A2B - A2B Australia

[McLovin]

Worth a read...

http://aswathdamodaran.blogspot.com.au/2015/10/the-ride-sharing-business-playing-pundit.html

 

[Rainman]

Worth a read...

http://aswathdamodaran.blogspot.com.au/2015/10/the-ride-sharing-business-playing-pundit.html

Good point by Damodaran. He's effectively saying that the ride-sharing services lack the key structural element that has traditionally elevated a dominant player in a technology-based industry and allowed that player to remain dominant: a genuine network effect.

There is no enduring competitive advantage (as opposed to a first-mover advantage which is what Uber has and which is neither enduring nor competitive nor an advantage) in ride-sharing services. There is nothing in the industry that will ever protect the dominant player from having their market-share constantly eroded or under threat of erosion.

In the end, each ride-sharing service will only ever be able to compete on price: the price the service pays its drivers and the price it makes its users pay.

 

[Rainman]

Is anyone else in this stock? At $2.85, it is starting to look attractive even after factoring in a full year of the cap on credit card surcharges.

Does anyone know what proportion of these charges have typically made up total revenue? I've skimmed through the annual report but I can't find a breakdown of it.

 

[Wysiwyg]

Is anyone else in this stock? At $2.85, it is starting to look attractive even after factoring in a full year of the cap on credit card surcharges.

I fear the UBER shadow most. CAB looks due for a swing up in this long persistent down trend.

 

[Rainman]

I fear the UBER shadow most. CAB looks due for a swing up in this long persistent down trend.

I personally think that the Uber threat is way overblown. Sure, Uber and other ride-sharing service companies will cut into some of CAB's market share. But people are assuming that because individual ride-sharing service companies are disrupting traditional taxi services, that fact says something about the economics of individual ride-sharing service companies as businesses. It does not say anything about the economics of ride-sharing service companies as businesses.

In fact, the more I learn about the economics of ride-sharing service companies, the more I am beginning to suspect that they will never be the super-profitable, capital-light, high-return-on-capital businesses that people forecast them to be. Rather, their economics are more likely to resemble the economics of airlines than the economics of REA or of Microsoft.

 

[galumay]

I personally think that the Uber threat is way overblown.

I agree with the gist of your post, Uber arent even really a "disrutper", they are hugely unprofitable company, who treat their 'employees' like slave labour. Uber are back already looking to investors for more billions to keep the company afloat.

Taxis will be round for a long time yet and there is still plenty of money to be made by the CABs of the world.

I am not convinced the ride sharing business is viable in the long term, it may well go the way of a lot of other tech companies, the recent Damodaran article that was linked was an interesting insight.

I am not sure what the real value of CAB is going to end up, probably need to see all states & territories cut the CC fee to 5% and then see what the bottom line looks like, so far the impact has been much less than the drop in share price would suggest and they may well prove to be very cheap.

I still hold and happy to collect the healthy yield everytime the divvy bus drives past! Its still 7% based on my purchase price.

 

[craft]

I agree with the gist of your post, Uber arent even really a "disrutper", they are hugely unprofitable company, who treat their 'employees' like slave labour. Uber are back already looking to investors for more billions to keep the company afloat.

Taxis will be round for a long time yet and there is still plenty of money to be made by the CABs of the world.

I am not convinced the ride sharing business is viable in the long term, it may well go the way of a lot of other tech companies, the recent Damodaran article that was linked was an interesting insight.

I am not sure what the real value of CAB is going to end up, probably need to see all states & territories cut the CC fee to 5% and then see what the bottom line looks like, so far the impact has been much less than the drop in share price would suggest and they may well prove to be very cheap.

I still hold and happy to collect the healthy yield everytime the divvy bus drives past! Its still 7% based on my purchase price.

Return on those dam buses is why I'm no longer interested in CAB. The ride share threat the credit card caps - all known and probably even priced in IF they milked the declining business and returned the cash to shareholders, but not if they keep investing in low return buses to try and diversify.

 

[Rainman]

... I am not sure what the real value of CAB is going to end up, probably need to see all states & territories cut the CC fee to 5% and then see what the bottom line looks like, so far the impact has been much less than the drop in share price would suggest and they may well prove to be very cheap.

