The world’s largest equipment-rental company, United Rentals Inc. (URI) has a diverse rental f...
Disruptors in Ridesharing
08/01/2019 5:00 am EST
Ridesharing services, which enable passengers to hail a vehicle using a smartphone app, will likely witness significant growth potential over the next 20-30 years, suggests Angelo Zino, an analyst with CFRA Research, in the firm's newsletter, The Outlook.
The ride hailing space has been among the fastest-growing mobility services over the last decade, creating a new mode of transportation (defined as Mobility-as-a-Service or MaaS), disrupting the taxi and rental car industries; some believe ridesharing will eventually have massive implications for the $4 trillion plus global automotive industry.
The global ride hailing service market was valued at $36.45 billion in 2017, according to Allied Market Research, and is projected to reach $126.52 billion by 2025 (implies a 16.5% compounded annual growth rate).
The key factors that will likely drive the growth of the global ridesharing service industry include a growing population, a lower rate of car ownership, the rising trend of on-demand transportation services, safety concerns and a growing supply of drivers.
Ultimately, industry growth will be driven by greater consumer appreciation/acceptance for MaaS, which will drive a larger installed base for ride sharing services.
Over time, fully autonomous vehicles will drive down the cost for ride sharing platforms. Regulatory oversight could provide constraints to growth in certain regions, while greater competitive pressures pose the biggest risk to existing participants.
CFRA envisions a more stable pricing/discounting environment in the U.S. We think the U.S. is among the most attractive ridesharing markets on a global basis, given it is a fairly mature market and the two market shares leaders (Lyft and Uber) appear to be cooperating on a pricing basis.
Both Uber (UBER) and Lyft (LYFT) seem to be more focused competing on brand and product versus incentives, which we think continues to take place through the remainder of the year and into 2020. Both Uber and Lyft earn our 4-star buy rating.
From a market share perspective, Uber recently highlighted that gross bookings on a dollar basis were fairly stable at 70%, plus or minus 2 percentage points, since early 2018 versus its largest competitor, Lyft. Specifically, Uber cited a 69% share in the first quarter of 2019.
We expect competitive pressures to persist and pricing to witness a downward trajectory over time, which is needed to support broader consumer adoption, but we think it will take place at a rational level, at least in the intermediate term.
A more stable promotional landscape is also likely to support upside to our revenue per active rider forecast for the industry. We note that Lyft's revenue is much more exposed to the U.S. market (all revenue in the U.S. and Canada) compared to Uber (57% of sales in the U.S during the first quarter).
Within the U.S., Uber and Lyft dominate the ridesharing industry in a virtual duopoly at the moment, while others are undoubtedly to enter the space in the coming years.
Both companies have created an enormous network that connects tens of millions of drivers to consumers (Uber had 1.55 billion trips globally during the first quarter, while Lyft had 199 million) with an average wait time that has fallen to about five minutes.
The initiatives at Tesla (TSLA) to launch robotaxis as well as Google’s (Waymo) substantial investments in self-driving technology could be among the biggest competitive pressures on the horizon. Alphabet (GOOGL) earns our 4-star buy rating, while Telsa has a sell rating.
Our "sell" opinion on TSLA reflects concerns regarding vehicle sales and margins in the face of declining U.S. federal electric vehicle tax credits and increased competition as well as near-term earnings and free cash flow. Yet, we find TSLA's story of innovative electric vehicles with industry-leading range, speed and safety reviews appealing.
Related Articles on TRANSPORTATION
Ben Reynolds is a leading specialist on income investing. Here, the editor of Sure Dividend reviews ...
Richard Branson’s sale of 2.6 million shares has taken some steam out of the story at Virgin G...
Cruise operator Royal Caribbean (RCL) reported a loss of $1.48 per share Q1; the loss was assuredly ...