Uber, Airbnb and an ever-growing number of companies are changing the way we live, work and play. Uber taxi services and Airbnb accommodation services are the leaders of the new ‘sharing economy’ industry, although they’re yet to churn out profits. Find out how some “old economy” companies are profiting from the growth in the sharing economy and ways that investors may be able to cash in on this growing phenomenon.
Print Transcript
Hello, and thank you for joining us tonight.
As you heard, tonight's show is all about the sharing economy, how companies are using digital technology to help people borrow or rent things from one another on demand.
And the sharing economy is getting bigger and bigger.
Look at this.
More than 86 million adults in the US-- that's more than two in five people-- have used these services, and more than one in five people have worked in the sharing economy.
Joining me now to explain all of this is Ben Gossack.
He is portfolio manager and global technology analyst at TD Asset Management.
It's great to have you here.
Great to be back here.
Let's talk about, just first off-- I explained at a very high level what the sharing economy, and this is a huge deal.
I mean, Canada is a little slower.
The States is full on into it, I think, at most points.
But what is the sharing economy?
How do you see it from your perspective?
Yes.
The sharing economy has been a big buzzword for the last couple of years, and lots of companies are trying to create these platforms in order for us to share our underutilized assets.
That might be our cars, our houses, our closets.
But the idea of sharing is not really new.
We've had bed and breakfasts for many years, time shares, bicycle sharing programs.
But it's not been optimized.
Right.
But what is different today is that you have the internet, you have smartphones, and you have wireless networks that allow us to really reduce the friction in sharing those assets-- You say friction, because I know that's the investment word.
It just means that it's easy for people to get at these things.
Yes, so the transaction costs really drop, and we're able to do this at a massive scale than we've ever been able to do it before.
And I do have a sort of a very simple example to show the power of the platform.
So if you think about your spare cash as an underutilized asset, and there's a big social network in the US called Venmo that allows you to share money amongst your friends.
And so I could set it up that you could borrow $50 from the-- Not share money, lend money.
Right.
But the fact that there's a smartphone and the internet, it can happen anytime.
Now, before, I'd have to have a conversation.
Maybe there's some travel.
You might forget that you owe me money.
There might be-- I might feel bad about it that I have to talk about it.
Then you have to come over.
This can all be done at any time, anywhere.
Yeah.
So now I know to go to you on Venmo to borrow money, and anyone who's listening is going be doing the same thing right now.
So lucky you.
I think one of the things that is so interesting about this is that just the speed, the rate, at which some of these companies are growing.
And, I mean, you just came back from San Francisco.
So it's ubiquitous.
Yeah.
I mean, we're seeing-- people are trying to create the Uber of everything.
But not everything can be the Uber.
And Uber, for those who may not know, is-- tell us, please.
Yes.
So they are a ride sharing platform, so I can hail a car from anywhere with my smartphone.
So the two big companies that are sort of leading the sharing economy are Uber and Airbnb, but there are other companies that are sizable and growing.
There's Taskrabbit, which is a marketplace for skilled labor.
Not in Canada, though, yet.
Not in Canada.
And there's another company that's also in the US called WeWork.
So they rent office space, and they lease it to entrepreneurs or startups, and they like it because there's a shared workspace where they can collaborate.
I was looking on the site, actually.
They have a hot desk where you can pop in whichever desk you want or get your own regular desk or get an office.
I mean, it's all printing included.
All that good stuff.
Yes.
Yeah.
What does this mean for, I mean, for asset management?
So, I mean, you know, when you pull back and say, OK, this is all-- I get really excited by this stuff.
It's a lot of fun to watch.
But when you were the one in the business of valuing assets and understand the impact this has on your investments in the future, I mean, this is growing and growing.
It's a big deal.
It is a big deal, the pace that these companies have been growing at.
So if you think about an Uber, it was started in 2009, and now it's in over 400 cities, or an Airbnb was started in 2008, and they're in 34,000 cities and over 190 countries.
So it's big, and they're growing really fast.
So what we need to do from a portfolio manager perspective is try to understand how that affects companies that are in our coverage.
This number, I did a double take when I saw it.
I think this came from some folks on your side of things.
Uber is worth $51 billion.
GM is worth $48 billion.
Yeah, so-- What?
This is how these companies are growing.
So I think Uber is now, at its latest round, is probably about $60 to $70 billion.
Does it ever make a profit?
No.
I mean, none of these companies make profit.
And then none of them actually have any real assets.
But that's not necessarily a bad thing.
A lot of these companies, they're creating a platform.
