Last week Uber came public in the largest IPO of the year. Uber is the company that started a major transition taking place in our society, a transition commonly referred to as "Mobility-as-a-Service." MAAS is changing the way people get around, the need for urbanites to own cars, and the whole business of manufacturing and selling automobiles. It's so important that tech companies like Apple and Google are stepping beyond their traditional businesses and investing billions into the automotive industry.
However, just because Uber has led this disruption doesn't mean its stock is a great investment. The company lost $3 billion last year and projects losses for the foreseeable future. For having disrupted a significant portion of a large part of the economy, at an $80 billion valuation, and needing more money to fund itself, Uber seems like a very iffy proposition. (For a great read on Uber, check out Beth Kindig's blog.)
At Tailwinds, we are very interested in disruptive technologies and growth spaces. We are super interested in companies that are benefiting from these trends; however, we look for companies that have a reasonable valuation along with a path to profitability. This combination of value and future earnings is why, when it comes to Mobility-as-a-Service, we are investors in HyreCar (HYRE:NASDAQ).
Trading at only three times projected 2019 revenues of $20 million (which is 100% growth), HYRE has a valuation that is well below those of its larger peers, Uber and Lyft. They are both around seven times trailing revenue, with a much slower growth rate; Uber's rate has fallen to around 25% per its S1.
At the same time, HyreCar is reaching an inflection point in its financial performance as it has just turned cash flow positive during this current quarter. Thus, for a revenue multiple less than half of Uber or Lyft, in HYRE you get a cash flow positive company with a higher growth rate. It's rather compelling.
However, investors are always looking for the future. Besides putting up big growth numbers, what sort of catalysts exist to drive the stock higher? We believe there are three potential milestones in HyreCar's future, all with a high likelihood of transpiring and each a potential driver of the stock.
As an investor, I like knowing what's coming and trying to position in front of the event. Stocks move into catalysts, so it pays to be there prior. Here are my three catalysts that I see potentially happening this year for HYRE.
5,000 Cars on the Platform
Okay, I realize my first catalyst is not really an actual event that happens but more a number pulled out of thin air. However, round numbers always seem to carry significance. For example, what's special about a baseball player getting his 3,000 hit? It's pretty much the same as all 2,999 and before and those to follow.
Except, the people who follow baseball know that no player in the history of the sport has ever had 3,000 hits and not entered the Hall of Fame. It's a demonstrable sign of success over a long period of time. If you get 3,000 hits, you've made it, without question.
For HYRE, while 5,000 cars on the platform isn't quite enough to put the company in the stock market hall of fame, it is nonetheless a target number that says it has arrived. 5,000 cars will equate to a run rate of $50 million in revenue. This will be eye-popping for investors. There will be, at that time, zero doubt as to the long term success of the platform and the company should be able to attain a more reasonable multiple in the market.
The exciting thing about this number is that it's possible for HyreCar to reach this level in 2019. This is all being driven by the dealer network, which is accelerating. Here are the numbers:
The uptake in Cars per Dealer that has taken place demonstrates the success that dealers are seeing with the program. The size of the pipeline shows the interest. This is starting to snowball.
In order to get to 5,000 cars, with no more increase in the Cars listed per Dealer, HYRE needs to get 333 Dealers on Network. While there was a temporary slowdown in this number in Q1, I expect the rate of dealers signing on to the platform to increase, especially as management is now singularly focused on this vertical.
Part of the reason for slowing growth in Q1 was HyreCar's efforts to work with large dealer franchises and OEMs. These are the big fish; longer to land, worth a lot more when they come in. For example, the larger of the two OEMs with whom HYRE deals has just recently added the vast majority of its 350 dealers to the network, after starting with a smaller pilot. Success with this one customer alone can put HyreCar over the 5,000 car hurdle I've laid out.
