|Indices||Week||YTD||GSV 300||0.00%||53.10%||S&P 500||-0.20%||15.30%||Dow||-0.50%||18.50%||NASDAQ||-0.20%||25.40%||Russell 2000||-1.30%||8.70%||MSCI||-0.10%||32.20%|
|Valuations||P/E Fwd||P/E/G||GSV 300||27.5x||0.7x||S&P 500||19.4x||2.6x|
|I-Rates||Now||YTD||10-Year Note||2.40%||-2.00%||3-Month Bill||1.23%||141.20%|
|Mutual Funds||-||Week||Fund Flows (bil)||-||$4.70|
When Logan Green launched Zimride in 2007, no one would have thought that on-demand ride sharing would boom to become a $45 billion industry nine years later. Even five years ago, getting a taxi was a gigantic hassle. In big cities around the World, your best option was — and in many cases still is — literally to “catch” a cab.
Here’s how the model works. You stand on the edge of the street, put your hand up in the air while competing with other would-be riders, and pray for a car to swerve to a stop in front of you. Taxi drivers, meanwhile, troll around blindly for fares, relying on dead reckoning and luck to find passengers.
The ride doesn’t usually go much better. For starters, the customer is never right. Try suggesting a preferred route. And safety isn’t exactly first.
But seemingly over night, a new paradigm has emerged. On-demand ride sharing through apps like Uber and Lyft has transformed an erratic experience into a model of efficiency and expedience. And the customer is king. (Disclosure: GSV owns shares in Lyft)
So what happened?
The introduction of the iPhone in 2007 — followed shortly by the launch of the iOS App Store in 2008 — ushered in an “app economy” that enabled transformative new software applications to go from idea to millions of customers seemingly in the blink of an eye.
As is too often the case, the “early bird gets the turd.” Carey International was Uber before Travis Kalanick was born. Listed on NASDAQ in what seems like a century ago, Carey created a black car network spanning 1,000 cities around the globe. Effectively it was a brand, an “800” number, and a scheduling service. Sound familiar?
Uber doesn’t own any of the cars in its network. The drivers are independent. Carey should have been Uber, but they lacked the imagination to see the impact that smartphones could have on their business. Carey launched its first app in 2014 — five years after Uber had taken the World by storm.
THE SHIFT: EFFECIENCY + EXPERIENCE
Ride sharing apps are not only easy to use, but they create a variety of efficiencies while empowering the customer. Your ride appears where you want it, when you want it. You don’t need physical money — or even a credit card for that matter — to pay your driver. It’s all in the app.
And a transparent review process ensures that drivers treat their customers well. The better the service, the higher the star rating a driver receives — which in turn translates into a higher likelihood of being connected with riders. Similarly, passengers that consistently demonstrate bad behavior — from no-shows to disorderly conduct — can be removed from a ride sharing platform based on driver feedback.
Given these two fundamental shifts — efficiency and customer experience — it is no wonder that we are seeing a major industry transformations unfold rapidly before of our eyes.
With Uber’s meteoric rise after 2010, many thought this would be a winner-takes-all market. While Uber’s scale offers unmistakable advantages, a few unexpected developments have occurred.
In December 2016, for example, four of Uber’s biggest competitors — Lyft, Ola, Didi Kuaidi, and Grab — entered into a partnership where the companies will allow users to book cabs from each other’s apps in all the regions where they operate.
So if a U.S. traveler lands in India or Malaysia, they can order an Ola or Grab cab directly from the Lyft app, and vice versa. Together, these companies now cover nearly all of Southeast Asia, India, China and the United States, reaching nearly 50% of the world’s population.
Key to the alliance is the fact that while Uber is a global leader, it is not dominant everywhere it operates. In India, Uber is available in 28 cities but rival Ola has a presence across 102 cities. In China, Uber has a 17% market share, while Didi Kuaidi owns 83%.
Lyft’s continued progress has been especially impressive. Led by visionary co-founders John Zimmer and Logan Green Re/code reports that Lyft completed 7 million monthly rides, earlier this year. Growth continues to accelerate.
While Uber is close to three million rides per day, or 90 million rides per month, only a fraction occur in the United States. China alone accounts for 30% of the total. We estimate that Uber is doing roughly 30 million rides per month domestically, which is just over three times larger than Lyft. This compares to Uber being over 4x larger than Lyft 18 months ago.
One of the main reasons GSV invested in Lyft in 2014 was the passion, vision and dedication of its founders. John and Logan want Lyft to be a superb experience, and they want it to improve urban transportation and to help solve traffic problems. One of the key statistics they first highlighted to us was that in Los Angeles, there are about 1.1 passengers per car on average. If that number improved to just 1.3 passengers per vehicle, you would effectively eliminate traffic congestion.
Last week, Lyft introduced its carpooling service, Lyft Carpool, which matches commuters with drivers traveling the same daily route. This model differs from the existing Lyft Line service as Carpool drivers have a predetermined route to be driven at a specific time during the day. Additionally, according to Emily Castor, Lyft’s Director of Transportation Policy, Lyft Carpool drivers are only be able to recover the cost of operating their vehicle.
