Uber Technologies Inc.: Managing Opportunities and Challenges
The Impact of Uber Technologies on the New York City ...
Transcript of The Impact of Uber Technologies on the New York City ...
University of Arkansas, FayettevilleScholarWorks@UARK
Finance Undergraduate Honors Theses Finance
5-2016
The Impact of Uber Technologies on the New YorkCity Transportation IndustryJonathan K. AlleyUniversity of Arkansas, Fayetteville
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Recommended CitationAlley, Jonathan K., "The Impact of Uber Technologies on the New York City Transportation Industry" (2016). Finance UndergraduateHonors Theses. 31.http://scholarworks.uark.edu/finnuht/31
TheImpactofUberontheNewYorkCityTransportationIndustry
AnhonorsthesissubmittedinpartialfulfillmentoftherequirementsforthedegreeofBSBA,Finance.
By
JonathanAlley
UniversityofArkansas,Fayetteville
BSBAFinance,2016
Advisor:MichaelCawthon
May2016
UniversityofArkansas
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ACKNOWLEDGMENTS:
IwouldliketothankthefacultyandstaffoftheUniversityofArkansas,andinparticular,thefacultyandstaffoftheSamM.WaltonCollegeofBusiness.
Iwouldalsoliketothankmythesisdirector,MichaelCawthonandsecondadvisor,Dr.AndrewBrownback.
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Abstract
UberTechnologies(Uber)isamobileriderequestcompanyfoundedin2009byTravisKalanickandGarrettCamp.Initiallynamed“UberCab”,thecompanybeganofferingblackcarservicesinSanFranciscoviaaniPhoneapp.BeginninginMay2011,Uberexpandedtoanewcityeachmonth,movingintoNewYorkCity,Chicago,andWashingtonD.Cthatyear.ThecompanyalsoexpandedinternationallyinDecember2011,movingintoParis.Afteronlyitsfirstsixmonthsofoperation,Uberhadalreadygainednearly6,000usersanddonecloseto20,000rides.Thecompanyexpandedtoitsfirstinternationalcity,Paris,inDecemberof2011.AsofFebruary2016,thecompanyoperatesinover377citiesworldwide.
Uberhashadavarietyofeconomicimpactsonthecitiesthatithasmovedinto.ThispaperwillfocusprimarilyonthecityofNewYork,NewYorkandhowUberhaschangedthetransportationindustrythere.Thefocuswillbeplacedon1)thedeclineinthepriceoftaximedallions,2)thechangeinproductivityandutilizationofassets,3)theinflowofnewcapitalintothecity,4)theincreasedaccessibilitytoaffordabletransportationformanyinthecity.Ubercurrentlyhasover90%marketshareinthesmartphone-ridehailingapplicationmarket,soitcanbeassumedthatthemajorityoftheeffectsdiscussedinthispaperarebyandlargeduetoUber,asopposedtomuchsmallercompetitorssuchasLyft.
Thishonorsthesisisapprovedforrecommendation.
FacultyAdvisor:
MichaelCawthon
SecondReader:
Dr.AndrewBrownback
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DeclineinMedallionValue
ArguablythemostdemonstrablewaythatUberhasimpactedthetransportationsector
inNewYorkCityisviathetaxicabindustry.EversinceUberhasarrived,thepriceoftaxi
medallionsinNewYorkhasdroppedquicklyandconsiderably.AccordingtotheNewYorkPost,
Ubernowhasover14,000blackandluxuryvehiclesinthefiveboroughsofNewYork,
exceedingtheamountoftaxicabs(13,587)afteronly4yearsofoperatinginthecity.Ridesare
increasinginthecitybyafactorof4timesperyear.Figure1detailshowdramatictheprice
declineofmedallionshasbeen,fallingfromjustover$1millionatthepeak,tonow
approaching$600,000permedallion.Thisisadropofover30%inlessthan3years.
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AnotherinterestingobservationcomesviaCBInsights,comparingthevaluationofUber
toMedallionFinancialCorp.(NASDAQ:TAXI).MedallionFinancialCorp."engagesinoriginating,
acquiring,andservicingloansthatfinancetaxicabmedallionsandvarioustypesofcommercial
businesses."Interestingly,thecompany'sstockpricehasseenanevensharperdeclinethanthe
priceofmedallionsthemselves,falling49%sinceUberraisedaninitialroundofinvestingata
$3.5Bvaluation.Thisisespeciallyinterestingconsideringthatover58%oftaximedallionsin
NewYorkCityareownedbycorporateentities,whereasonlyone-thirdareownedbytheactual
cabdriversthemselves.Uberiscurrentlyvaluedover$60B,whichmakesthecompanyworth
morethantheentiretaxicabmarketintheUnitedStates(valuedatapproximately$11B).