So they're just a middleman between buyers and sellers, and the reason why the platform is so important is because it creates a tremendous amount of value for anyone that owns it.
So the next transaction comes at almost no cost, and that's why so many companies are racing to be the number one in rides or even food delivery.
Which I've used.
Airbnb is worth $26 billion.
The Marriott, $17.5 billion.
Yeah.
Marriott is $17.
Hilton is about $22 billion.
Starwood, which has recently been taken over by Marriott, that's at $13 billion.
So, yeah, these companies are bigger, and so there's a lot of expectations built into those valuations.
All right.
Stay with us.
When we come back, we've got more with Ben Gossack.
Fascinating topic, and we're going to talk more about who benefits from this from an investing perspective.
You're watching Money Talk.
We'll be right back.
We're back with Ben Gossack, portfolio manager and global technology analyst at TD Asset Management.
We've been talking about the sharing economy.
We've been talking about just how much they've been growing, how huge they are, because they are massive.
Let's talk a bit about the risks with some of these economies, either to the people operating within it or from an investing standpoint when these companies one day, someday, become public, because they're not right now.
Airbnb, let's use that, because we've got a map here I think we can show of the proliferation of everyone who's renting their second room or third room they have in the house.
Liability risk?
Yeah.
So, I mean, the map that your viewers are seeing, this is a map of Austin, Texas, and the blue markers are hotels, and the red markers are Airbnb locations.
I'm betting the hotels are probably seeing a little less traffic.
I'm saying business hotels are probably fine.
Right.
Yeah.
Business hotels, hotels with strong loyalty programs, are fine, but if you're an independent hotel, then, I mean, all that supply kind of hurts your pricing power.
But in terms of risk, when it comes to Airbnb, I think the biggest risk is that people misprice the risk that's involved when you're a host.
So Airbnb provides you with insurance, so they give you almost $1 million, and that's covering sort of bodily injury or property damage to your house.
And if you're a host, it actually sounds like a lot of money, but let's say someone did fall, hurt themselves, and sued you for $2 million.
In legal world.
So great.
Airbnb will cover the first million, and then you'd go to your insurance company for the second million, and they may ask you if you disclosed that you're running a commercial operation in your house.
And you'd say no, and that would cause a problem.
I think we're so used to the benefits and the ease of use and the adventure of these apps that we forget what the risks are there.
Or if someone, you know, ruins your house.
There's been stories of that.
Right.
I can't remember where it was-- I think it was in Calgary-- of places that had gotten trashed.
You don't know who you're renting to.
OK.
Another risk, and let's take Uber as an example.
Their drivers do not work-- they are contractors.
They're not employees.
Why do we care about that?
This is actually a really big deal.
OK.
So an independent contractor is someone like your plumber.
They call their own hours.
They can decide how much they want to charge for you.
If you're an employee-- let's say you worked at a fast food joint, then your hours are dictated.
You're told what to do.
You wear a uniform.
So Uber's biggest expense are their drivers, and there's a bit of a gray area.
So Uber will say how much a ride is worth and will fire you if you fall low on the ratings.
However, drivers can decide when they want to drive or not, so they can turn the app on and off.
So it's a bit of a gray area.
Now, if they were treated as employees, all of a sudden, Uber would be on the hook for vehicle maintenance, tolls, pay rolls.
And so I would think a lot of the economics for an Uber or platforms like it wouldn't work anymore.
Right.
This is all about, again, the gig economy in terms people doing their own thing.
OK.
There are no sharing companies, so to speak, that are public right now.
That's right.
OK.
So let's put your investing cap back on, not that was off.
Mine was off.
I'll put mine back on and say, great.
So who benefits from all this growth that's going on right now?
Who are the winners?
And I know you've got four names here, so let's run through them, if we could.
Sure.
So I think it's hard to tell now who are the winners or losers.
I like to look at companies that win, no matter what.
So they benefit from all this sharing activity.
So I have a couple of names.
The first one's Visa.
Yeah.
It's how you pay for Uber.
It's how you pay for-- Exactly.
So it's all about reducing the friction, and so it's all happening on credit.
That benefits a Visa.
It also takes away the risk, so a driver's not driving all night and carrying cash.
So there's actually a safety benefit, as well, using credit.
And Visa is-- again, this is a stock that's -- I mean, it's been bouncing with the market, but it's done pretty well over the past five years, too.
Yep.
And it's also a platform like an Uber.
Yeah.
Yeah.
AT&T?
Yes.
So a lot of these platforms were designed with a smartphone in mind, so you need a strong wireless network.
AT&T is a nationwide wireless carrier in the US.
