Stock Analysis

HyreCar: Massive Ride-Share Potential

|About: HyreCar (HYRE), Includes: LYFTUBER

Summary

  • HyreCar is company in the ridesharing industry that’s poised to see big growth.
  • It benefits from both Uber & Lyft, and has an ingenious business model that allows for quick growth.
  • We feel that after a bumpy period after IPO, the stock has finally hit the bottom, and can only grow.
  • With strong financials and a decent balance sheet, we’re giving it a “strong buy” rating, with “moderate risk”.

It’s rare that investors in public markets get the opportunity to invest in a company in the rideshare industry – industry movers like Uber and Lyft come to mind. HyreCar (HYRE) is a company that piggybacks on the massive growth that the rideshare industry is seeing, and provides a niche service with an ingenious business model that allows it to directly benefit from massive industry growth. It’s quite a compelling investment to investors who can stomach the risk, and could see some major future growth in revenues, business scale and share value.

Business Model

HyreCar is a unique peer-to-peer car-sharing marketplace that allows car owners to rent their idle cars to ride-sharing service drivers. The company is looking to revolutionize access to the Gig and On-Demand Economy by fully commoditizing local car inventory markets, and feels that in the next few years its business model can be highly disruptive.

(Source)

It’s a simple supply and demand business model, similar to VRBO which is beneficial to all involved parties. Drivers use the HyreCar platform to rent desirable rideshare cars, which they can then use with RideSharing (think Uber), Package Delivery (Postmates), Food Delivery (Uber Eats) and many more Gig and On-Demand Economy companies.

The owner of the car benefits due to rent from the driver (Average car owners make $14,000/year, according to HyreCar). The driver benefits as they can now participate in Gig and On-Demand Economy companies, and turn a profit quickly (Drivers make, on average, $1000 per week after rental fees, according to HyreCar). Companies in this space benefit because there are more drivers working for their company. Finally, HyreCar benefits from their platform as they take a cut of the rent from every driver/owner transaction.

Equally as exciting is the fact that the HyreCar platform isn’t only for single owners of cars (like a family). It also works with rental companies, and car dealerships. The typical car sits vacant 96% of time, while dealers/rental companies often maintain large fleets of idle used cars, allowing for consistent inventory availability. HyreCar allows these assets to produce income for dealers/rental companies, instead of sitting in a lot depreciating.

This business model is highly scalable because there’s no physical inventory, and no physical locations. The HyreCar platform is all digital and peer to peer, which allows for extremely low operating expenses and almost no capex.

Here’s a quick look at their platform:

(The Driver’s Portal)

Note that the first car in the list is not posted by a single owner, it’s a dealership car.

Here’s how HyreCar makes money, with a revenue example.

(Source)

That’s a pretty big margin for providing a “middleman service,” which is great.  Drivers pay a daily, weekly or monthly rental rate, plus direct insurance costs and a 10% HyreCar fee. Owners receive their rental rate minus a 15% HyreCar fee.

Finally, the company has M&A’s built into it’s business plan. We here at WappCap love companies that implement mergers or acquisitions logically. Following IPO, HYRE has about $11m in cash to use on M&A’s, so be on the lookout for that possibility in the future.

In the Q2 earnings call, CEO Joe Furnari stated that:

Part of the reason for going public was the relative ease of being able to, as a public Company, roll up companies in the car sharing and ride sharing space. Uber and Lyft not only built their businesses, they have created an ecosystem of companies around them that cater to drivers, passengers, fleet owners, marketers and the [indiscernible] themselves. We see multiple bolt on businesses in this space that would not only complement our platform but add immediate accretive value to the business and shareholders. We look forward to updating the market as these opportunities come to fruition.

With this model, we could see the company go from $30m in market cap to well over $100m quite quickly.

Industry Driving Future Growth

HyreCar is a niche company, offering a service tailored to the Rideshare/ Gig/ On Demand economy industries. Because of this, the industry in which it operates is a good indicator of the future growth that HYRE will be seeing.

The global ride-share industry will be in excess of $600B by 2024. That’s a whole lot of pie. Already, this industry is massive: Revenue amounts to $17 billion in 2018, and is expected to show an annual growth rate (CAGR 2018-2022) of 15.2%, resulting in a market revenue of $30 billion by 2022.

By membership, the North American ridesharing market is estimated to register a CAGR of 17.69% during the forecast period of 2018-2023. Penetration rate (as of 2016) in the US hasn’t even reached 15%.

(Global Ride-sharing Penetration Rate | Source)

HyreCar’s business model allows it to directly benefit off industry growth, and with an estimated CGAR of over 15% for industry revenues in the next few years, if management of HyreCar and harness this growth, investors should be in for some nice returns.

Even better, all of this growth is creating problems for big players like Lyft and Uber.

(Source)

There’s a massive amount of demand for Ridesharing services, but many potential drivers do not have qualifying vehicles (which must meet certain demands like safety and model year). Lyft stated that “we see a major need in these cities… 160,000 people in Baltimore, D.C., Chicago and Boston applied but did not have qualifying vehicles.” This creates a demand for HyreCar’s service from both Rideshare companies and drivers alike.

(Source)

The company expects rapidly growing demand for their service – from 0.1% ride share vehicles in 2017 being HyreCar Vehicles to a forecasted 13.1% by 2023.

Harnessing The Industries Growth

HyreCar would be nothing if they couldn’t harness the growth of the Rideshare industry. This should not be an issue for the company. Firstly, the all digital design of the business model makes it really easy to scale, and grow with the market. Already we’re seeing a strong adoption rate: after less then 5 years, the company is operating in 35 states with 175,000 driver profiles and over 1,200 daily active users. This number’s already beginning to show exponential growth (see the market forecasting in the above section).

