Hedge fund SRS Investment Management has seen its formerly high-flying investment lose more than half its value since last June
It’s unfortunate when a company drives shareholder value — in reverse. That’s what Avis Budget Group, the umbrella for both Avis and Budget car rental companies, has done to the stake of its largest investor, the hedge fund SRS Investment Management. What had once been a high-flying bet that generated headlines and billions in profits has this year erased more than $1 billion from the value of SRS’s shares.
Avis stock took off during the pandemic, when a boom in rental car demand and a minor meme stock obsession from the short-squeezers at Reddit $RDDT sent its shares flying from less than $30 at the end of 2019 to more than $300 by the end of 2021. Bloomberg reported that SRS, which has been invested in Avis since at least 2010 and now holds more than 47% of its outstanding shares, made $5 billion in a single day that year.
Revenues at Avis are at record highs, and the company ended last year with record profits, but investors are focused on all the factors holding profits back. The Wall Street Journal, which first reported SRS’s dwindling fortunes, notes that there are two big drags on Avis. On the one hand, new cars are getting more expensive because interest rates remain high. On the other hand, used cars aren’t fetching what they used to, so now Avis has to turn around and sell those more-expensive cars for less money.
Though CEO Joe Ferraro tried to put a nice bow on things during Avis’s latest earnings call — “The demand environment is strong, with pricing dynamics have leveled to normal seasonality, and our team is focused and driven to once again deliver another strong year in 2024” — the company’s shares are down nearly 40% this year. The S&P 500, for reference, is up nearly 7% for the year.
Even though Avis shares are rolling down a steep road, and SRS has a lot of its eggs in the Avis basket — the Journal reports that as much as a quarter of SRS’s assets were tied up in the company; Avis is by far the biggest company in SRS’s public ownership filings — there’s still some wiggle room before things get too hairy. Though Avis stock is hovering around $100, SRS has a breakeven price of about $23 because it built its stake so long ago.
The fund sold a million Avis shares last August, when shares were about $220. If the stock goes to zero, that’s still at least $200 million or so in the bank.
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