Car-hire companies like Avis-Budget Group Inc. NASDAQ: CAR) are one of the most intriguing opportunities in today’s market. Such businesses are poised to cash in new technologies such as ridesharing, self-driving vehicles, and electric vehicles.
Predictions that the end of the human-driven automobile is in sight are driving interest in car rental companies. Avis’s stock price increased by 21% after the company announced a deal to maintain Waymo’s self-driving vans in Phoenix.
Avis-Budget and the Alphabet (NASDAQ: GOOGL) owned Waymo are already collaborating on a self-driving rideshare vehicle venture in Phoenix. Under the deal, Avis-Budget will maintain the mechanical components of the Chrysler Pacifica vans that Waymo is using to test its autonomous-vehicle technology in Arizona.
Delivery is a Huge Opportunity for Avis-Budget
Such a deal will give Avis-Budget experience maintaining and deploying self-driving vehicles. It also puts it in a position to provide autonomous vehicles for ridesharing services like Uber and Lyft, and delivery services like GrubHub (NYSE: GRUB), Instacart, Parcel, and Shipt.
Delivery is going to be a huge market for self-driving vehicles because of the involvement of big retail. Walmart (NYSE: WMT) is planning to offer grocery delivery to 40% of the US population through services like Uber, Deliv, and Lyft. Target (NYSE: TGT) has bought the grocery delivery solution Shipt, and Kroger (NYSE: KR) is partnering with Instacart.
Delivery is an opportunity for Avis-Budget because both retailers and gig-economy drivers will need reliable vehicles. Avis-Budget or Hertz Global Holdings Inc. (NYSE: HTZ) can provide the vans and the maintenance. One business model would be to rent vans to individuals who would use them for delivery.
All those delivery services are going to need a lot of vans. Chrysler Pacificas which have an automatic back door would be a perfect vehicle for them. So would Fiat Chrysler (NYSE: FCAU)’s other small vans the Dodge Grand Caravan and Dodge City Master Pro.
Avis-Budget can cash in on this by providing the vans that retailers will need to deliver all those groceries. Self-driving vans will make delivery easier by reducing the threat of accidents and liability concerns. The self-driving van can drive through a neighborhood while a delivery person on foot takes the groceries to the homes.
ZipCar positions AVIS-Budget for the End of the Human Driven Automobile
Another opportunity will be renting vans to gig-economy contractors that are delivering groceries and other goods for retailers. Avis Budget already has experience in this area through its Zip Car subsidiary.
ZipCar places vehicles that are rented out on a short-term basis in parking lots or on streets in urban areas. People without cars; such as Millennial college students, rent the vehicles when they need wheels. Examples of such trips include runs to the grocery store and date night.
An autonomous ZipCar would be the perfect vehicle for the era after the end of human-driven automobiles. A person would use such a Zip Car to make a trip, such as a commute, then the ZipCar would drive back to its parking place, or go pick up another driver afterward. The self-driving Zip Car would drive itself back to the Avis-Budget garage when maintenance is needed.
New technologies like electric cars; which require less maintenance than diesel and gasoline vehicles, would reduce costs for Avis or Hertz. An opportunity would be an electric car that plugs itself in or uses wireless technology to charge itself.
Is Avis-Budget Making Money?
CAR is in a good position to capitalize on changes in shopping and driving habits but is it making money? The answer to that question provided by the latest financial numbers is yes Avis-Budget Group is making money.
Avis Budget Group reported a quarterly net income of $220 million and an operating income of $47 million for 4th Quarter 2017. The operating income was down from $409 million in 3rd quarter and the net income was down from $245 million in 3rd quarter.
Avis Budget Group made a gross profit of $385 million on $2.019 billion in revenues during 4th Quarter 2017. That led to an operating cash flow of $607 million and a free cash flow of $1.41 billion. This makes Avis-Budget a value investment because it is capable of generating a lot of cash during a quarter. The company reported $2.066 billion in assets and $611 million in cash and equivalents on December 31, 2017.
Is Avis-Budget Group a Value Investment?
This gives Avis Budget the money it needs to take advantage of new opportunities such as self-driving vehicles. It makes the company a value investment at the $50.35 share price reported on 20 March 2018.
If you are looking for a way to invest in ridesharing and autonomous vehicles Avis Budget is worth a look. Although automakers like the Ford Motor Company (NYSE: F) and Fiat Chrysler will be better buys.
Ford was trading at $10.99 a share on 20 March 2018, and Fiat Chrysler Automobiles was trading at $21.10 a share on the same day. These companies are better buys because they have far greater cash resources and the ability to compete directly with Hertz and Avis-Budget in the car-hire sphere.
Ford had $38.927 billion in cash and short-term investments on December 31, 2017, and Fiat Chrysler had $15.176 billion in cash and on the same day. Avis-Budget simply lacks the money to compete with those resources. Automakers are still the best value investment for the future of transportation, because of their resources.