Date : May 17, 2017
The world at present is positively defined by the concept of “Disruption”.
The stock market, in particular, is plagued by various revolutions that one may consider to be key disruptions of how industries have operated even in the recent past. One of the most important of these types of disruptions is something we might call the “spare capacity revolution”.
What we mean here by “spare capacity” is the idea that we, in our everyday lives, have dominion over something – be it a house, a car, our free time, or even some type of lawn care. To society at large, these objects sit idle most of the time.
Think of your spare bedroom. You may not go in there for weeks at a time. What if I gave you some money for it when you’re not using it? Some people do this. It’s called Airbnb.
One of the consequences of the Internet is the ability to form communities that can become marketplaces where we can buy and sell something like timeshare usage of ourselves or our belongings when we have spare capacity and need money. In other words, if someone needs a room and has extra money, and someone else has an extra room and wants money, then the two can be paired up to mutual benefit.
This is disruptive because it cuts out the middleman that has been exploiting this situation for decades – the hotel. Hence, Airbnb has disrupted the Hospitality industry.
The Rideshare Disruption
Similarly, one of the most powerful applications of the spare capacity concept to date is surely the rideshare market. By this, we’re talking about the total disruption of transportation and commuting markets – in other words, trains, buses, and most importantly, taxicabs.
The plot boils down to this: many of us own automobiles. And we certainly don’t use those automobiles all the time. Furthermore, we could use those automobiles more if we got paid to. As anyone living in the 21st century knows, we have a bit of a problem where consistent employment is concerned. That’s why we’ve seen the formation of what economists call the “gig economy” (ie, people making extra money by working extra gigs).
At the same time, the industries supporting public transportation have been operating inefficiently for decades, with cab companies forming non-competitive alliances, and trains and buses being run by bureaucrats and municipal government hacks.
The system was extremely ripe to be disrupted from all sides: people need extra money and have cars sitting their garages, other people need rides and are being poorly served by existing options, and the internet comes along to allow for new a marketplace to pair them up.
Naturally, this has opened the door for a massive and thriving phenomenon now known as the “rideshare market”.
It Cannot Be Ignored
According to a recent Statista research piece, revenue in the Ride Sharing segment amounted to roughly $11.8 billion in the US in 2017. But significant growth lies ahead, with the number of users expected to explode to 72.4 million by 2022. The average revenue per user (ARPU) in the Ride Sharing segment amounted to $260.90 in 2017.
If we carry that math forward, the market is set to expand to nearly $19 billion over the next five years – growth of nearly 40%.
The Crypto Element
But, allow us to switch gears for a moment. In fact, there’s another revolution going on at the very same time that has begun, finally, to intertwine with the rideshare juggernaut: the cryptocurrency revolution.
In essence, at the very heart of the cryptocurrency revolution is the concept of a contractual transaction. In other words, the blockchain, and its associated currencies that rely on the blockchain ledger, allow for effectively the automation of a contractual arrangement such that the concept of “trust” becomes entirely superfluous.
While this may seem a somewhat morally ambiguous idea when termed as a revolution, the one thing that it does that no one can argue with is increase the efficiency of a scalable operation that must rely on complicated contractual transactions.
And there may be, perhaps, no better illustration of that than the application of cryptocurrency arrangements in settling contractual transactions between the passenger, a car owner/driver, and the rideshare transportation company in a typical ridesharing instance.
This is a notoriously complicated arrangement of moving parts. And, it needs to happen fluidly and on a scalable level for it to provide a competitive advantage.
It turns out that cryptocurrency was made for this situation.
The Major Players
Now, it’s time to look at the major players. Naturally everyone knows about Uber and Lyft. But what about Juno and Via. And there’s one more to consider: Carsmartt (OTCMKTS: CRSM).
At this point, while they remain private companies, Uber and lift are no doubt notoriously overvalued. This is because these two companies have provided liquid secondary market transactable shares for large investors to move into through a number of Silicon Valley and Wall Street firms.
In effect, it’s almost as if these two have already IPO’d. And anyone wishing to speculate on the rideshare market as a whole has their money in Uber and Lyft.
But in all of this, there’s something remarkable hiding under the surface here: it is the little one – Carsmartt (OTCMKTS: CRSM) – that already trades on a fully accessible public market and also has taken the bold step of integrating the cryptocurrency theme as a core component of its operations.
The Growth Ahead for Rideshare
Naturally, most experts agree that there is an enormously bright future ahead for the rideshare market. The growth we’ve already seen has been remarkable, but has been relatively limited in terms of the range of geography thus far exploited by these companies.
In other words, what we’ve seen so far has been effectively a Silicon Valley revolution. And, only in the recent past has it begun to turn into a United States revolution. And only very, very recently have we begun to see this revolution disrupt transportation systems in Europe and Asia.
However, the exploitation in those markets – the level of disruption of established industries such as trains, buses, and cabs – has been very limited, and has clearly much further to go.
One can imagine the process playing out as follows: the technology arises in Silicon Valley and begins to take root. Based on how fast adoption occurs among those living in that area, investors fund rideshare companies to begin to expand in major metropolitan areas across the United States. And then further analysis is done, and finds that this adoption rate continues unabated despite expanding into traditionally less tech savvy, less early-adoption-prone regions. In other words, it works for the masses.
After that analysis is in, more investment money flows into the bigger players, and they expand operations to the rest of the United States and eventually outside into other areas. That’s essentially where we are now.
Though we’ve seen some spread into Europe and Asia and other areas around the world, most of those markets are still ripe for the taking in terms of the growth curve.
And that’s extremely important to understand: in fact, by far and away, the majority of the world is still something like a ripe piece of fruit to these ravenously hungry companies with this unstoppable model of disruption.
Something like billions of people have yet to have their lives changed for the better by this extremely efficient system that rewards drivers and car owners, as well as prospective passengers and commuters, and of course the rideshare companies and their investors, themselves.
But in all of this, it’s awfully important to understand that, since most of this ripe fruit has yet to be eaten, it’s extremely premature to declare Uber and Lyft as the winners of the game, especially given the fact that, at present, their valuations appear to be potentially massively overshooting the mark.
All of that takes us to our critical point here today: investors looking for an edge in this explosive growth market – which promises to yield huge returns in coming quarters and years – should be looking at the smaller players in the space, particularly those with a competitive advantage.
While Juno and Via are interesting in their own right, the one that stands out to us at this point is Carsmartt.
While that may seem like somewhat of a contrarian observation, the company has begun to expand into Europe and Latin America, as well as to update its technology in recent quarters. And the adoption of a cryptocurrency-based standard for its internal operations as well as its customer facing and driver facing aspects, may well provide the differentiating factor that allows this stock to become a core diversification holding for larger players in the market seeking to embrace rideshare as a concept, but not wanting to put all their eggs in one basket with Uber and Lyft.