Uber's $18.2 billion estimated value and Google Inc.'s (NASDAQ:GOOG) self-driving car prevue should convince investors to take a second look at Hertz Global Holdings (HTZ) and Avis Budget Group (CAR).
The two rental-car giants are in the best position to take advantage of the revolution in personal transportation being ushered in by Uber and Google. These companies are laying the groundwork for a massive new market that Hertz and Avis can easily tap into.
How Uber Is Changing Drive Habits
Basically, Uber is changing the way a lot of people get around car by making the process of calling and paying for taxis easier and more convenient. Uber has shaken up the taxi business by making it possible to hire a ride at the press of a button. New York Times Dealbook writer, Andrew Ross Sorkin, noted that many of Uber's customers are people who traditionally don't take taxis. It is attracting newer, largely younger, riders, many of whom hate traditional taxis.
Tech Crunch estimated Uber's yearly bookings at $1 billion a year, based upon data from leaked spreadsheets. If that information is accurate, Uber has a gross yearly revenue of around $213 million a year. Since Uber is a privately held company this information is impossible to verify, but it is certainly food for thought.
Uber also has plenty of room to grow; the total revenue from the U.S. taxi business is estimated at $11 billion a year. If Uber could capture 10% of that business, its revenue would be $1 billion a year, Sorkin noted.
Google's Self-Driving Car Takes Uber to Next Level
Google has revealed a new technology that could take Uber to the next level; a completely self-driving car. The Google car, or cart, would drive around cities and pick up and drop off passengers much like an Uber car does but without the driver.
If it works out, Google's technology will make car sharing easier and more convenient. That could help Hertz and Avis, because both companies are already in the car sharing business. Avis owns Zipcar, the best known car sharing business; Zipcar allows customers to use cars parked on streets or at parking lots on a short-term basis.
Hertz has created its own car sharing service called 24/7. Like Zipcar, Hertz 24/7 puts vehicles in the neighborhoods where people live instead of at a car rental agency.
It's easy to see how Google's car fits into this picture. Instead of going to the car-sharing vehicle, the Zipcar or 24/7 car of the future will drive itself to the customer then drive itself back to the car-rental office or parking spot after the renter is done with it. The customer will call it with an app similar to Uber's.
Hertz and Avis are positioned to take advantage of this opportunity because they have the experience and the infrastructure to deploy those vehicles in place. If Google wants to put fleets of self-driving vehicles on the streets, Hertz and Avis are the logical delivery systems.
Car Rental Business Growing
The interesting thing is that the car rental business is already growing without self-driving vehicles, car sharing, or apps.
Avis Budget's TTM revenue rose from $7.42 billion in March 2013 to $8.109 billion in March 2014, an increase of $684 million. In March 2012 Avis Budget reported a TTM revenue figure of $6.289 billion. That's an increase of nearly $2 billion in just two years.
Hertz reported an even bigger growth in TTM revenues; Hertz reported $9.5 billion in revenue in March 2013 and $10.77 billion in March 2014. That's an increase of around $1.2 billion. In March 2012 Hertz reported venues of $8.47 billion, which means Hertz's revenue grew by around $2.3 billion in two years.
Traditional car rentals are already a growth industry without car sharing. Car sharing could only add to the revenues from the traditional business model.
A number of factors are driving the growth in the car-rental industry. The most interesting of these from our standpoint is the growing number of Americans that do not own a car.
Number of Car-less Households Expanding Car-Rental Market
Around 9.3% of American households lacked a car in 2012, CNW Marketing reported. In 1991 only around 5.7% U.S. households were without wheels. CNW's analysts believe that the number of households without cars will hit 10% in the near future.
Each of the carless households is a potential customer for Hertz and Avis. After all, many of those people still drive occasionally for shopping or trips out of town.
Another result of this change is that vehicle fleets might become one of the auto industry's main markets in the near future, CNW predicted. That, too, could benefit Avis Budget and Hertz because they're already experts at providing fleet vehicles.
With or without Uber and Google's self-driving car, the car-rental industry has a bright future. Revenue growth indicates that Hertz and Avis have growth momentum and could keep it for the foreseeable future.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.