The bottom line is that getting to 5,000 cars will mean significant revenues for the company and increased respect from investors. It will also open the doors to my two other catalysts…
OEMs Sign On
HyreCar is in trials with two OEMs at this time. These car manufacturers, and all their peers, have to be looking at the future of mobility and asking how do they fit into this new world? Will car sales decline dramatically with Uber and Lyft being the dominant buyers someday? That would be very scary as pricing and margins could collapse.
I see OEMs as saying to themselves, "We have an infrastructure of dealers and we get our cars at cost…can't we compete in the MAAS space?" Not only can they compete, I think they absolutely HAVE to do so or they risk being dinosaurs.
HYRE's platform represents a way for dealers to dip their toes into the water of supplying cars for the MAAS industry. It's a rather low risk entry for them, putting cars in this space. And, when HyreCar hits that tipping point, where it proves the model works and scales (i.e., the 5,000 car level), OEMs are going to sit up and notice.
I think as HYRE trends towards 5,000 vehicles on the platform, you'll see OEM interest pick up to the point where it has a signed contract to announce to the world. This could happen prior, but success in moving in the 5K cars direction will drive success at inking an OEM. Look for this to happen in 2019, maybe even in Q3. And, when it happens, it will be a big deal.
Uber or Lyft Partner-Up
As with the OEMs, success brings attention. As HyreCar moves toward critical mass, it will demonstrate the viability of its platform, while becoming a significant contributor toward both of the large ridesharing platforms.
Now, in the past, HYRE has said the best thing about being agnostic is drivers are happy as they can work on both platforms. But, in the world of a duopoly, working with either platform could be absolutely huge. You don't need to be an open platform if there are only two ridesharing companies and the market is worth many billions of dollars.
I suspect that, once again as HYRE trends towards critical mass, the big boys will come a-calling. Uber and Lyft know about HyreCar and are keeping their eyes on them. Once the model is proven out at scale, both companies will be interested in figuring out some sort of exclusive arrangement. A deal that would likely benefit HYRE by having the partner start driving traffic back to its platform, accelerating its growth and giving it free marketing on a very large scale.
Cash Flow Positive, Potential Catalysts Coming
HyreCar is making all the right moves to grow in a rational way. The company is turning cash flow positive right now. But, this will not be a cash cow anytime soon. The company has stated its intention to spend free cash flow on growth.
This growth will, therefore, continue coming at the 100% year over year rate for a while. That number will have to start slowing, but it's still phenomenal growth that is outpacing every other public company in the MAAS space. And, with positive cash flow, it doesn't require ongoing dilution.
HYRE is going to start reaching the critical mass required to get the larger players in the space to pay attention. Large OEMS like Ford and GM are already starting pilot programs with it. The newly IPO'd ridesharing behemoths, Uber and Lyft, definitely are keeping an eye on HyreCar. As the company moves toward that 5,000 car mark, its importance as a player in the MAAS space will only increase, not only driving partners to seek it out but, hopefully, its stock price much higher.
Daniel Carlson is the founder and managing member of Tailwinds Research Group and its parent company DFC Advisory Services, which is a licensed registered investment advisor (CRD # 297209). Tailwinds is a microcap focused research company that provides research on and consults to over 20 emerging growth companies in the technology and life sciences arenas. DFC Advisory Services is an RIA that manages money dedicated to investing in the companies covered by Tailwinds. For more information on these two companies and their track record, please see www.tailwindsresearch.com. Prior to founding these two entities, Dan spent many years working with small public companies, having been CFO of two public companies and helping finance many others. A 1989 graduate from Tufts University with a degree in Economics, Dan’s formative years in business were spent as an equity trader, first on the Pacific Coast Stock Exchange then on the buyside at several multi-billion dollar firms.
This article was submitted by Tailwinds Research. For more information on Tailwinds Research or on HyreCar, please visit www.tailwindsresearch.com.
Tailwinds is engaged by HyreCar and owns stock in the company. For a complete list of disclosures, please click here.
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