Figure2outlinesthechangeinvalueofbothcompaniesoverthepastseveralyears:
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TrafficCongestion
Uber’spresenceinthecityhasledtoconcernsoverincreasedtrafficandcongestion,an
obviouseconomicheadwind.However,ananalysisdonebythestatisticssourceFiveThirtyEight
indicatesthatratherthandramaticallyincreasingtheamountofpickupsinthecity,Uberis
simplytakingridesawayfromwould-betaxicabridersandservicingareasthattaxicabsdonot
normallyreach.AsFigure3outlines,ridesfromApril–Juneof2014tothesametimeperiodin
2015remainedlargelyflat,increasingfrom48milliontoonly51million.Thisisapproximatelya
6%increaseyearoveryear,whichmayseemsubstantial,butthemajorityofthoseridescame
fromtheouterboroughsandplacesthatarelargelyunderservedbythecurrentrideoffering
companies.
However,inthepopulousareaofcentralandlowerManhattan,therewasactuallyanet
decreaseintotalpickupsofapproximately12,000overthesametimeframe.Figure3outlines
thefactthatoverallridesareremainingconstant,whileridescomingfromyellowcabsarein
decline.
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Figure4detailsthealmostperfectlycorrelatedrelationshipofdecreasingtaxicabswith
increasingUberridesinthecity:
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From2013–2015,Taxipickupshavedroppedfromover14milliontoabout12millionpermonth.
IncreasedAccessibilitytoAffordableTransportation
Aspreviouslymentioned,muchofUber'sgrowthintheNewYorkCityareahascomeon
theedgesofthecity,inmoreunderservedandeconomicallydisadvantagedareas.Astudy
donebytheManhattanInstitutefoundthefollowingobservations:
• In2014,only6percentofyellow-taxipickupswereoutsideManhattanoroutsidecityairports—comparedwith22percentforUberX.
• In2014,ofUberXridesinnoncoreManhattanandnon-airportzipcodesinDecember,60percentwereinzipcodeswithmedianhouseholdincomebelowthenoncoreManhattanmedian—upfrom54percentinJanuary.
• In2014,inthe29noncoreManhattanandnon-airportzipcodeswithoneormoreUberXpickupsperhousehold,neighborhoodsservedrangedfromGreenpointandParkSlope—wherelessthan5percentofhouseholdsareblack—toCrownHeightsandHarlem,wheremorethan75percentofhouseholdsareblack.
Asthisdataindicates,thosewhopreviouslyhadlittleaccessormeansoftransportation
nowhavetheaccesstoasourceofmobilitythatisaffordable,whichcanhavedramaticimpacts
inimprovingthelivesofthepeopleinthesecommunities.Nearly20%ofAfrican-American
households,and14%ofLatinohouseholdslivewithoutacar.NewYork’spopulationisover
50%blackandLatinoorHispanic,whichmeansthatapproximately9,549,277peopleinthe
moreunderservedboroughsofNewYork(Brooklyn,Queens,Bronx,StatenIsland)donotlive
withacarandhavebeenunderservedbythetaxicabindustry.Thiscoincideswiththefactthat
anincreasingnumberofjobsaremovingawayfromtheurbancenterofcities,intoplacesthat
arelesstraversedbypublictransportationoptions.AccordingtotheBrookingsInstitute,
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approximately45%ofjobsinthe98largestmetroareasarelocatedmorethan10milesfrom
thecoreofthecity.Uber’sarrivalhashelpedtoincreaseaccessibilitytoaffordable
transportationoptionsforpeoplelivingaconsiderabledistancefrompublictransportation
options.
CostComparison
AnotherfactortoconsiderwhencomparingUberwithtaxiisthecostfortheconsumer.
Uber'scoststructureisfairlysimilartotaxiandisasfollows:abaserate,chargepermile,and
chargeperminute.However,thedifferenceliesinthefactthattaxicabschargeriderspermile
whenmovingandperminutewhenidling,i.e.whenataredlightorstoppedintraffic.Uber
chargerspermileandminute,regardlessifthecarismovingoridle.Also,thiscomparison
becomeseventrickierwhenfactoringinUber'ssurgepricingwhendemandforridessurpasses
thenumberofdriversonthestreet.Also,taxidriverstypicallyreceivetipswhereasUber
driversarefarlesslikelyto.Figure5outlinesthecostfora10-minute,5-miletripanda20
minute,10-miletripforeachcarservice.
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Anotheritemtoconsiderwhenmakingthiscomparisoncomesviathecoststructure.
BecauseUberchargespermileandperminuteconstantly,whereastaxichargespermilewhen
movingandperminutewhenidle,Uberbecomesthemoreaffordableoptionasthespeed
increasesover20milesperhour.However,whenminutesidletimeincreases,thentaxicab
becomesthemoreaffordableoption.
ThereisalsotheopportunitycostviathetimeittakestohailataxiorUber.According
tothe2012NewYorkCityTaxiandLimousineCommissionAnnualreport,riderstypicallywait
fivetonineminutesforaride.TheaveragewaittimeforanUberpassengerinManhattanis
2.25minutes.