Secondly, the company is engaged in an aggressive growth strategy through partnerships and marketing. Direct marketing leads to awareness of their carsharing marketplace. For every $1 spent in marketing, HYRE is seeing a 4x return in net revenue.

They’re also in several smart partnerships. The most important one is with Lyft.

https://www.lyft.com/HYRECAR

Driving with Lyft using HyreCar will let drivers who are thinking of buying or leasing a vehicle, experiment with a number of different options. If a driver is considering a Lyft Premier vehicle purchase, they can rent a qualifying vehicle from HyreCar to see how profitable it would be. Because of this partnership, they’re the #1 Independent activator of Lyft drivers in the U.S., and it’s beneficial to both Lyft and HyreCar.

Just a few days ago, they announced a strategic partnership with PassTime, a leading provider of GPS Solutions. This partnership offers advanced vehicle asset tracking and management to car dealers and fleet owners who are using the HyreCar platform. This is to offer more peace of mind and security to fleet operators to entice them into the HyreCar system.

These two examples are the most important partnerships, but there are several others like one with HopSkipDrive, DriveItAway, and several independent car dealership groups.

Finally, the company has a great team backing it.

We see a strong team coming from multiple different companies with great experience behind them.

Financials

By now, we’ve established that HyreCar is a great company, with a ingenious business model, and the ability to harness the massive future growth of the rideshare industry. Now, let’s see if the company is currently worth investing in, from a public market investor’s standpoint.

It’s important to note all financial reports are unaudited.

In the Q2’18, HYRE increased revenue by 260% to $2.3 million compared $0.6 million or $600,000 in the second quarter of 2017. This represents a 33% increase when compared to revenue of $1.7 million in the first quarter of 2018. Revenue growth was driven primarily by increases in daily active renters on the platform and an increase in referral income from new drivers entering the HyreCar system.

Gross profit grew about 14 times to over $1 million compared to $72,000 in the second quarter of 2017, and grew 154% when compared to gross profit of $0.4 million in the first quarter of 2018. Gross profit was driven primarily by an increase of pass through insurance cost to drivers and a significant reduction in insurance premiums.

Can they keep up this growth? One word: Backlog.

Driver leads on the platform are outpacing vehicles by 10-1. By simply servicing the leads the platform is currently generating, HyreCar believes that they can grow revenues by nine times. Couple this with industry growth, and we feel that HYRE will continue to see massive revenue growth into the future.

The company is preforming, with a large amount of cash from the IPO, and little debt. Investors are seeing massive growth in Gross Profit, Revenue, and every other metric. However, it’s not all that good.

HyreCar isn’t profitable. This is to be expected with any startup company, especially after IPO.

Net loss in the second quarter of 2018 totaled $5 million or ($0.92) per share compared to a net loss of $800,000 or ($0.19) per share in the same quarter of 2017. Luckily, the increase in net loss was mainly due to two non-cash, single-occurrence items: noncash stock based compensation recognized in the quarter and, non-cash interest expense incurred in the second quarter from a conversion of the 2018 bridge note into common stock during the IPO Non-cash stock based comp and converted interest expense in the second quarter totaled $3.7 million out of the $5 million net loss that was realized.

That means that net loss still widened, but less then it appears. Less the single-occurrence expenses, HYRE’s second quarter loss was $1.3 million or ($0.24) per share. Compare this to a net loss adjusted for noncash related expenses of $1.5 million or ($0.28) per share in Q1 of 2018, and we’re actually seeing movement towards profitability.

Relating to profitability, Joe Furnari, CEO stated this in the Q2 Earnings call:

Sequential quarter-over-quarter narrowing of our loss per share is expected to continue. This narrowing, coupled with revenue growth and margin expansion, provides a very clear line of sight towards being cash flow positive which we expect to achieve by the second quarter of 2019.  

What About Insurance? (And The Risks)

The first thought we had when thinking about HyreCar was; “what happens if a driver crashes my car?” How does insurance work?

The Company relies on two insurance agencies to provide all insurance on vehicles in service. With the commercial auto insurance policy that covers both vehicle owners and drivers in the HyreCar system, the company is far ahead of any competition, and access to this type of insurance makes it difficult to replicate HyreCar’s company.

Note that the loss of either of these insurance carriers would have a negative effect on operations.

From the surface, one of the biggest risk is the massive net loss that the company experienced this quarter. Fortunately, it’s a one time expense, and compared to last quarter, the company is inching forwards to profitability. Management seems confident that by mid 2019, the company will be in the green.

Taking a closer look at management; there’s a good side (further discussed in the “Industry Driving Future Growth” section), and a bad side. The bad side is that you’re not investing into a massive, 10,000 employee company with 20 C-Level execs. Instead, you’re buying into a small-cap company, which means that management is structured much more like a recent startup (because it is a recent startup.) Keep this in mind.

Another thing relating to management: there’s high insider ownership (33%). Depending on personal opinion, this could be a good thing or bad thing (it shows that there’s personal investment, but it’s less shares in the public’s hands), nevertheless, it’s something to keep in mind.

Being a small cap company with a share value of under $5, expect to see big price movements and general volatility.

Future

HyreCar looks like a great, high return investment to those who can stomach the risks associated with it. WappCap is giving HyreCar a “strong buy” rating, with a “moderate risk” due to limited cash generation and their low volume/market cap. We feel that the company has a unique position in the market, and offers a service which is beneficial to all parties involved. They have the ability to scale with the market quickly and efficiently, and already have a strong adoption rate. We’re excited to see where this company will go in the next few years, and are optimistic that the company will be seeing some big growth on all fronts.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in HYRE over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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