By Tonton Lising, contributor
Uber, a car-hailing app, is now worth more than $50 billion, the Wall Street Journal reported in July 2015. Its valuation, which is said to be more expensive than Facebook before it went public in 2012, is also comparable to around a fifth of the Philippine economy.
But Uber’s apparent overvaluation has stoked concerns of a bubble — a situation when asset prices fall sharply after being inflated way beyond their real value.
Example: The “dot-com” bubble. In the late ’90s, almost every investor was buying stocks that had a “.com” suffix in an apparent bet that these companies would make money from the Internet boom.
However, most investors later lost the gamble when many of the “.com” or “e-” companies did not do well. Some companies filed for bankruptcy while others were mismanaged or were figured in corporate scandals.
A more recent case would be the China’s stock market bubble, which wiped out nearly a third of the value of companies listed in Shanghai. How did the bubble form? Chinese people, even the middle class, aggressively purchased stocks partly due to state media’s prodding, thereby propping up stock prices.
Many borrowed money from banks while others used their retirement fund or savings to buy stocks, only to find out that all good things, especially those artificially created, must come to an end.
Now, Manila’s turn, where some sort of an Uber bubble could be forming.
But before you brand us alarmists, here’s a caveat: We’re not talking about a bubble as severe as what happened in the other two examples.
But Uber’s surging popularity in Manila has the makings of a frothy enterprise.
Everyone’s getting into it.
Uber officially arrived in the Philippines in early 2014, and since I’ve started using the service almost everyday starting this year, I haven’t heard a single driver complain about his earnings. To quote them, they net P4,000 to P11,000 every week. The upper end of that range is almost a rookie journalist’s one-month salary and higher than the average monthly pay of call center agents.
No wonder some full-time Uber drivers are actually former teachers and IT specialists. Others have also chanced upon certified public accountants who are now part-time Uber drivers.
When Uber was launched Manila, it accepted private cars as old as 2008 models, according to one driver. Therefore, some who wanted to join in the bandwagon acquired second-hand cars while many opted to buy brand-new sedans, given the extremely low down payment offered by car dealers.
(To be fair, we haven’t seen a spike in the prices of cars and interest rates remain low.)
But here come the risks. This year, Uber ruled that cars should not be older than 2012, according to one driver. What happened to those people who bought cars made between 2008 to 2011? One driver said some of them were scrambling to look for car buyers or new jobs.
Can they convert them into taxis instead? Unfortunately, no, because there’s a moratorium for new taxi franchises in Manila, where a bulk of the approximately 40,000 cabs around the country are plying.
I’ve been told that there are 3,000 to 4,000 Uber cars at present, according to one driver. (We haven’t checked this with Uber, though.) And this count excludes vehicles registered with GrabCar, a cash-based service similar to Uber.
The numbers appear to be growing. According to one driver, the firm’s office in SM Aura in Taguig City is always packed with applicants, suggesting Uber fever is not about to cool down anytime soon.
But this brings us to another risk. Apparently, the government did not impose limits when it legalized cars affiliated with Uber and GrabCar as public utilities in May 2015. Therefore, market cannibalization could be in the horizon.
With Uber’s current mode of payment, its market remains to be limited to those with credit cards. We know what happens when demand is limited and supply is abundant––in this case, less yield for Uber drivers is possible.
We now have a new government, and we know very well how policies easily change when new officials are installed. Intense lobbying by taxi groups can easily lead to policies disadvantageous of app-based private cabs.
While we have grown increasingly hopeless about our mass transport system, new and additional trains are scheduled to arrive for MRT-3 and LRT-1. This could encourage some people to take a train instead of a cab, which run the risk of getting stuck in traffic anyway.
We admit that testimonies from drivers make Uber uber-attractive.
But it’s a five-year old company and we haven’t seen the longevity of such a business model––one should be wary of the risks.
So, is an Uber bubble forming? Could be. But just like any bubble, we’ll only know it once it bursts.
