Can't Fight Disruption: The Case for Going Long on Uber/Lyft and Shorting Taxi Medallions

Steve Kanaval |

Taxi medallions prices peaked in 2013 where prices for Individual Medallions fell from $1M to $840K in November 2014, the pricing for Corporate Medallions fell from $1.3M to $990K. If you are a trader, when you note an asset peaks because of a lower priced competitor, and in this case 15-25% across the asset class, you start asking questions about how long this overvalued asset can stay at lofty pricing.

My thought process was tweaked by a TechCrunch update where LYFT raised $530M, creating a total valuation for the ride service valued at $2.5B. So let's recap what we know: Medallions falling at a 25% clip and disruptive technology rising at a replacement rate for revenue. It is so obvious–this is the cell versus landline type movement. It is the radio audience diminishing when TV was introduced. It is the decline of rail passengers when air travel began. These are large ships turning in the water because they are a part of our daily lives and when an internet-based disruptive technology slashes prices by 50%, you get a shift by the mass consumer. In all the cases mentioned above, the new kid on the block had to overcome old-boy networks and regulatory bodies who would fight hard, but to no avail. Lower pricing and a better product is an impossible tide to shift. There are no politicians or lawmakers who can put these horse back in the barn.



The Times They Are A Changin'

I use Uber and my cost is always 30-60% less than using a taxi and it is easier to use. The car is usually nicer and the drivers are professional and hungry to make a living. They seem happy to be working and don't need to participate in a corrupt medallion system, which has been manipulated for so many years that even the sitcom Taxi (1978 - 83) with Danny Devito as the moronic dispatcher Louie DePalma is out of date. It took 30 years to begin the process of replacing a broken system, a broken business where the most desperate workers in the workforce took the only job they could get to fulfill the American Dream.  

Today, soccer Moms and retired postal workers can use their own cars and get paid to give someone a ride, and make a car payment or pay for gas, or get back to becoming part of the workforce and participating in the job market as a contributor. The arguments being made from the medallion side are only made by the minority, no one, not anyone really thinks that the taxi business will not be transformed. If they do, they are still watching episodes of Taxi and have never downloaded a mobile app.

Opportunity for Accredited Investors

Shorting NY taxi medallions is a difficult trade to accomplish, but buying shares in Uber or Lyft are relatively simple if you are an accredited investor because companies like Crowdfunder and others specialize in raising money in 2015 and just as the taxi medallion will go by the wayside funding for disruptive technology will be done by the collective crowd, this crowd phenomena will displace many industries where prices are slashed by 50% to the consumer and they no longer listen to politicos and are willing to sidestep laws and roadblocks intending to keep legacy operators in place - but for the Taxi business it's much too late and I can hear Louie DePalma crowing in his New York accent that the horses are out of the barn.

Editor's note: (Full disclosure: Equities.com launched its own Crowdfunder campaign in February 2015.)

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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