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

Follow this and additional works at: http://scholarworks.uark.edu/finnuht

Part of the Technology and Innovation Commons

This Thesis is brought to you for free and open access by the Finance at ScholarWorks@UARK. It has been accepted for inclusion in FinanceUndergraduate Honors Theses by an authorized administrator of ScholarWorks@UARK. For more information, please contact scholar@uark.edu,ccmiddle@uark.edu.

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

1

ACKNOWLEDGMENTS:

IwouldliketothankthefacultyandstaffoftheUniversityofArkansas,andinparticular,thefacultyandstaffoftheSamM.WaltonCollegeofBusiness.

Iwouldalsoliketothankmythesisdirector,MichaelCawthonandsecondadvisor,Dr.AndrewBrownback.

2

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

3

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.

4

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:

5

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.

6

Figure4detailsthealmostperfectlycorrelatedrelationshipofdecreasingtaxicabswith

increasingUberridesinthecity:

7

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,

8

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.

9

Anotheritemtoconsiderwhenmakingthiscomparisoncomesviathecoststructure.

BecauseUberchargespermileandperminuteconstantly,whereastaxichargespermilewhen

movingandperminutewhenidle,Uberbecomesthemoreaffordableoptionasthespeed

increasesover20milesperhour.However,whenminutesidletimeincreases,thentaxicab

becomesthemoreaffordableoption.

ThereisalsotheopportunitycostviathetimeittakestohailataxiorUber.According

tothe2012NewYorkCityTaxiandLimousineCommissionAnnualreport,riderstypicallywait

fivetonineminutesforaride.TheaveragewaittimeforanUberpassengerinManhattanis

2.25minutes.

10

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.

11

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.

12

Conclusion

Thedataoutlinedinthispaperleadstoseveralconclusions.First,andmostnotably,

Uberhashadamaterialimpactonthetaxicabindustry.Thepriceoftaxicabmedallionshas

declinedprecipitouslysincethearrivalofUberinthecity,byafactorofapproximately30%in3

years.Afteronly4years,thecompanyhasmorecarsonthestreetsofthecitythanthereare

taxicabs.Thiscontrastisalsooutlinedwhencomparingthevaluationsoftaxicompanieswith

thatofUber.Anothersteady,albeitlessdramatic,declinecanbeseeninthewagesfortaxicab

andcardriversinNewYorksincethearrivalofUber.

13

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.

14

WorksCited

Bialik,C.,&Bialik,R.F.(2015,October13).UberIsTakingMillionsOfManhattanRidesAwayFromTaxis.RetrievedApril19,2016,fromhttp://fivethirtyeight.com/features/uber-is-taking-millions-of-manhattan-rides-away-from-taxis/

Bialik,C.,Flowers,A.,&Fischer-Baum,R.(2015,August10).UberIsServingNewYork'sOuterBoroughsMoreThanTaxisAre.RetrievedApril19,2016,fromhttps://fivethirtyeight.com/features/uber-is-serving-new-yorks-outer-boroughs-more-than-taxis-are/

D'Onfro,J.(2014,August27).UberSaysItsDriversAreMaking$75,000-$90,000AYear.RetrievedApril19,2016,fromhttp://www.businessinsider.com/uber-drivers-salary-90000-2014-5

Fiegerman,S.(2015,July22).TaximagnateclaimsUberdrovehimtobankruptcy.RetrievedApril19,2016,fromhttp://mashable.com/2015/07/22/taxi-bankruptcy/#DD4V9.7InqqD

GettingtoWork:TransportationPolicyandAccesstoJobOpportunities.(2011,July).RetrievedApril19,2016,fromhttp://civilrightsdocs.info/pdf/docs/transportation/getting-to-work-july20.pdf

Hickman,J.(2015,May26).HowUberIsActuallyKillingtheValueofaNewYorkCityTaxiMedallion.RetrievedApril19,2016,fromhttp://www.thestreet.com/story/13153924/1/how-uber-is-actually-killing-the-value-of-a-new-york-city-taxi-medallion.html

McAlone,N.(2015,May13).Here'showUbergotitsstartandgrewtobecomethemostvaluablestartupintheworld.RetrievedApril19,2016,fromhttp://www.businessinsider.com/history-of-uber-and-its-rise-to-become-the-most-valuable-startup-in-the-world-2015-9

McGregor,M.(n.d.).DISRUPTINGTHECAB:UBER,RIDESHARINGANDTHETAXIINDUSTRY.RetrievedApril19,2016,fromhttp://peerproduction.net/issues/issue-6-disruption-and-the-law/essays/disrupting-the-cab-uber-ridesharing-and-the-taxi-industry/

Meyer,J.(2015,September7).Uber-Positive:Ride-ShareFirmExpandsTransportation

OptionsinLow-IncomeNewYork|ManhattanInstitute.RetrievedApril19,2016,fromhttps://www.manhattan-institute.org/html/uber-positive-ride-share-firm-expands-transportation-options-low-income-new-york-6703.html

Meyers,L.(2015,September11).UberMeetsTaxis'ImmovableObject:MarketEquilibrium.RetrievedApril19,2016,fromhttp://observer.com/2015/09/uber-meets-taxis-immovable-object-market-equilibrium/

Mosendz,P.,&Sender,H.(2014,December4).EXCLUSIVE:HERE’SHOWLONGITTAKESTOGETANUBERINU.S.CITIES.RetrievedApril19,2016,from

15

http://www.newsweek.com/exclusive-heres-how-long-it-takes-get-uber-across-us-cities-289133

Nilsen,S.R.(2015,May04).IdroveforUberforaweek,andhere'swhatitwaslike.RetrievedApril19,2016,fromhttp://www.businessinsider.com/i-drove-for-uber-for-a-week-heres-what-its-really-like-2015-2

Pramuk,J.(2015,March18).TherearemoreUbercarsthanyellowcabsinNYC.RetrievedApril19,2016,fromhttp://www.cnbc.com/2015/03/18/there-are-now-more-uber-cars-than-yellow-taxis-in-nyc.html

Scott,M.(2015,July25).TheimpactofUberonyellowcabs,citycongestion.RetrievedApril19,2016,fromhttp://pix11.com/2015/07/25/the-impact-of-uber-on-yellow-cabs-city-congestion/

The‘UberEffect’IsCrushingTaxiMedallionPricesAndSpillingOverIntoPublicMarkets.(2015,October01).RetrievedApril19,2016,fromhttps://www.cbinsights.com/blog/public-stock-driven-uber/

UberXvs.NYCTaxi:TestingWhichIsReallyCheaper.(2015,July08).RetrievedApril19,2016,fromhttp://www.bloomberg.com/news/videos/b/9a2c87dd-d71b-424d-9f0d-41f2f49c9f68

VanZuylen-Wood,S.(2015,August27).TheStrugglesofNewYorkCity'sTaxiKing.RetrievedApril19,2016,fromhttp://www.bloomberg.com/features/2015-taxi-medallion-king/

Whitford,E.(2015,August21).Greenpoint'sGrowingTaxiGraveyard.RetrievedApril19,2016,fromhttp://gothamist.com/2015/08/21/why_yellow_cabs_are_taking_up_all_o.php#photo-1