This is why I would like to know just what proportion of CAB's revenues is made up of the 10% surcharge.

If you reduce that portion of CAB's revenue by 5%, make the necessary adjustments to operating margins and NPAT, you should end up with a reasonably good idea of what this regulatory change will mean for CAB going forward. After that, you might make some further assumptions about any reduced revenue resulting from the inroads made by the ride-sharing service companies into the traditional taxi market. But, in my view, any reduction of revenue under that heading should be modest because I don't think the ride-sharing service companies are going to have that much of an impact.

I have already taken a small position in CAB at the $2.85 level. But I will build on it once I've gone through CAB's full report more thoroughly and am able to address the question above with a bit more confidence.

Some of the most profitable opportunities arise when you can gauge the extent to which some widely held fad - like ride-sharing service companies decimating the traditional taxi industry - depresses a stock price and delivers you a juicy mispricing that becomes blindingly apparent after just a little digging.

 

[McLovin]

In fact, the more I learn about the economics of ride-sharing service companies, the more I am beginning to suspect that they will never be the super-profitable, capital-light, high-return-on-capital businesses that people forecast them to be. Rather, their economics are more likely to resemble the economics of airlines than the economics of REA or of Microsoft.

That may be true, although not my own personal view, but that hardly bodes well for CAB's payment system.

Return on those dam buses is why I'm no longer interested in CAB. The ride share threat the credit card caps - all known and probably even priced in IF they milked the declining business and returned the cash to shareholders, but not if they keep investing in low return buses to try and diversify

I give the bus thing 12 months, as in they will get rid of it. It starts to get interesting under a scenario of them selling their bus investment. Public transport companies seem to trade on abot 15-23x earnings. Comfortdelgro is on 22x itself. At that price, CAB's share in the JV is worth pretty much the entire value of CAB, leaving the payment and taxi service biz for free.

 

[craft]

I give the bus thing 12 months, as in they will get rid of it. It starts to get interesting under a scenario of them selling their bus investment. Public transport companies seem to trade on abot 15-23x earnings. Comfortdelgro is on 22x itself. At that price, CAB's share in the JV is worth pretty much the entire value of CAB, leaving the payment and taxi service biz for free.

Impairment considerations in the annual report for CDC is based on nil growth for the next five years and a terminal growth rate of 2.5%. They dropped their discount from 8.9% to 8.4% and by my math if they hadn't done that they would have had to take a right down on the balance sheet value. 22x Is not something I would ever dream of paying for those sorts of numbers - but who knows maybe I'm missing something. If they did flog it off for 22x and return the cash to shareholders it would make a decent asset play with the upside of the ongoing business not turning out as bad as the popular Armageddon scenario. Still whilst interesting its not my sort of thing anymore, getting fussy/lazy in my old age.

 

[McLovin]

Impairment considerations in the annual report for CDC is based on nil growth for the next five years and a terminal growth rate of 2.5%. They dropped their discount from 8.9% to 8.4% and by my math if they hadn't done that they would have had to take a right down on the balance sheet value. 22x Is not something I would ever dream of paying for those sorts of numbers - but who knows maybe I'm missing something. If they did flog it off for 22x and return the cash to shareholders it would make a decent asset play with the upside of the ongoing business not turning out as bad as the popular Armageddon scenario. Still whilst interesting its not my sort of thing anymore, getting fussy/lazy in my old age.

Sorry, that was more me thinking aloud than suggesting they'll get 22x, although if they found a sucker to pony up that it would be bonanza! But, toward the lower end of that pe range I wouldn't put as totally left field. I really don't see CAB holding the bus JV for long, wouldn't surprise if they're already sounding out options (I have no confirmation that they are, just speculation). Reading the FY prezzo it was like CdC didn't even exist. Dare I say that perhaps the SP is being supported because of the sum of parts valuation?

 

[Rainman]

That may be true, although not my own personal view, but that hardly bodes well for CAB's payment system.

If you think that Uber and the other ride-sharing service companies are seriously going to shrink the market for CAB's payment system, don't you first need to satisfy yourself that Uber and these other ride-sharing service companies have a profitable business model?

