You’ve heard of Uber?  I thought so.  UBER is a $40 billion dollar company that takes you from point A to point B with the slick use of an app.  Its service is available in 57 countries and its leaders are looking for more ways to expand by delivering goods and not just rides.  Estimates are saying revenue could be $2 billion this year but the company is private so the numbers aren’t disclosed.  How will Uber change your life?

If you live in a city, chances are you use a cab more often than a suburbanite.  Now that I’ve been here for over 2 years, I can offer an opinion on the difference between an Uber and a cab from a real life situation.  The below screenshot is what the Uber app looks like.  The black cars are the drivers around you and they move in real time.  You plug in your destination, your GPS picks up your location, you click set pick up and a Uber driver will arrive where you tell them to.  It’s that simple.

Pro / Con Breakdown

Cab

Distance – 4+ miles
Cost – $~15 including tip
Driver – Cab drivers come from all walks of life from various countries. I’ve talked to guys from Ethiopia, Bangladesh, Iraq, and Somalia. I’ve never had a problem with a cab driver before. Some are friendly, others aren’t. No complaints on people though.
Car – Taxi’s are average sedans. Most drivers keep their vehicle only as clean as necessary. Smells are possible and it feels the driver lives out of his front seat.
Wait – In Northern Liberties you’d have to wait 3-5 minutes. Cabs in Center City are non-stop. Wait could be less than 30 seconds.

 

Uber

Distance – 4.25 miles
Cost – $8.95

Driver – I’ve actually asked drivers if Uber is safer for them and 9 out of 10 say, “Yes.”  Passengers who have smart phones, an Uber app, and a line of credit are screened higher than randoms off the street.  Most drivers seem to be Philly locals who are looking for extra money on the side.
Car – Appearance and cleanliness are always tight as the driver is trying to get you to give them a high rating by flashing you a nice vehicle. The rating system is a huge bonus to Uber because elicits high quality.
Wait – Uber wait times in Center City are around 3-5 minutes. You ping the app, a driver responds, and then you wait for them to arrive. They are usually around the corner, not outside your door. I’d say this is usually longer than a cab but you can check up on the driver for safety concerns while you wait.

 

The Threat to TAXI

This post is going to deliver a point that you may or may not agree with.  If you know anything about the taxi business, you know that drivers need medallion’s to operate.  Medallions are expensive and are financed by a bank who then sells/leases them to drivers.  Medallions have absurd valuations in the hundreds of thousands of dollars. Would you want to be a part of a company who owns an asset such as taxi medallions knowing that Uber is out there?

Here is the TAXI stock in the last 5 years.

There’s no reason to think this stock won’t fall off a cliff with Uber continuing to bring down the price of a taxi medallion. My play is to bring a long term option into play. A February Put with a 7.50 stock price costs .65 cents ($8.15 cost value). You have to buy at least 1 contract, which is 100 shares. This means it costs you $65 dollars to buy 1 contract. To give a real life idea of what I’d be comfortable risking, I’d buy 10 contracts for $650 dollars. Now what has to happen for me to make money.

1) If the stock price does not go below $7.50 by February, I lose $650. Worst case scenario.
2) If at any time the stock drops between now and February, the option price should go up, and I can sell. Hypothetical, if the stock drops to $8.50, the price of the option may rise from .65 to $1.00 (this is determined by the delta). This means I can sell my 10 contracts for 1,000 bucks. Fine scenario.
3) I’m hoping the stock tanks. If the stock drops below $7.50 with months to spare, the contracts could start being worth dollars when considering the time value of the option. Let’s just say it drops to $5.00. My contract is worth at the minimum $2.50. Depending on how much time is left, it could be worth upwards of 5.00. If I were more savvy, I could expand on the actual value of these if this were to happen. Unfortunately, I’m a peasant.

So that’s what 4 years of Pitt business school along with a need for action gets you in a post created by me. I’d be ecstatic if anyone who knows more about me and the pricing of options could correct my mistakes. Bottom line, TAXI is not where you want to be.