There is finally some evidence to validate the hypothesis that networked-transportation solutions such as Uber are a threat to car-rental companies.

The percentage of North American business travelers that listed Uber and Lyft on their expense reports exceeded the percentage those who listed car rentals for the first time, Bloomberg reported. The accounting software firm Certify reported that 40% of professionals listed car rentals as an expense and 43% listed ride-hailing apps as an expense during fourth quarter 2015.

Not coincidentally, Hertz Global Holdings (NYSE: HTZ) reported that its revenues fell by $14 million during fourth quarter 2015 and $15 million during first quarter 2016. Hertz reported revenues of $10.68 billion for the third quarter 2015; that fell to $10.54 billion in the fourth quarter and $10.39 billion at the end of first quarter 2015.

Hertz’s revenues actually fell during every quarter of 2015. It started the year with $11.05 billion in revenues that number fell to $10.96 billion in March 2015, $10.83 billion in June, $10.68 billion in September and $10.54 billion in December. Hertz revenues fell by $660 million during 2015 and the losses show no sign of stopping.

The revenue figures show us that Uber and Lyft are steadily eating away at Hertz’s business. The company is still making money, but some of its business is slowly disappearing.

Is Hertz Making Money?

Revenue was not the number affected at Hertz; the company reported a negative profit margin of -2.21% and a negative free cash flow of -$3.103 billion, on March 31, 2016.

Despite that Hertz was still making money, it reported a net income of $292 million on the same day. That is a major improvement over the -$83 million, Hertz reported for net income for first quarter 2015. If ycharts numbers are correct, Hertz’s net income increased by $300 million over the past year.

Even though it is making more money, Hertz is generating less cash. The company’s cash from operations fell by $205 million during first quarter 2016. Hertz reported $3.332 billion in cash from operations in December 2015 and $3.127 billion in March 2015.

Like its revenues, Hertz’s cash from operations dropped steadily over the past three quarters. It reported $3.474 billion in cash from operations in March 2015, $3.501 billion in June 2015, $3.406 billion in September 2015, $3.332 billion in December and $3.217 billion in March 2016. By my calculation, Hertz’s cash from operations has fallen by $374 million or a little over 10% since second quarter 2015.

This still gives Hertz some float, it reported $857 million in cash and short-term investments on March 31, 2016. That was a $272 million increase over first quarter 2015 when Hertz had $585 million in the bank.

Is Hertz Facing the Death Spiral?

It looks as if Hertz’s revenue is slowly collapsing which could lead to some serious problems. The company had $21.99 billion in liabilities (mostly car leases or loan payments to auto manufacturers) in fourth quarter 2016. To make matters worse, it also had $16.07 billion in long term debt.

That means Hertz could find itself a death spiral; which occurs when revenue cannot cover expenses like debt payments, at some point in the near future. That could lead to bankruptcy or force the management to sell out perhaps to a private equity company.

How Uber and Lyft are Destroying Hertz

Hertz might be facing this situation because Uber and Lyft are stealing its best customers. The person most likely use Uber is the traveling salesperson who would normally rent a Cadillac. The customers least likely to use a ride-hailing app are vacationing families that rent minivans. That leaves Hertz with the lowest profit customers and a lot full of unrented vehicles.

It also leaves Hertz with other expenses, such as the cost of running all those buses that haul travelers between the car-rental lot and the terminal. The existence of Uber and Lyft calls much of Hertz’s business model into question.

After all why should a business traveler spend half an hour picking up a rental car when Uber can get her to her destination in 15 minutes? Why should a person rent a car just to travel between the airport and the hotel?

Hertz; and competitors like Avis-Budget Group (NYSE: CAR), have profited from the North American car-rental business for years because of the lousy taxi cab service in most US and Canadian cities. By offering effective cab service; Uber and Lyft, are a direct threat to that stream of revenue.

This means that Hertz will have to drastically change its business model to survive. It might be forced to close airport locations or stop renting some kinds of cars such as sedans.

Is Hertz a Value Investment?

Naturally many observers will wonder if Hertz is a value investment here. The company is drastically undervalued right now; it had an enterprise value of $18.94 billion and a market cap of $3.82 billion on May 11, 2016. Its stock was also trading at $9 a share on the same day.

Perhaps because there will always be demand for rental vehicles. Some travelers – such as vacationing families – will always want to rent cars rather than rely on Uber or public transit.

New technologies such as autonomous cars could increase that demand at some point in the future. One off-cited example of this is a rental vehicle that drives itself to the customer, or drives itself back to the rental agency after dropping off the traveler.

Another potential opportunity for Hertz is the problems that Uber and Lyft are facing some parts of the country. The two services have been forced to shut down in a number of US cities including Austin, Las Vegas, Eugene and Portland in Oregon and Anchorage, Alaska. They also face restrictions at a number of airports including those in Orlando and Newark.

An even more interesting threat to ride-sharing is unionization, which has already begun in New York City. Uber has actually reached an agreement with a group called the Independent Drivers Guild; which represents drivers in the Big Apple.

Despite all this I would say Hertz is not a value investment because of the high amount of debt and declining revenue. This company will survive but it lacks the float to be a real value investment. Instead Hertz is now a high risk investment, because it is an industry that is being completely disrupted.

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