So you could be at home and hail a car from your wi-fi, but good luck if you're at the restaurant or at a street corner.
These platforms need a wireless network, and that benefits an AT&T.
NVIDIA, another one you like, semi company.
Yeah.
So NVIDIA's a semiconductor company, and they're the world leader in visual computing.
So a lot of people would know them from gaming or virtual reality.
But they're having new applications in automotive.
So right now, we have fleets of drivers that are serving us, but it won't be long.
It will have fleets of automated cars.
And so it becomes almost a supercomputer with wheels that requires a semi chip that NVIDIA makes, so they'll be the brains.
They also operate the infotainment systems, as well.
Then our robotic overlords, but that's coming later.
Comcast.
Why Comcast?
Yeah.
So Comcast is a cable company.
How does it relate to a sharing economy?
There's a lot of things that people like about Uber, and a lot of traditional companies can adopt that to their customer service model.
So let's say you're going to have a technician visit your house.
On an app, you can now see that person driving to your home.
There's a picture of what they look like, and then you could rate your experience afterwards.
So, hopefully, that leads to better customer experience, which lowers churn and then increases revenue and profitability.
OK.
I have two questions before I will let you leave.
You mentioned profitability right there.
How long do you think it's going to take for the sharing companies to actually either start turning a profit or have the shine come off where the people go, OK, they're not turning a profit?
OK.
So I would put those companies in two different camps.
So there is a bit of a rerating for growth companies, where people actually want to see profitability now and see cash flows.
But for an Uber and Airbnb, there's so much growth on runway and the fact that they have to become the number one to achieve those platform benefits, those valuations will stay up.
And it's OK that they're not making profit.
Right.
OK.
And then I mentioned that you just got back from traveling out west.
What else did you see?
What's interesting right now?
Yeah.
I think we're almost in this new change in computing.
So originally, computers were tabulating machines.
They counted stuff for us.
And then we figured out how to program them, and we unleashed a tremendous amount of productivity, because they automated all our processes.
And now we're moving into this sort of new area where computers are more like human minds, and they can take past information, make inferences, decision making.
That can lead to a whole new way of a productivity.
So you see companies like Microsoft and IBM and Google that are really sort of pushing through this.
Microsoft, I think, tried to get somebody on social media that that didn't go so well.
So I think they've got a little work to do on that front.
I hope I don't get replaced by somebody that's a robot.
Me, too.
I don't think you will.
Ben, always great to have you here.
Thanks so much.
Great.
Ben Gossack, portfolio manager and global technology analyst at TD Asset Management.
As you heard, tonight's show is all about the sharing economy, how companies are using digital technology to help people borrow or rent things from one another on demand.
And the sharing economy is getting bigger and bigger.
Look at this.
More than 86 million adults in the US-- that's more than two in five people-- have used these services, and more than one in five people have worked in the sharing economy.
Joining me now to explain all of this is Ben Gossack.
He is portfolio manager and global technology analyst at TD Asset Management.
It's great to have you here.
Great to be back here.
Let's talk about, just first off-- I explained at a very high level what the sharing economy, and this is a huge deal.
I mean, Canada is a little slower.
The States is full on into it, I think, at most points.
But what is the sharing economy?
How do you see it from your perspective?
Yes.
The sharing economy has been a big buzzword for the last couple of years, and lots of companies are trying to create these platforms in order for us to share our underutilized assets.
That might be our cars, our houses, our closets.
But the idea of sharing is not really new.
We've had bed and breakfasts for many years, time shares, bicycle sharing programs.
But it's not been optimized.
Right.
But what is different today is that you have the internet, you have smartphones, and you have wireless networks that allow us to really reduce the friction in sharing those assets-- You say friction, because I know that's the investment word.
It just means that it's easy for people to get at these things.
Yes, so the transaction costs really drop, and we're able to do this at a massive scale than we've ever been able to do it before.
And I do have a sort of a very simple example to show the power of the platform.
So if you think about your spare cash as an underutilized asset, and there's a big social network in the US called Venmo that allows you to share money amongst your friends.
And so I could set it up that you could borrow $50 from the-- Not share money, lend money.
Right.
But the fact that there's a smartphone and the internet, it can happen anytime.
Now, before, I'd have to have a conversation.
Maybe there's some travel.
You might forget that you owe me money.
There might be-- I might feel bad about it that I have to talk about it.
Then you have to come over.
This can all be done at any time, anywhere.
Yeah.
So now I know to go to you on Venmo to borrow money, and anyone who's listening is going be doing the same thing right now.
So lucky you.
I think one of the things that is so interesting about this is that just the speed, the rate, at which some of these companies are growing.
