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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