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Are Uber and Lyft a Threat to Medallion Financial Corp?

A New York City taxicab medallion can run more than $1 million, according the city's Taxi & Limousine Commission, up from just $450,000 in 2006 and under $200,000 in 2001. That's about equal to the cost of opening a McDonald's franchise, and represents a compounded growth rate of more than 13% a year, better than the historical rate of return from investing in the stock market.

To afford the cost of a medallion, liveries need to finance the purchase, and while many turn to traditional banks for their loans, one of the primary lending sources for the industry is Medallion Financial (NASDAQ: TAXI  ) , the leading specialty finance company whose first quarter results showed a $22 million increase in its on-balance sheet loan portfolio from the year ago period.

Even as the taxicab cartel ensures there is a limited supply of taxis, thus virtually guaranteeing the cost of a medallion will rise, the economics for Medallion Financial seem to remain bright, particularly in this low interest rate environment.

But the sudden proliferation and popularity of ride-sharing smartphone apps like Uber, Lyft, and Sidecar that threaten to turn upside down how people hail a ride around town could also strike the entire foundation upon which the specialty financier exists -- as well as the life savings of taxicab drivers who've mortgaged everything to buy their medallion.  

Earlier this week, London ground to a halt as thousands of the city's black taxicabs protested the use of the apps, and similar protests were held across Europe in major cities including Paris, Berlin, and Madrid. Taxi drivers here in the U.S. largely haven't created similar gridlock yet (there were protests in Los Angeles however), but earlier this month Colorado became the first state to enact legislation authorizing the use of such services, and their adoption elsewhere could create a tumult for Medallion Financial.

Uber and Lyft match passengers and drivers through an app that allows for the cost of a ride to be seen before booking, and once tapping on it, can instantly know the estimated time of arrival.

You get a name, picture of the driver (so you know who's picking you up), and a contact phone number. Since the services themselves hold onto your credit card info, you don't need to carry cash and you don't have to tip the driver. There's little wonder why these services are so popular and why the taxi industry is up in arms over them.

Medallion Financial generates over three-quarters of its loan portfolio from New York, while Chicago was a distant second at 15%, and no other city account's for a double-digit percentage. 

For a city where the U.S. Census Bureau says is home to some 8.3 million, there are fewer than 13,500 taxicab medallions in existence, enshrined by law and jealously protected by the Taxi & Limousine Commission. Chicago, on the other hand, has 7,000 medallions, more than half of New York City, but its population is about a third of the size with 2.7 million residents.

New York City, though, is insulating its taxi and limousine industry from the worst effects of it by making use of such services illegal, and California recently mulled whether to require drivers to carry more insurance. They also demanded they stop operating at airports. Because Medallion Financial generates most of its revenues and profits from cities that are likely to protect its special interests, the rise of Uber and Lyft won't be of particular concern, at least not initially.

But the push of technology can't be held back and these government-created taxi monopolies will begin crumbling. Investors have been warned the ramparts are being assailed and the high cost of a medallion and the rising costs of a taxicab ride will mean individuals will continue seeking ways around the fortifications the industry has erected.

Medallion Financial might not feel any need to be worried about ride share apps at the moment, but its long-term future may no longer be so bright that it has to wear shades.

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Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 16, 2014, at 2:52 PM, VAContrarian wrote:

    There is no threat to TAXI. The recent selling is highly overdone. This selling is irrational and it should correct itself in short order. Anyone thinking they are selling a taxi business because there is some threat from Uber is sadly misinformed. Yes, a large subsidiary of Medallion Finance is its bank which does lend a large portion of its portfolio against Taxi Medallions. However, as stated by its president in the last conference call: ""The taxi industry remains extremely strong in New York and in all of the markets we service, as does our medallion loan portfolio, which has an average loan-to-value ratio under 40%. " The most important part of that statement is how well over collateralized these loans are, i.e. the value of the medallions collateralizing the loans is more than 2.5 times the debt! TAXI is under no threat to its business from the ups and downs of the taxi business itself. It is a well run and collateralized lender which is also expanding into other areas of lending. One should do some actual research before betting against this stock thinking that somehow it is an UBER competitor. That is very foolish thinking.

  • Report this Comment On June 16, 2014, at 4:15 PM, hywelda wrote:

    I agree with VAContrarian and laugh at the "misinformed".

    Anyone who's done ANY due diligence knows

    that ~ 75% of the portfolio is NYC medallions.

    You'ld think that would encourage learning a little about how frequently, when, and how easily these cabs are hailed compared to how "uber" et al is supposed to work.

    Anyone who's attended Madison Square Garden, arrived at

    Grand Central, Penn Station, or Port Authority attended a Broadway or Lincoln Center event

    or attempted to travel in midtown Manhattan

    knows how impossible it would be

    to locate and connect with an Uber car

    in those crowds.

    (That's IF the car could pull to the curb anywhere NEAR the proposed pick-up!)

    Only a (non-Motley) FOOL would wait in an un-nerving crowd for a private livery when they could step off the curb and hail a yellow cab or tip a hotel doorman to hail one.

    Unfortunately many who have no clue to the size of pedestrian and auto traffic in NYC

    are bad-mouthing TAXI.

    One silly commenter on Seeking Alpha posts 10 comments a day trying to encourage readers to dump TAXI. (I hope SA addresses this abuse.)

  • Report this Comment On April 27, 2015, at 10:57 AM, GordonGossage wrote:

    Since the two comments were made above. A whole lot has happened to lower the value of TAXI.

    Independent New York taxi medallions were at peak prices of $1 million. Last posted prices were $800,000. There may be other lower prices posted soon.

    I’m a co-author with Jay Hickman of a recent analysis that explores the rapid transformation of the For Hire Vehicle market from medallion taxis to ride sharing.

    We’re betting on the success of Uber by shorting the stock of publicly traded Medallion Financial (NASDAQ:TAXI). I need to do that so web crawlers can find us, sorry.

    Our analysis was profiled in depth in a Washington Post article:

    Our complete 23-page report has been published in SA with additional articles and hundreds of comments:

    We love The Fool and SA equally.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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