Shares in Medallion Financial Corp (TAXI) are higher today after positive media coverage, including an article in Barron’s, sending shares higher by 20% to above $7.00. This is a welcome bump for the long suffering shareholders of TAXI – a stock that’s valuation has been in decline since November 2013.
Back in the pre-Uber days, when the future appeared to show nothing but blue skies for taxi and medallion owners, the valuation for TAXI hovered around $400M. While sitting down to Thanksgiving dinner in November of 2013, little did Medallion Financial management know that Travis Kalanick, a 37-year-old engineer’s son was devising a “win at all costs” strategy at his small Los Angeles-based company that was about to change the world. Enter Uber...
Though share prices are bouncing today for Medallion, they are down 27% for the year – even with today’s action – and they seem destined to test the 2009 low of $4.50. It’s important to understand that today’s action is nothing more than a recovery bounce for this stock, and unless we all travel back in a Hot Tub Time Machine or TAXI changes it’s model (It’s hard to tell which is more likely), these shares will soon go to zero, or be bought up by Uber.
Uber Leaves Traditional Cab Companies Reeling
The elimination of the taxi as short term transport will follow the same path as the pay phone, the land-line and the cassette tape. Software is devouring the old world, and while disruptive technology transforms industries like the hotel sector (consumers can now avoid much of their overcharging business model), I have spoken to business travelers who will never use a taxi and refuse to pay medallion owners as a matter of principal.
This stock is a short into any bounce, and frankly, it doesn’t matter what Barron’s, or anyone else who still hailing taxis tells you. The defining characteristic of disruptive technology is that it is easier and more convenience to use, while costing less.
Here is a good example of the backlash: If you fly into Los Angeles Airport (LAX), Uber software won’t work. So, Uber riders will take the shortest trip from LAX to any hotel or coffee shop, and pay the taxi driver the least amount possible, thus voicing their displeasure with being forced to use overpriced taxis as the airport. The fact is, you cannot change this sweeping tide – the consumer has the final say, and consumers are clearly fed up with high taxi prices in our modern, high-tech. Why spend double or triple the cost of an Uber to get home from the airport, when you can spend that money on something else – like a Starbucks Coffee (SBUX) ?
The world has changed. You cannot put the genie back in the bottle for the short-term transportation space, which has been looking for a solution since the days of horse-drawn carriage. Another important and related bit of news is that the valuation of AirBNB is now higher than that of the entire publicly traded hotel sector combined.
These numbers don’t lie. A short term pop in TAXI is nothing more than a sale – unless they adjust the business model. Will the company do this? I don’t know, but you can bet that I plan to get in touch with them to find out. They are the “point of the arrow” for the anti-Uber movement, and they represent an important data point as we observe a change in both the transportation and lodging industries.
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