And, I mean, you just came back from San Francisco.
So it's ubiquitous.
Yeah.
I mean, we're seeing-- people are trying to create the Uber of everything.
But not everything can be the Uber.
And Uber, for those who may not know, is-- tell us, please.
Yes.
So they are a ride sharing platform, so I can hail a car from anywhere with my smartphone.
So the two big companies that are sort of leading the sharing economy are Uber and Airbnb, but there are other companies that are sizable and growing.
There's Taskrabbit, which is a marketplace for skilled labor.
Not in Canada, though, yet.
Not in Canada.
And there's another company that's also in the US called WeWork.
So they rent office space, and they lease it to entrepreneurs or startups, and they like it because there's a shared workspace where they can collaborate.
I was looking on the site, actually.
They have a hot desk where you can pop in whichever desk you want or get your own regular desk or get an office.
I mean, it's all printing included.
All that good stuff.
Yes.
Yeah.
What does this mean for, I mean, for asset management?
So, I mean, you know, when you pull back and say, OK, this is all-- I get really excited by this stuff.
It's a lot of fun to watch.
But when you were the one in the business of valuing assets and understand the impact this has on your investments in the future, I mean, this is growing and growing.
It's a big deal.
It is a big deal, the pace that these companies have been growing at.
So if you think about an Uber, it was started in 2009, and now it's in over 400 cities, or an Airbnb was started in 2008, and they're in 34,000 cities and over 190 countries.
So it's big, and they're growing really fast.
So what we need to do from a portfolio manager perspective is try to understand how that affects companies that are in our coverage.
This number, I did a double take when I saw it.
I think this came from some folks on your side of things.
Uber is worth $51 billion.
GM is worth $48 billion.
Yeah, so-- What?
This is how these companies are growing.
So I think Uber is now, at its latest round, is probably about $60 to $70 billion.
Does it ever make a profit?
No.
I mean, none of these companies make profit.
And then none of them actually have any real assets.
But that's not necessarily a bad thing.
A lot of these companies, they're creating a platform.
So they're just a middleman between buyers and sellers, and the reason why the platform is so important is because it creates a tremendous amount of value for anyone that owns it.
So the next transaction comes at almost no cost, and that's why so many companies are racing to be the number one in rides or even food delivery.
Which I've used.
Airbnb is worth $26 billion.
The Marriott, $17.5 billion.
Yeah.
Marriott is $17.
Hilton is about $22 billion.
Starwood, which has recently been taken over by Marriott, that's at $13 billion.
So, yeah, these companies are bigger, and so there's a lot of expectations built into those valuations.
All right.
Stay with us.
When we come back, we've got more with Ben Gossack.
Fascinating topic, and we're going to talk more about who benefits from this from an investing perspective.
You're watching Money Talk.
We'll be right back.
We're back with Ben Gossack, portfolio manager and global technology analyst at TD Asset Management.
We've been talking about the sharing economy.
We've been talking about just how much they've been growing, how huge they are, because they are massive.
Let's talk a bit about the risks with some of these economies, either to the people operating within it or from an investing standpoint when these companies one day, someday, become public, because they're not right now.
Airbnb, let's use that, because we've got a map here I think we can show of the proliferation of everyone who's renting their second room or third room they have in the house.
Liability risk?
Yeah.
So, I mean, the map that your viewers are seeing, this is a map of Austin, Texas, and the blue markers are hotels, and the red markers are Airbnb locations.
I'm betting the hotels are probably seeing a little less traffic.
I'm saying business hotels are probably fine.
Right.
Yeah.
Business hotels, hotels with strong loyalty programs, are fine, but if you're an independent hotel, then, I mean, all that supply kind of hurts your pricing power.
But in terms of risk, when it comes to Airbnb, I think the biggest risk is that people misprice the risk that's involved when you're a host.
So Airbnb provides you with insurance, so they give you almost $1 million, and that's covering sort of bodily injury or property damage to your house.
And if you're a host, it actually sounds like a lot of money, but let's say someone did fall, hurt themselves, and sued you for $2 million.
In legal world.
So great.
Airbnb will cover the first million, and then you'd go to your insurance company for the second million, and they may ask you if you disclosed that you're running a commercial operation in your house.
And you'd say no, and that would cause a problem.
I think we're so used to the benefits and the ease of use and the adventure of these apps that we forget what the risks are there.
Or if someone, you know, ruins your house.
There's been stories of that.
Right.
I can't remember where it was-- I think it was in Calgary-- of places that had gotten trashed.
You don't know who you're renting to.
OK.
Another risk, and let's take Uber as an example.
