Creative Destruction and the ‘Uber Effect’

CBInsights_uber-vs-TAXI-valuation-chart

CB Insights:

We used CB Insights’ valuation data to look at how the rise of Uber’s valuation correlates with the market capitalization of Medallion Financial Corp (NASDAQ: TAXI). Medallion Financial is a publicly-traded company that originates, acquires, and services loans used to purchase taxi medallions in several large US urban markets that Uber is also active in, including New York. We charted the stock price of TAXI versus the valuations for many of Uber’s rounds since 2010.

We found that TAXI has also been hammered by an “Uber Effect,” with its price down even more than the decline seen by New York City medallions. TAXI’s stock price is down nearly 49% since Uber raised its breakout $258M Series C at a $3.5B valuation. (The NASDAQ is up ~26% in the same time period.)

Uber’s valuation is up over 13x.

Mark J. Perry at the American Enterprise Institute:

UberEffect1

UberEffect2

In 1942, economist Joseph Schumpeter described “creative destruction” as a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” There probably hasn’t been a better example of Schumpeterian creative destruction in the last decade or more than the recent ascendance of app-based ride-sharing services like Uber (and Lyft, Sidecar, Gett, Via, etc.)  challenging traditional, legacy taxi cartels in cities like New York, San Francisco, Chicago and more than 160 other US cities. Market-based evidence of the gale of creative destruction in the transportation industry is displayed in the two charts above. The top chart above shows how the increasing popularity of ride-sharing apps like Uber has caused the price of New York City individual taxi medallions to collapse by at least 37%, from a peak of more than $1 million in August 2013 to only about $650,000 in recent months (based on advertised asking prices here, not actual sales).

Further evidence of the “Uber effect” is displayed in the bottom chart above, showing the collapse in the stock price of Medallion Financial Corporation, from $16.45 in November 2013 to below $7 per share in the last few days. Medallion Financial Corporation (NASDAQ: TAXI) is a NYC-based specialty finance company that originates, acquires, and services loans that finance taxicab medallions. Just as the sky-high taxi medallion prices have been significantly eroded due to competition from the upstart ride-sharing services, so has the value of Medallion Financial Corporation’s stock price been significantly dropping. After tracking the SP&500 Index closely for many decades, the share price of Medallion Financial has fallen by a whopping 58% from its November 2013 peak, during a time when the S&P 500 has increased by 7.1%.

As the traditional, legacy taxi industry continues to collapse under the Schumpeterian forces of market disruption, the taxi cartels like the one in NYC are asking for taxpayer bailouts, or at least taxpayer-supported guarantees for taxi medallion loans. Consumers are the obvious winners from the creative destruction in the transportation industry – we now have more choice, better and faster service, friendlier drivers, cleaner cars, and maybe most importantly — lower prices. Traditional taxi drivers and medallion owners, after being protected from competition by government regulations for many generations, are the obvious losers from the “Uber effect.” Medallion prices will continue to fall as the taxi cartels continue to crumble and collapse.

NPR Planet Money: Listen to Episode 643, July 31, 2015, on Gene Freidman, the “Taxi King” and how his empire is starting to crumble. Also, “Why Does A Taxi Medallion Cost $1 Million?” from 2011.

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About GilPress

I launched the Big Data conversation; writing, research, marketing services; https://whatsthebigdata.com/ & http://infostory.com/
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