Chapter 2

WHY INVEST IN RIDE-SHARE SERVICES?

Lack of government or private taxis

Almost every country in the world has a cab service that is either owned by the government or a private individual, who efficiently runs the business. For instance, Dubai has five taxi firms each differentiated by a different colored roof top (dubai-online.com, 2018); the US has a medallion system. However, no such firms are found in Karachi, leading to firms such as Careem and Uber taking over the market and making the case for abnormal returns to the investor.

The market is still not in its equilibrium

When I think about the availability of Careem and Uber another question pops up in my mind. How plentiful and accessible are these services? In other words, can I catch a Careem in the middle of the night and pay a reasonable amount of money for using them? Exceptionally high rates in peak and odd hours indicate that the supply still lags behind the demand for these services.

This will most likely continue till these services no longer charge extraordinary amounts in peak times. However, as things stand right now, a strategic investor would take advantage of a low supply, and excluding other policy changes, would be particularly keen to drive in peak hours.

Careem and Uber are considering expanding their operations

According to Bloomberg (2017), Careem is planning on expanding its operations in as many as thirty new cities in Pakistan. This is mainly due to an exponential rise in Pakistan’s GDP in the last few years along with an expected increase in the next several years. Moreover, according to Pakistan’s telecommunication authority, cellular phone penetration stands at around 71 percent in a country of more than 200 million people (Bloomberg, 2017). Furthermore, Careem is recently expanding its operations in Karachi’s e-commerce sector, which has been projected to grow to $1billion by 2020. Similarly, Uber is also planning on investing $500 million in Pakistan with the aim of expanding its operations in the country (dawn, 2017). As mentioned, the market demand still exceeds its supply and with both taxi giants planning on expanding their operations, either in different cities or avenues, the demand will continue to outstrip the supply in the immediate future. However, it remains to be seen how long either firm will take to make these strategic moves.

Careem and Uber are low-risk investment alternatives

Investors have a range of financial instruments that can be used to gain high returns. However, due to the sophisticated nature of these instruments, very few individuals actually understand the underlying mechanism of using them. Since Pakistan suffers from a law and order problem, the ease of registering and earning a reasonable amount from Careem and Uber makes them an ideal fit for long term risk adverse investors (see quantitative section for the calculations). How often have we heard of an honest, hardworking individual paying out most of his/her savings to buy a property, only to be scammed? On the other hand, Uber and Careem significantly reduce this risk and with their reputation on the line, they make sure that their drivers are paid on time. Not bad for a group of investors who have some savings and would like to earn a decent amount of return per month for the next five to ten years without taking on too much of a risk!

Lack of private or government taxis
Careem and Uber are expanding their services
Why invest in ride-sharing services
Low risk investment
Market is not in its equilibrium