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You Can Hear the Gears Grinding at Avis Budget

By Chris Hill – Nov 10, 2019 at 11:10PM

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Profit fell 11% last quarter, the stock is near a five-year low, and the long-term situation looks tenuous.

Ridesharing is an ongoing disruptor in every part of the automotive industry, and that includes the rental car segment. As a result, Avis Budget (CAR 3.75%), once in the enviable position of industry leader, is stuck with a huge infrastructure and heavy debt, and a customer base that just doesn't need all that in quite the way it used to.

In this segment of the Nov. 1 Motley Fool Money podcast, host Chris Hill and Motley Fool senior analysts Andy Cross, Jason Moser, and Ron Gross talk about the state of the company, the outlook for that segment, and more. 

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on Nov. 1, 2019.

Chris Hill: Third quarter profits for Avis Budget fell 11%. Shares were down for the week. Ron, the stock is a few bucks away from a five-year low.

Ron Gross: It's really tough for them in this Uber/Lyft world we live in. It's just a struggling business that is getting disintermediated and disrupted. They're doing their best to try to mitigate that by creating partnerships with these folks, whether it's Uber or Lyft, where their cars are available to drivers of those services. I'm not sure that's going to get this done, to be quite honest. You see it in the numbers. Revenues were basically flat, up a meager 1%. They did have some per-unit fleet costs that improved to the tune of about 6%. But, as you noted, profits down 11%. The company tried to mitigate some of the damage. They purchased 2.1 million shares for a total of $59 million during the quarter, at a price pretty much right where the stock is right now. I don't know if that's going to be a good use of capital, quite honestly. So, it's just kind of a meh.

Andy Cross: I heard the term "car-as-a-service" this week from an analyst.

Gross: [laughs] Oh, no!

Cross: I just kind of rolled my eyes.

Jason Moser: Green Dot brought in banking-as-a-service as well. 

Cross: BaaS.

Moser: Are we, perhaps, podcasts-as-a-service? 

Hill: Possibly. 

Gross: This guy has a lot of debt, too. $3.5 billion in debt. Don't sleep on that, dude, that could be a little dangerous.

Hill: You know how we look at different industries and we say, there's going to be more than one winner in this industry, it's not a zero-sum game -- is this one of those situations where the opposite is true? There's not going to be any winners? Hertz, that stock has been down over the last few years. You look at Avis. Is this just now officially a bad business to be in? 

Gross: Yes. [laughs] The answer is yes. You have to look at the multiples. They'll just tell you everything you need to know. Six times forward earnings for Avis. Nine times forward earnings for Hertz. It's just tough.

Hill: Their next report will incorporate holiday travel, so hopefully that's going to pay off for Avis Budget.

Andy Cross has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Ron Gross has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

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