Will Uber Buckle Under New York’s Pressure?

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Will Uber Buckle Under New York’s Pressure?

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The restrictions would be a welcome change for drivers who have long complained that they hardly make any money, after accounting for the fees and expenses of operating vehicles. Passengers may wait a bit longer for rides, and fares may go up if fewer cars are available at peak times. But travel times could get shorter if traffic congestion eases, one of the city’s goals in restricting ride-sharing.

The broader question is whether other cities will follow New York’s lead and impose more restrictions on ride-sharing—potentially reducing Uber’s market value or derailing its IPO. Scores of fund companies and financial firms, including Fidelity Investments, BlackRock (BLK), Principal Financial Group (PFG), and Japan’s Softbank Group (9984.Japan), have stakes in Uber. They’ll be keenly watching the New York City experiment to see how it affects Uber’s core ride-hailing business and financial metrics.


But even if New York and other cities impose more restrictions on ride-hailing, they hardly pose existential threats to the firm, which is, at its core, a disruptive software platform. “New York City’s moves could set a precedent,” says Morningstar analyst Ali Mogharabi. “But Uber will have opportunities to take advantage of other growing markets.”

Uber is applying its technology in all sorts of other ares. Drivers are delivering food through Uber Eats, which has 8 million monthly active users in more than 250 cities globally, with more than 60,000 participating restaurants, according to Mogharabi. Those numbers are way less than GrubHub’s (GRUB), which has 15 million users and 80,000 restaurants. But Uber Eats is expanding rapidly, with the number of drivers rising 24% between March 2016 and March 2017.

Uber has also developed ride-sharing in the health-care industry via Uber Health—booking trips for nonemergency doctor appointments. It’s expanding into logistics and cargo services through Uber Freight. And the company aims to launch an on-demand commuter aviation service, with plans to test UberAIR in Los Angeles and Dallas in 2020. Autonomous vehicles, should they go mainstream, could be another area of growth and help put the brakes on Uber’s rising labor costs.

Also promising is Uber’s foray into dockless bike-sharing. The firm bought a bike-sharing startup, Jump, earlier this year. Uber’s app may soon include location-sharing for a bike if a car isn’t nearby. Lyft is developing similar technology. And bike-sharing could go a long way to pleasing cities that aim to reduce traffic congestion and promote greener transportation (two of New York’s aims).

Granted, Uber won’t have all these markets to itself—Lyft and other ride-sharing services are gaining traction. And there will be plenty of competition from other startups and tech giants like Alphabet (GOOGL), which is plowing resources and capital into its Waymo autonomous car division.

Nonetheless, Mogharabi estimates that Uber’s total addressable worldwide market will be $630 billion by 2022. On that basis, he values Uber at up to $110 billion, much more than the $62 billion valuation it recently received, based on a financing round in May. Revenues will grow at a 27% average pace over the next 10 years to $82.4 billion. With an IPO expected in the second half of 2019, he sees Uber getting a market cap between $100 billion and $110 billion.

To Hail and Back

If you’re wondering how the latest restrictions on ride-sharing may impact the traditional taxi business, the answer seems to be…not much.

Medallion Financial (MFIN) is the main publicly traded company in the taxi-medallion business. The firm makes loans to drivers and small-business owners to finance purchases of medallions in New York, Chicago, Boston, and other cities. Its stock is up about 8% today on the news of New York City’s crackdown on Uber—a sign the value of a medallion may increase marginally. The company issued a statement today applauding the city’s legislation.

But Medallion’s stock has been rising for some time—up 151% over the past year—precisely because it’s easing out of the medallion business. The company estimates that New York City taxi medallions are now worth $315,000 apiece, down from $1.3 million five years ago, before Uber and other ride-sharing services took off.

Medallion has been diversifying into other commercial niches, such as loans secured by equipment, accounts receivable, real estate, and other assets. The firm now runs a bank and makes loans for recreational vehicles, home-improvement financing, and other types of lending. Commercial loans of $90 million comprised 15% of the firm’s $610 million investment portfolio as of Dec. 31, 2017, compared to 13% of its portfolio a year earlier, according to its 2017 annual report.

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