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Uberpassengersalsohavetheaddedcostbenefitofnotpayingforthemaintenance,
insurance,andotherexpensesassociatedwithowningtheirownvehicle.Forexample,people
whotypicallyusealternativeformsoftransitthentheirownvehiclesaveapproximately$1,400
peryear.
IncreasedIncomeforDrivers
Inadditiontohelpingtheunderservedgainaccesstotransportation,Uberalsoemploys
manydriversintheNewYorkCityarea.Aspreviouslymentioned,thereareover14,000Uber
driversinNewYorkCity,allofwhichmakesomepercentageofeveryridetheyperform.
Accordingtodatapublishedbythecompany,Uberdriversonaverage(nationwide)make$6
moreperhourthantaxidriversandchauffeurs.However,inNewYorkCity,onaverage,drivers
make$30.35perhour,asopposedtojust$15.17perhouroftaxicabdriversandchauffeurs.
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TheaverageincomeofUberdriversintheNewYorkCityareais$90,000peryear,prior
toinsurance,carmaintenance,gas,andotheroperatingexpenses,whichthedrivermustpay
outofpocket.Conversely,theaveragetaxicabdriverinthecitymakesabout$30,000peryear.
Assumingthatthemajorityoftheseroughly14,000driverswereformerlytaxicabdrivers,that
isaninflowofapproximately$60,000perdriver,oragrosstotalofover$840millionin
increasedwagesforthesedrivers.Figure7illustratesthedeclineintaxicabwagessincethe
arrivalofUber.
Anotherinterestingobservationariseswhenthepaystructureofeachpartyis
examined.ForUber,driversmake80%ofeachfare,whilethecompanymakes20%.Fortaxis,
driversmustpayaboutone-thirdofgrossincometothetaxicompanyandgettokeepthe
remainder.Duetothiscoststructure,wecanprojecttherevenueredistributionthatis
occurringfromtaxicabcompaniestoUber.Ubercurrentlyhasapproximately21%ofthetotal
NewYorkCityride-servicingmarket,whichaccountsforroughly$400Minrevenue,alarge
portionofwhichwas,presumably,goingtotaxicabs,althoughmuchofUber’srevenuecomes
fromservicingouterareas.Conservativelyassumingthat70%ofthatisformertaxirevenue,
thenUberhastaken$280Minrevenuefromtaxicabcompanies.PriortoUber’sarrival,drivers
weretakinghomeapproximately70%ofthat,or$196M,butafterUber,driversnowkeep80%
ofthatgrosstotal,or$224M.ThisamountstoredistributionfromtaxicabcompaniestoUber
driversofapproximately$28M.
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Conclusion
Thedataoutlinedinthispaperleadstoseveralconclusions.First,andmostnotably,
Uberhashadamaterialimpactonthetaxicabindustry.Thepriceoftaxicabmedallionshas
declinedprecipitouslysincethearrivalofUberinthecity,byafactorofapproximately30%in3
years.Afteronly4years,thecompanyhasmorecarsonthestreetsofthecitythanthereare
taxicabs.Thiscontrastisalsooutlinedwhencomparingthevaluationsoftaxicompanieswith
thatofUber.Anothersteady,albeitlessdramatic,declinecanbeseeninthewagesfortaxicab
andcardriversinNewYorksincethearrivalofUber.
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AsecondconclusionthatcanbedrawnfromthedataisthatwhileUberhasprovidedan
alternatetransportationsourceforNewYorkCitypassengers,ithasnotmateriallyincreased
trafficcongestioninthecity.Asopposedtosimplyaddingmassiveamountsoftrafficontothe
streetsofNewYorkCity,Uberhasprovidedservicestoareasunderservedbytaxis.Moreover,
Uberdrivershavesimplyreplacedmanytaxicabdriverscompletely.
Athirdconclusioncomesviatheincreasedamountofcapitalflowingintothecityvia
higherwagesfordriversaswellasthereducedcostforNewYorkpassengers.Accordingtothe
dataandaftermakingsomeassumptions,itisestimatedthatover$600millioninnewwages
haveflownintothecityonanannualbasis.Asillustratedearlierinthepaper,Uberattimescan
provetobemoreaffordablethantaxi,especiallywhenconsideringtheopportunitycostofwait
time.Uber’sarrivalhasalsoledtoasignificantamountofcapitalredistributionfromtaxicab
companiesbacktodrivers,atrendthatisexpectedtocontinueasUberbecomesmore
entrenchedandpopularinthecity.
ItisevidentthatUberhashadavarietyofimpactsonthecityofNewYork.The
companyhasbeenadestructiveforcetothetaxicabindustrythathasdominatedthisspacefor
severaldecades,andhasbroughtinnewopportunitiesforemploymentforthepassengersof
NewYork.ThearrivalofUberisafascinatingcasestudyontheeffectsofrevolutionary
technologyconfrontingtraditionalindustrypowerhouses.
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