Two Arch Enemies Call a Truce and Partner Up

Since its inception, ride-hailing app Uber (UBER) has been an antagonist to the taxi industry... When Uber started upending the transportation business a little over a decade ago, it painted a picture of the traditional taxi industry as being an outdated dinosaur. When the company entered the New York City market in 2011, it worked […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Two Arch Enemies Call a Truce and Partner Up By Berna Barshay --------------------------------------------------------------- [Top accountant: Where next wave of money is headed]( Accountant with 100 analysts runs weekly forensic data on 25,000-plus publicly traded businesses. He says here's where next big wave of money is headed. [Click here to learn more](. --------------------------------------------------------------- Since its inception, ride-hailing app Uber (UBER) has been an antagonist to the taxi industry... When Uber started upending the transportation business a little over a decade ago, it painted a picture of the traditional taxi industry as being an outdated dinosaur. When the company entered the New York City market in 2011, it worked hard to steal market share from the iconic yellow cabs. As the New York Times explains... Uber worked relentlessly to lure riders away, deriding the taxi industry as inefficient, corrupt, greedy, and even a "cartel." The taxi industry, in turn, accused the company of bringing economic ruin to its drivers. Over time, the convenience of booking rides, as well as the benefit of nicer (and often better smelling) vehicles, lured New Yorkers away from taxis. The price of the medallion that allows an NYC taxi to operate plunged from more than $1 million before Uber showed up to as low as $200,000 these days. When nearly a dozen taxi owners and drivers died by suicide in 2018, people started to wonder if the financial devastation brought on by Uber was the cause. And this wasn't just a problem in the U.S. Taxi drivers in London called Uber the "cancer of trade"... Source: Cnet.com In Paris, taxi driver complaints about Uber led to strikes, burning tires, and enough violence that police responded with tear gas in 2016... Source: Twitter/@Vinks_O_7 While convenience and aesthetics are nice, a big part of Uber's growth in New York City – and around the world – was unsustainable and noneconomic introductory pricing... Low prices induced trial and got people hooked. Of course, if you pay less for a nicer car that comes on demand, you will choose that over an old taxi you have to run down yourself or queue up for! A company that charges so much less and delivers more will win share, but it won't necessarily be profitable. It's no surprise that despite being founded 13 years ago this month, Uber has yet to turn a profit. In fact, it isn't expected to show net profits until 2024. The introductory pricing and the losses that followed were funded first by venture capitalists and later – since its 2019 initial public offering ("IPO") - by shareholders. Of course, another contingent has subsidized the low prices that accompanied this global juggernaut's rise over the last decade... the drivers. By using a gig economy workforce, Uber kept costs low by not having to pay for things like sick leave and paid vacation, or even pay drivers for their time when there are no riders! The company has been the target of labor activists [in the U.S.]( and [abroad]( and has made some concessions to labor along the way. But now, with gas prices soaring, many drivers are complaining that Uber isn't raising their payouts enough to cover their increasing operating costs. Just last week, I was in Phoenix, and my Uber driver told me tons of his peers have stopped driving because they are only getting an extra $0.55 per ride to cover gas, even for long trips. He pointed to a parking lot near the airport that he said would normally be full of dozens of cars but sat with fewer than 20 cars in it. With unemployment at the rock bottom rate of 3.8% in the U.S. – and labor markets stretched thin in many other countries as well – Uber was already, like most companies, facing a worker shortage. Rising gas prices now are making the problem worse. In New York City, Uber has found a possible solution to its labor shortage – striking a deal with its old adversary... Last Thursday, Uber announced that it is teaming up with the two technology companies – Curb Mobility and Creative Mobile Technologies, which, respectively, operate the Curb and Arro apps that power New York's yellow cabs. NYC Uber users will soon be able to order a yellow taxi using the Uber app. Taxis can choose to accept a pick-up and be compensated at the prevailing UberX rate for the ride, whether standard or surge. Or drivers can choose to decline requests from the Uber app and pick up riders the old-fashioned way, off the street. The deal is the first broad one of its kind and a major change in stance for Uber, who traditionally treated licensed taxis as its buggy whip competitors. Uber has previously done smaller integration experiments with taxis in Spain, Colombia, Germany, Austria, and Turkey... but nothing as wide-spanning as this. The deal seems like a big win for Uber. By tapping into the yellow cab pool, it can increase capacity at a time when recruiting drivers is both difficult and expensive. Theoretically, raising supply should address the supply-demand imbalance for cars that has led to so much surge pricing in New York lately. Surge pricing is, of course, very profitable for Uber and its drivers... but taken too far, it also erodes demand. I know soaring Uber prices – with asks sometimes as much as $60 to go a few miles – have made me turn