The ridesharing market is exploding as disrupters continue to upend the automobile and transportation industries. Two of this year’s high-profile IPOs - Lyft and Uber - have come from the ridesharing market. The industry’s growth is predicated on the notion that ridesharing offers the autonomy of having your own ride on tap without the cost of ownership.
While Uber and Lyft were the first out of the gates, they now have Asian giants Didi, Grab, Ola and legacy automakers joining the fray as they compete to corner a greater share of the burgeoning ridesharing market, which is projected to be around US$500 billion by 2023, growing at 24% annually from 2018.
Investors looking to park their capital in the ridesharing marketplace may want to consider the following companies pioneering the disruption of the wider mobility market. Not only do they have a self-fulfilling and self-replicating business model that grows exponentially, they’re also looking to take the autonomous route to margin expansion. Moreover, they are boldly following growth in other niches such as food transportation, logistics, as well as micromobility (shared bikes and scooters), unlocking multiple revenue streams, according to Morningstar equity research.
| Uber Technologies Inc | ||
| Ticker: | UBER | |
| Current Yield: | - | |
| Forward P/E: | - | |
| Price: | US$37.14 | |
| Fair Value: | $58 | |
| Fair Value Uncertainty | Very High | |
| Value: | 28% Discount | |
| Moat: | Narrow | |
| Moat Trend: | Stable | |
| Star Rating: | **** | |
| Data as of May 13, 2019 | ||
Ride-hailing pioneer Uber Technologies (UBER) has tapped into ridesharing, food delivery, and freight brokerage markets. It could soon be expanding to additional products and services such as autonomous vehicles, delivery via drones, and aerial ridesharing.
With operations in over 63 countries, Uber has become the largest on-demand ridesharing provider in the U.S. and the world (except China). The company, which recently acquired Middle East rival Careem, matched riders with drivers completing trips over billions of miles and, at the end of 2018, had 91 million users who used the firm’s ride-sharing or food delivery services at least once a month, says a Morningstar equity report.
The company’s competitive strength is built on its network effect between riders and drivers, and its accumulation of valuable user data, says the report, noting that Uber generates 83% of its gross revenue from ridesharing, which includes micromobility, or shorter-distance transportation via electronic bikes and scooters, and 16% from food delivery.
“Ridesharing gross booking grew 32% in 2018, while revenue increased 33% with a slightly higher average take rate,” says Morningstar equity analyst, Ali Mogharabi, who puts the stock’s fair value at US$58, considerably above its US$42 IPO debut price.
Uber Eats benefits from cross-selling and will be one of the main revenue growth drivers, asserts Mogharabi, who projects the firm’s net revenue to grow 19% annually through 2028.
| Lyft Inc Class A | ||
| Ticker: | LYFT | |
| Current Yield: | - | |
| Forward P/E: | - | |
| Price: | US$48.06 | |
| Fair Value: | $72 | |
| Fair Value Uncertainty | Very High | |
| Value: | 29% Discount | |
| Moat: | Narrow | |
| Moat Trend: | Stable | |
| Star Rating: | **** | |
| Data as of May 13, 2019 | ||
Lyft (LYFT), the second largest ridesharing service provider in the U.S., offers a variety of rides, including traditional private rides, shared rides, and luxury ones. Besides rideshare, the company offers micromobility through bike- and scooter-share services.
In the U.S. market, Lyft has successfully gained market share to “emerge as the number two ridesharing player, a position the firm will keep for years ahead,” says a Morningstar equity report.
The firm is taking on its biggest competitor, Uber, in pursuing riders in the mobility market and is well on its way to becoming a one-stop shop for on-demand transportation. “It has tapped into the bike- and scooter-sharing markets, which are worth over US$9 billion and will grow 9% annually through 2028,” says Mogharabi, who pegs the stock’s fair value at US$72, and projects net revenue to grow 30% annually over the next five years.
Lyft, he adds, is also vigorously pursuing the autonomous vehicle route “as it understands that self-driving cars may help the firm to expand its margins because without drivers it could recognize a bigger chunk of the fare as its net revenue,” argues Mogharabi.
Lyft started the year with impressive revenue growth (US$776 million, up 95% from last year), driven by 46% year-over-year growth in riders and revenue generated per rider, which jumped 33% from last year to US$37.86.
| General Motors Co | ||
| Ticker: | GM | |
| Current Yield: | 4.01% | |
| Forward P/E: | 5.65 | |
| Price: | US$36.64 | |
| Fair Value: | $47 | |
| Fair Value Uncertainty | High | |
| Value: | 19% Discount | |
| Moat: | None | |
| Moat Trend: | Negative | |
| Star Rating: | **** | |
| Data as of May 13, 2019 | ||
Not a pure play on ridesharing, General Motors (GM) has been pursuing the shared mobility market by aggressively ploughing capital into peer-to-peer services.
In addition to maintaining its leadership position in the U.S. auto manufacturing market, GM is embracing opportunities in the ridesharing and ride-hailing market. “Actions such as a 9% investment in Lyft for US$500 million, buying Cruise Automation, and unifying
GM’s legacy carsharing activities under the Maven brand, along with GM’s connectivity and data-gathering via OnStar, position GM well for this new era,” says a Morningstar report, noting that the company plans to start autonomous ride-hailing at scale in 2019.
Rapid expansion of sharing economy and evolving ownership structures are expected to continue to fuel the ridesharing market. Traditional automakers like GM are quickly adjusting and adapting to changing marketplace as they pursue growth opportunities to counter competitive threats and maturing automotive market.
It is argued that while auto industry faces disruption from ride-hailing, carsharing, and autonomous vehicles, it may be some ways before the trend has a meaningful impact on private vehicle ownership. That said, “GM is well positioned to compete in these new spaces via its own autonomous vehicle work with Cruise, its Maven subsidiary, OnStar, and its approximate 9% ownership of Lyft,” says Morningstar sector strategist, David Whiston, who appraises the stock to be worth US$47.
