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Instant Analysis: Hertz and Avis May Be Uber's Next Victims

By Jeremy Bowman - Jan 25, 2016 at 2:20PM

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The rental car industry is the latest to feel the heat from Uber.

What happened?
A new report found that business travelers prefer using Uber over rental car services like Hertz Global Holdings Inc. (HTZG.Q) and Avis Budget Group (CAR -5.17%) or taxis. According to receipt-tracking company Certify, Uber represented 41% of business traveler rides in the last quarter of 2015, compared to 39% for rental cars and just 20% for taxis, and that gap is expected to expand this year. 

The figures underscore the disruptive power of the $62.5-billion ride-hailing juggernaut. For years, Uber has been seen as a clear threat to the taxicab industry, evidenced by Medallion Financial's (MFIN 2.96%) stocks having sunk 50% in the last two years, but now rental car companies like Hertz and Avis are squarely in its sights.

Does it matter?
Investors and consumers alike have long looked down on the rental car industry. Known for hidden costs, bad service, and inefficiency, it's a business that has seemed ripe for disruption. Various alternatives have crept up in recent years including car-sharing service Zipcar, now owned by Avis, and peer-to-peer car lending services like RelayRides, but Uber is a new kind of beast for the rental companies to confront. As a reflection of Wall Street's opinion of the two types of businesses, it assigns Uber a valuation of $62.5 billion, but just $4.2 billion to Hertz and $2.6 billion for Avis. This despite the fact that Uber owns no cars, while Hertz and Avis have fleets in the hundreds of thousands. 

Even with the rise of Uber, the need for rental cars for long journeys and trips outside of cities will remain, but business travelers are a key constituency for the industry and Uber is finding a better way to serve them. App-based ride-hailing services like Uber and Lyft are easy, convenient, and often cheaper than other alternatives. Their growth is yet another reason to bet against rental car companies.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of Hertz Global Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.
HTZG.Q
Avis Budget Group, Inc. Stock Quote
Avis Budget Group, Inc.
CAR
$183.88 (-5.17%) $-10.03
Medallion Financial Corp. Stock Quote
Medallion Financial Corp.
MFIN
$8.36 (2.96%) $0.24

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