour, or day.

Zipcar claims in a filing with the Securities and Exchange Commission it has identified 100 metropolitan areas across the globe ripe for expansion. “Given our estimate that ten million driving age residents, business commuters and university community residents live or work within a short walk of a Zipcar, we believe the adoption in our current cities represents only a small fraction of the existing market opportunity,” the filing states.

According to a Frost & Sullivan estimate contained in the document, the car-sharing market could amount to $3.3 billion by 2016.

However, building a profitable business is anything by assured. Revenue was $131.2 million in 2009 before the April acquisition of U.K.’s Streetcar. (Streetcar had revenue of $23.1 million.) Yet the company lost $4.6 million, an improvement from $14.5 million in 2008.

“We expect to incur net losses in 2010 (and) we do not know if our business operations will become profitable or if we will continue to incur net losses in 2011 and beyond. We expect to incur significant future expenses as we develop and expand our business,” according to the SEC filing.

The losses come on top of an accumulated deficit of $56.4 million, with $26.9 million in long-term debt. (Zipcar hopes to pay down this debt with the money from the IPO.)

Still, the company has no trouble calculating a positive value for its stock. That value was $3.49 in July 31, 2009 and $4.37 at the end of December.

With improving financial markets and lower risks in the company’s business the value rose to $5.27 by March 2010, Zipcar says in its filing. It will be interesting to see how accurate the estimate is as losses continue to pile up and investor faith is tested.