back to yellow cabs, as well as the subway and my own two feet. So, while more capacity could theoretically reduce the prevalence of surge rates in New York City, in reality, the entire pricing process is so opaque to the customer that even with more cars at its disposal, Uber can probably optimize surge pricing to be as much as they want, stopping just short of where the demand destruction starts to be a negative. On top of the benefits of more supply, Uber gets to spin itself as more taxi-friendly, which could help its relationship with local regulators and politicians. On its February investor day, Uber said it wants every taxi in the world listed on its platform by 2025... and argued that it's great for taxis, helping to lower their time spent without a passenger. Having taxis on the platform also offers more options and convenience for customers. --------------------------------------------------------------- Recommended Link: [Buy Reservoir Media (RSVR) immediately]( You could make a great deal of money on this little company by using the "backdoor" we've discovered. Even if you don't buy it, have a look at why we're targeting this stock right now... because it holds the key to exactly where stocks could go next in the coming weeks. [Full details here](. --------------------------------------------------------------- It sounds like a win-win – but maybe not so fast... Taxi driver advocacy groups warn that drivers may make less under Uber's compensation program... Source: Twitter/@NYTWA From the customer's perspective, I fear that this will cost me more money. If I had switched from using UberX to using yellow cabs because UberX rates usually cost me 2 to 3 times more than what a taxi would charge me... How does allowing taxis to charge me what UberX charges help me? Personally, I would rather wait five minutes or walk to the corner to get a $20 ride rather than agree to a $60 ride. I'm not the only one worrying about this. One reader commented on the Times article... Source: New York Times Even non-New Yorkers see through how consumers will be the likely losers here... Source: New York Times  This isn't a New York-specific issue with surge pricing either... Source: New York Times Yellow cabs teaming up with Uber is solving a consumer problem that doesn't actually exist right now in New York City... While it may be very difficult for Uber to recruit drivers, I've actually found it unusually easy to find a yellow cab these days. That may change eventually – but for now, the increased number of people working at home and reduced level of tourism in New York City have left hailing a taxi easy. Well, it's easy until the taxis get to drive by me and instead choose to pick up a ride from someone they can charge three times as much... But if New Yorkers were eschewing UberX for its surge rates, I imagine they would eschew yellow cabs at those surge prices even more. So if enough people are price-sensitive like me, maybe I still will be able to hail a cab when the taxi-Uber integration goes live later this spring. But if this deal is bad for consumers and, according to advocates, bad for taxi drivers, who is this deal good for? Uber, clearly. Because when things are busy, they will have even more drivers on the road to take a fee from. And when things are slow, they don't pay their workers an hourly rate anyway... so they don't lose anything by creating more competition for their existing, nontaxi driver pool. I think bulls will be able to spin this deal as a game-changer and the first step in Uber's eventual domination and fee-taking off of the global taxi industry. They could be right – but with a deal structure where the customer loses, and the taxi driver loses, I'm skeptical. I remain a broken record and bearish on UBER shares. Convincing two start-up tech companies to work with Uber is very different from convincing consumers, taxi drivers, and the New York City Taxi and Limousine Commission – which did not need to approve this deal – that this is a step forward. In the mailbag, here are some of the favorite business books that readers recently shared with me... Do you think Uber's deal with the yellow cab tech companies will ultimately lead to higher prices for yellow cabs in New York City? Do you think this kind of hook-up should be regulated by the New York City Taxi and Limousine Commission? Do you think becoming the hailing engine for taxis globally will be the path that eventually leads to profits for Uber? Share your thoughts in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "In Search of Excellence. The 7 Habits of Highly Effective People" – David H. "Hi Berna, Thank you for the book recommendation in today's letter. I love reading about business and investing. The best book on investing I've read was Phil Town's Rule #1: The Simple Strategy for Sound Investing because it was the first book to truly demystify investing for me. While it's pretty simple compared to some of the more recent investment books I've read, Rule #1 helped me realize investing wasn't some magic, complicated process. It was after this book that I started diving deeper into the investment world. "I also love reading about terrible business decisions or investment frauds. Books like Bad Blood, The Devils' Playbook, Empire of Pain, Billion Dollar Whale, and Barbarians at the Gate. "I really enjoy your letters and the incredible insight from you and everyone at Empire!" – Chris B. "The Zurich Axioms by Max Gunther!" – George M. "The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention by William Rosen" – Larry S. Berna comment: Thanks for all these great suggestions! Regards, Berna Barshay March 28, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](