Turo’s Road to Carshare Profitability Seems Endless

When Turo filed to go public this month, the car-sharing marketplace included a few eye-catching statistics in its 270-page financial filing. The data cast a light on the broader disruption in car rentals.

Unlike traditional car rental brands, Turo is a peer-to-peer marketplace. The San Francisco-based company makes it easier for 85,000 private car owners to rent over 160,000 vehicles, somewhat like an Airbnb for cars. Many vehicles are kept at homes, rather than at distant rental car locations, and many owners offer to deliver vehicles to renters. In the year through September 30, 1.3 million people rented vehicles.

Turo’s largest investors include IAC/InterActiveCorp., led by Barry Diller, which owns a third of the shares ahead of the initial public offering.

The startup has raised more than $450 million in equity and convertible debt securities since its founding in 2010, according to Crunchbase.

Where Are the Profits?

Turo enjoyed accelerated growth in 2021. In the first nine months, the startup turbo-boosted its revenue by about 300 percent, year-over-year, to $330 million.

Observers would expect growth like that in 2021, however, because it was an ideal year to be helping people access cars for travel. A combination of one-off factors (such as Hertz’s brief bankruptcy) shrunk supply, while a boom in domestic U.S. travel amplified demand.

At Avis Budget, net income hit $900 million in the first nine months of the year, while Hertz enjoyed a net income of $277 million in the third quarter alone.

In contrast, Turo, which has never been profitable, saw its profit picture worsen last year. The company generated $129.3 million in net losses for the first nine months of the year, compared to a net loss of $97.1 million in 2020 and $98.6 million in 2019.

Turo said it was on a path to profitability. In the nine months of 2021, it achieved $69 million adjusted earnings before interest, taxes, depreciation, and amortization — the company’s custom measure of its overall financial performance. Last year was the first year it had a positive number on that metric. The company said the progress showed it was heading in the right direction.

Turo aims to go public now at a time when it has a compelling storyline. Especially during the pandemic, one segment of people has been suddenly working remotely and not using their cars to commute, opening up the opportunity for side hustles in renting out their vehicles. Meanwhile, another segment needed wheels to rent at a time when the supply of vehicles from traditional rental car companies was unusually low.

Turo has argued that the crisis has given people a taste of a service that they’ll like enough to continue.

A counterargument is that, once today’s conditions change, interest in Turo won’t remain without expensive marketing. The company acknowledged in its filing that it anticipated increasing its operating expenses over time. Those rising expenses might impair its ability to gain or sustain profitability.

Lawsuits at Airports

One headwind for Turo is litigation at airports. About one out of three of its bookings last year was at airports. But many airports want the vehicle handoffs regulated or otherwise controlled. Similar to how Airbnb has had to battle with regulators of short-term rentals, Turo will face a protracted battle with regulators and the companies that lobby them, particularly at airports.

In October 2021, Dallas/Fort Worth International Airport filed a complaint against Turo in Texas state court, alleging that Turo user vehicle handoffs at the airport violate its rules around commercial activity on airport property. Similar litigation is ongoing with Massport, the operator of Boston Logan International Airport. Turo faces similar battles in court over San Francisco International Airport and Los Angeles International Airport.

Another headwind for the company is competition. The startup’s largest rival in another Bay Area company, GetAround, which is well funded and in talks to go public.

In its filing, Turo proposed an offering amount of $100 million in shares for its initial public offering. It also said that as of September it had an accumulated deficit of $544 million.

Fresh capital could help it continue to expand while paying down debt.

But its expansion might partly depend on its skill at executing mergers, and that skill has been questioned. In July 2017, it acquired Croove as a peer-to-peer car-sharing service in Germany that shut it down in March 2020. While the pandemic played a role in the subsidiary’s failure, it was only partly a factor.

One wildcard factor in Turo’s future is that it might be acquired by a bigger player. For example, mobility giant Uber has shown an interest in broadening the mobility options it offers consumers. If it bought Turo, it might cost-effectively energize the platform’s supply and demand. General Motors or another auto manufacturer might be another potential acquirer.

Below is a copy of Turo’s filing with the U.S. Securities and Exchange Commission related to its planned initial public offering.