Zipcar Ready to Take Off

Former Caligiuri Investments Stock

Back on April 14th, 2011 I blogged about Zipcar after its IPO.  Clickhere to see the original write-up.  A couple predictions I made for Zipcar were:

1.  "Because Zipcar is a relatively young company, it has yet to turn a profit.  This will no doubt be a concern for many investors, however I believe that Zipcar will be profitable in the long-term."

2.  "If I had to guess, Zipcar will receive immense interest from outside companies such as Ford and Toyota."

3.  "In the end, I believe that this will be at least a multi-billion dollar company."

Prediction Number 1 = Correct


"I believe that Zipcar will be profitable in the long-term."

Zipcar has indeed finally turned a profit.  Turning a profit is kind of important (joke), so this is huge.  On November 2nd, 2011 Zipcar released its earnings report showing its profitability.  Scott Griffith, Chairman and CEO of Zipcar, said, "We are delighted to report a strong quarter of growth and profitability."  Click here for the article.

Despite the profit hurdle finally being passed, we should not be surprised if Zipcar fails to report profits for certain quarters in the short run.  Like all great companies that have come before it, Zipcar is aggressively spending money to grow its business.  Now that we have seen Zipcar turn a profit, we should have more confidence in the long-term plan of the company.

Prediction Number 2 = Correct


"If I had to guess, Zipcar will receive immense interest from outside companies such as Ford and Toyota."

Zipcar and Ford struck a deal.  Below is a brief excerpt from the New York Times describing the deal.  For the complete article, click here.

"[Ford] will supply its vehicles to Zipcar locations on 250 college and university campuses in the United States.  The two-year program will provide Zipcar with up to 1,000 Ford Focus sedans and Escape sport utility vehicles."

This was not only a sweet deal because Zipcar received a bunch of free cars, but it also shows that Ford recognized Zipcar as the market leader.  In other words, Ford could have chosen to provide Hertz with free cars (a competitor to Zipcar in the car sharing industry), but it chose Zipcar.  CEO Scott Griffith said it best:

"Having Bill Ford and the Ford Motor Company validating Zipcar as a business model and as an emerging transportation brand is a big step for us."

Prediction 3 = Hopefully Correct!


"In the end, I believe that this will be at least a multi-billion dollar company."

The third prediction I made was that Zipcar would be at least a multi-billion dollar company, I.E. a multi-billion dollar market capitalization.  Right now, Zipcar's market capitalization is $724 million, so a multi-billion dollar market cap would mean triple digit returns for investors.

Now is the Time to Buy

I've been following Zipcar since April and think that now is a great time to buy into what I believe to be a future multi-billion dollar company.  Remember, own at least 15-25 companies in a portfolio and don't allocate too much to any one stock.  

Michael R Caligiuri owns shares in Zipcar

GMCR Drops 30%

Earnings and Revenue Lower than Expected

GMCR released a statement confirming that it missed earnings and revenue expectations this quarter.  More specifically, GMCR missed the forecasted EPS by 1 penny.  In addition, they reported a revenue stream of $712 million instead of the expected $761 million.  Despite the fact that these missed expectations are most likely due to normal fluctuations in demand inherent to the coffee industry, investors turned sour and sent shares tumbling 30% in after-hours market trading.  For more information click here.

GMCR Addresses Einhorn's Criticism

Another big story coming out of GMCR today was that it addressed criticism from David Einhorn.  The CEO of GMCR, Larry Blanford, said that the company hired an audit committee that found no misconduct or wrong doing with GMCR.  He also added:

“We understand with success comes scrutiny, and at times skepticism.”

Unfortunately, these positive comments did not prevent the drastic after hours share price decline.

What to do Now

As an owner of GMCR shares, I have held onto my position all the way through this crisis.  My investing strategy is to stick with a company unless my investment thesis for it has changed.  As I see it now, GMCR still has a strong product that will continue to produce high revenues and earnings in the future.  Investors must understand that GMCR's missing earnings and revenue expectations are simply a byproduct of the company's wild success.  If it hadn't been performing so well in the beginning, expectations wouldn't have been so high!

Having said that, I do not believe that RIGHT NOW is the best time to invest in GMCR.  With so much skepticism surrounding the stock amidst the Einhorn allegations, it is best to let the stock settle a bit before investing.  If you REALLY want to invest in GMCR, I would recommend pursuing a dollar cost average strategy where you invest a third of your intended investment now, another third a month from now, and a final third three months from now.  This way you will protect yourself and possibly benefit from possible price fluctuations.

Michael R Caligiuri owns shares in GMCR

Green Mountain Coffee Roasters Oversold

There are two possible reasons that GMCR shares have fallen 40% since David Einhorn's recommendation to short the stock:

1. Einhorn's analysis of GMCR was indeed correct and GMCR shares were grossly overrvalued

2. Investors simply sold off their shares in GMCR out of fear. Fear the almighty Einhorn!

I'm not buying Einhorn's recommendation and thus believe that investors sold their shares in GMCR out of fear.  Although I admire David Einhorn and his brilliant analyses of companies, I think it was his stellar reputation that was responsible for GMCR's fall rather than the rationale provided in his analysis, which can be found at this link: http://tinyurl.com/6zoztck.  Sure, Einhorn has had many successful short-sell recommendations such as Lehman Brothers, but all investors make mistakes.

Einhorn's two biggest reasons for shorting GMCR were unethical accounting practices and a likely loss of market share due to patent expiration.  I guess I can't really argue with Einhorn on either one of these points, but that's only because we have known both of these things for a while now.  Every stock analyst on the market and their mother knew exactly when GMCR patents were going to expire (this was explicitly stated in the 10K).  Furthermore, GMCR accounting practices had already been in question before.  If stock analysts and investors believed in GMCR prior to David Einhorn reciting information that they already knew, then why did so many people sell their shares? Fear.

The bottom line is that GMCR has a very strong product that has plenty of room to grow.  Although there will be new entrants to the K-cup industry, GMCR's first mover advantage and long term contracts with powerhouse coffee companies such as Starbucks and Dunkin Donuts should help it maintain its competitive advantage.

Michael R Caligiuri owns shares of GMCR