A similar service already exists in Europe — Blablacar — which has become popular across the continent, especially in Russia. However, Blablacar is primarily used for cross-country travel. It allows a passenger to catch a ride with someone going from Paris to Amsterdam, for example. Based out of Paris, Blablacar was most recently valued at $1.5 billion.
Across the Pacific, Didi Kuaidi continues to strengthen its leadership position in China. It went from facilitating six million rides per day in September 2015, to over 10 million daily rides today.
While most of those rides are still generated by traditional taxi hailing, the number of peer-to-peer rides is growing quickly. They account for 1.6 million of Didi’s daily volume, or 16%, but we expect a continued surge in popularity.
To put the scale in perspective, 10 million rides per day is 8x the total volume of ride-share traffic in North America, and approximately the peak daily passenger volume of China’s national railway system during the Chinese New Year holiday.
Not surprisingly, Didi is reportedly in the process of raising $1.5 billion of new funding at a $25 billion valuation — a 4x increase in value compared to a year ago. As reported by the Wall Street Journal, investors in this new mega-round include China’s Internet giants Tencent and Alibaba. (Disclosure: GSV owns shares in Alibaba, Tencent)
Where are we going?
The peer-to-peer ride sharing space has been one of the most disruptive and fastest growing new industries.
Uber’s heady $62 billion valuation certainly forces potential new investors to take a sober look at the scenarios under which they will generate a meaningful return. But appetite for exposure to the sector continues to be strong as is evidenced with the recent funding rounds for Uber, Lyft, Didi, and Ola. Even Gett, a little known Israel-based ride sharing service, is reportedly seeking to raise $400 million at a $2 billion valuation.
Key Ride Sharing Partners
As competition continues to intensify and access to capital is becoming more difficult, the key factors for success continue to be Quality, Branding, Innovation, and Network Effects.
A recent $500 million investment in Lyft by General Motors adds a new twist to the competitive environment. As an extension of the financing, the companies announced the launch of a partnership to create a network of on-demand autonomous vehicles that will make transportation more affordable and accessible. GM also announced that it would create a series of national rental hubs where Lyft drivers can access short-term vehicles, unlocking new ways for people to earn money without having to own a car.
And then there is Gojek
Ride sharing, in most parts of the World, involves getting into someone’s car. But in a few countries, ride sharing is done on motorbikes. Thailand, Vietnam, India, and Indonesia have significantly more motorbikes than cars on the streets. The reason is simple — most of the population cannot afford a car.
In Indonesia for example, approximately 80% of urban transportation is done on motorbikes, with ~80 million motorbikes sold annually. It is no surprise then that the leading ride sharing company in the country is Go-jek, which started as a motorbike peer-to-peer ride sharing service, but has now evolved into a gigantic logistics company.
Additional services including Go-send, Go-eat, Go-box, Go-mart, Go-busway, Go-tix, Go-massage, Go-glam, and Go-clean (you can guess what each one of those does). In its brief five years of existence, Go-jek has already become in Indonesia what Uber is aspiring to become — a superior logistics platform.
Trying to replicate Go-jek’s success in Indonesia, Uber and Ola recently launched their own bike services in India. Ola, which operates in over 100 cities, is going head-to-head against Uber which is currently available in 28 Indian cities, but growing fast. Last month, Uber also launched its bike service in Thailand. The race is on.
Rise of Global Ride Sharing
At the 2015 GSV Pioneer Summit, we created the Global Silicon Valley Hall of Fame to celebrate the pioneers and mavericks who paved the way for all of us to do our best work today.
In our inaugural class, we inducted Bill Campbell, Diane Greene, Dick Kramlich, Larry Sonsini, and Mike Homer (posthumously) as individuals who have transformed the Global Silicon Valley and mentored the next generation of entrepreneurial leaders.
This year, for the 2016 GSV Pioneer Summit, we are asking YOU, our community, to help us select this year’s inductees into the Global Silicon Valley Hall of Fame.
Please help us select the 2016 Hall of Fame members. Rank your top 10 nominees for the 2016 Global Silicon Valley Hall of Fame here.
Stocks sagged last week, with NASDAQ down 1.3%, the S&P 500 off 1.2%, and the GSV 300 down 0.5%. Oil prices surged up 8%, while the 10-Year Treasury yield fell 5 bips to 1.72%.
The Government continued to play a major role in the Market Play, essentially torpedoing the proposed $160 billion merger of Pfizer with Allergan. The new U.S. “anti-tax-inversion” policy made the deal problematic. Not to be outdone by itself, Uncle Sam blocked Halliburton’s agreement to buy Baker Hughes due to fear of the two being too powerful together. The Fed tried to calm Market jitters, suggesting that the economy is not a in a “bubble” and and that they will hold to plan to raise rates gradually.
On a sad personal note, Alaska Airlines bought my home-town favorite Virgin America for $2.6 billion. It would have been more than fine if the innovator JetBlue was the winning suitor but I’m worried that a great service is going to become just a pretty good one.
We continue to see a good environment for stock pickers, with excellent fundamentals for many growth companies. Accordingly, we remain BULLISH.