At some point, the investors that are funding these massive money-losers are going to demand to see a return. I have not seen any evidence yet that ride-sharing service companies are capable of making any return, let alone a cost-of-capital return, on investors' funds.

 

[craft]

If you think that Uber and the other ride-sharing service companies are seriously going to shrink the market for CAB's payment system, don't you first need to satisfy yourself that Uber and these other ride-sharing service companies have a profitable business model? .

No! somebody that believes its a land grab in a new paradigm can be much more damaging to an incumbent then somebody interested in an immediate profitable business model.

At some point, the investors that are funding these massive money-losers are going to demand to see a return. I have not seen any evidence yet that ride-sharing service companies are capable of making any return, let alone a cost-of-capital return, on investors' funds.

At some point - maybe that point is after the incumbents are displaced.

 

[Rainman]

No! somebody that believes its a land grab in a new paradigm can be much more damaging to an incumbent then somebody interested in an immediate profitable business model.

Land grab: pretty analogy. Now care to back that up with any real world examples?

 

[McLovin]

Land grab: pretty analogy. Now care to back that up with any real world examples?

Amazon.

 

[Rainman]

Amazon.

Amazon? Amazon is profitable. And as far as I am aware HVN, JBH and any other number of retailers are unaffected. Amazon has affected book retailers but that's it. Despite a lingering fear that Amazon is going to shake up retailing as we know it, which retailers has it really driven out of business apart from book retailers?

 

[McLovin]

Amazon? Amazon is profitable.

Err yeah. It's a 21 year old company. It took 10 years for it to turn a profit while it ate away at the incumbents' businesses.

 

[Rainman]

Err yeah. It's a 21 year old company. It took 10 years for it to turn a profit while it ate away at the incumbents' businesses.

By "incumbents' business", you mean bookstores?

One of the reasons why the Amazon/Uber analogy is not very compelling is that all Amazon had to do was to steal bookstore customers away from bookstores whereas Uber and the other ride-sharing service companies are going to have steal passengers way from taxis as well was taxi drivers. There are many reasons why the latter in particular is going to be a herculean task - practically and legally - and one that is always going to be shifting one way, then another.

I predict that the bargaining power in that equation will lie with the taxi drivers, not with the ride-sharing service companies.

 

[craft]

By "incumbents' business", you mean bookstores?

One of the reasons why the Amazon/Uber analogy is not very compelling is that all Amazon had to do was to steal bookstore customers away from bookstores whereas Uber and the other ride-sharing service companies are going to have steal passengers way from taxis as well was taxi drivers. There are many reasons why the latter in particular is going to be a herculean task - practically and legally - and one that is always going to be shifting one way, then another.

I predict that the bargaining power in that equation will lie with the taxi drivers, not with the ride-sharing service companies.

The similarities of the Amazon analogy is that there is plenty of financial backing for the revenue build of the new model without the need for near term profit. Its tough when your competitor doesn't need to focus on near term profits - It doesn't matter if their business plan will ultimately be successful or not - what matter is if you can survive a prolonged period of fierce and potentially profitless completion for all players.

CAB and Aus is rather insignificant in the bigger picture that will eventually prevail in this customer empowerment via the internet/regulation snubbing/share economy/micro business thing that is playing out globally in many fields. I don't know how it will finish up for CAB perhaps it comes out O.K. But I can see by the weight of money backing the other story that the fight is going to be bloody enough that I don't want my money involved (either side).

You seem to like Damodaran.

http://aswathdamodaran.blogspot.com.au/2014/10/if-you-build-it-revenues-they-profits.html

 

[Rainman]

The similarities of the Amazon analogy is that there is plenty of financial backing for the revenue build of the new model without the need for near term profit.

I don't deny that. But that was not the point of the Amazon analogy. The point of the analogy was to show the damage that Amazon was supposed to have inflicted on incumbent retailers while it remained unprofitable.

But the reality is that Amazon has impacted only brick-and-mortar bookstores. Other retailers it has not affected in any meaningful way, so the analogy falls a little flat.