Their drivers do not work-- they are contractors.
They're not employees.
Why do we care about that?
This is actually a really big deal.
OK.
So an independent contractor is someone like your plumber.
They call their own hours.
They can decide how much they want to charge for you.
If you're an employee-- let's say you worked at a fast food joint, then your hours are dictated.
You're told what to do.
You wear a uniform.
So Uber's biggest expense are their drivers, and there's a bit of a gray area.
So Uber will say how much a ride is worth and will fire you if you fall low on the ratings.
However, drivers can decide when they want to drive or not, so they can turn the app on and off.
So it's a bit of a gray area.
Now, if they were treated as employees, all of a sudden, Uber would be on the hook for vehicle maintenance, tolls, pay rolls.
And so I would think a lot of the economics for an Uber or platforms like it wouldn't work anymore.
Right.
This is all about, again, the gig economy in terms people doing their own thing.
OK.
There are no sharing companies, so to speak, that are public right now.
That's right.
OK.
So let's put your investing cap back on, not that was off.
Mine was off.
I'll put mine back on and say, great.
So who benefits from all this growth that's going on right now?
Who are the winners?
And I know you've got four names here, so let's run through them, if we could.
Sure.
So I think it's hard to tell now who are the winners or losers.
I like to look at companies that win, no matter what.
So they benefit from all this sharing activity.
So I have a couple of names.
The first one's Visa.
Yeah.
It's how you pay for Uber.
It's how you pay for-- Exactly.
So it's all about reducing the friction, and so it's all happening on credit.
That benefits a Visa.
It also takes away the risk, so a driver's not driving all night and carrying cash.
So there's actually a safety benefit, as well, using credit.
And Visa is-- again, this is a stock that's -- I mean, it's been bouncing with the market, but it's done pretty well over the past five years, too.
Yep.
And it's also a platform like an Uber.
Yeah.
Yeah.
AT&T?
Yes.
So a lot of these platforms were designed with a smartphone in mind, so you need a strong wireless network.
AT&T is a nationwide wireless carrier in the US.
So you could be at home and hail a car from your wi-fi, but good luck if you're at the restaurant or at a street corner.
These platforms need a wireless network, and that benefits an AT&T.
NVIDIA, another one you like, semi company.
Yeah.
So NVIDIA's a semiconductor company, and they're the world leader in visual computing.
So a lot of people would know them from gaming or virtual reality.
But they're having new applications in automotive.
So right now, we have fleets of drivers that are serving us, but it won't be long.
It will have fleets of automated cars.
And so it becomes almost a supercomputer with wheels that requires a semi chip that NVIDIA makes, so they'll be the brains.
They also operate the infotainment systems, as well.
Then our robotic overlords, but that's coming later.
Comcast.
Why Comcast?
Yeah.
So Comcast is a cable company.
How does it relate to a sharing economy?
There's a lot of things that people like about Uber, and a lot of traditional companies can adopt that to their customer service model.
So let's say you're going to have a technician visit your house.
On an app, you can now see that person driving to your home.
There's a picture of what they look like, and then you could rate your experience afterwards.
So, hopefully, that leads to better customer experience, which lowers churn and then increases revenue and profitability.
OK.
I have two questions before I will let you leave.
You mentioned profitability right there.
How long do you think it's going to take for the sharing companies to actually either start turning a profit or have the shine come off where the people go, OK, they're not turning a profit?
OK.
So I would put those companies in two different camps.
So there is a bit of a rerating for growth companies, where people actually want to see profitability now and see cash flows.
But for an Uber and Airbnb, there's so much growth on runway and the fact that they have to become the number one to achieve those platform benefits, those valuations will stay up.
And it's OK that they're not making profit.
Right.
OK.
And then I mentioned that you just got back from traveling out west.
What else did you see?
What's interesting right now?
Yeah.
I think we're almost in this new change in computing.
So originally, computers were tabulating machines.
They counted stuff for us.
And then we figured out how to program them, and we unleashed a tremendous amount of productivity, because they automated all our processes.
And now we're moving into this sort of new area where computers are more like human minds, and they can take past information, make inferences, decision making.
That can lead to a whole new way of a productivity.
So you see companies like Microsoft and IBM and Google that are really sort of pushing through this.
Microsoft, I think, tried to get somebody on social media that that didn't go so well.
So I think they've got a little work to do on that front.
I hope I don't get replaced by somebody that's a robot.
Me, too.
I don't think you will.
Ben, always great to have you here.
Thanks so much.
Great.
Ben Gossack, portfolio manager and global technology analyst at TD Asset Management.
