If you’ve ever taken a ride with an Uber or Lyft driver instead of grabbing a cab, or rented someone’s spare room through Airbnb instead of getting a hotel, then you’ve participated in the sharing economy.
Although the industry is far from mature, it’s one of the hottest topics in the business world. But with many pure-play sharing-economy companies yet to offer shares to the public, it takes a bit more thoughtfulness for retail investors to gain exposure to the sharing economy through the stock market.
The sharing, or collaborative, economy centers on connecting people or businesses that own assets with others who want to use those assets but don’t want to own them. It’s been going on in smaller scale for a long time, but is now becoming more ubiquitous as the rising use of mobile phones for e-commerce enables the creation of digital platforms that connect providers and users.
In addition to being a bet on technology, investing in the sharing economy gives investors exposure to the millennial generation’s spending power.
“Millennials are not so much interested in spending their hard-earned money on buying a car,” says Richard Steinberg, CEO of San Francisco-based DriveNow USA, as quoted in an April report on the sharing economy by PricewaterhouseCoopers. “But they still have mobility needs.”
PwC estimates that revenues from sharing in the travel, car, finance, staffing and music and video streaming sectors could rise from $15 billion to $335 billion by 2025.
According to Matt Egol, a principal with the digital services business of PwC’s Strategy& consulting team, the sharing economy is here to stay.
It’s not a fad, as the smartphone experience is becoming a leading factor in e-commerce, Egol says. Additionally, society has a large number of assets that aren’t being fully utilized and is trending toward an aging population with skills, creating an opportunity for the freelance economy, he says.
In addition to ride sharing and travel, the collaborative economy creates opportunities for sharing all sorts of goods, such as power tools and cooking equipment, and for businesses to create services around those products, Egol says. Examples include home improvement retailers building networks of contractors and financial institutions providing peer-to-peer lending platforms.
The digital sharing platforms companies would allow payments and verification, and create a level of trust with consumer ratings and reviews, all the while establishing a brand, Egol says.
The challenge for investors is to identify established companies that, instead of being disrupted, can benefit from partnering with new sharing-economy companies that are now creating the most value, Egol says.
In a September report, Credit Suisse analysts note that rental car companies Avis Budget Group (ticker: CAR) and Hertz Global Holdings (HTZ) should benefit from reduced car ownership. Insurance company AXA (AXAHY) is also a beneficiary of the car-sharing movement as companies like Uber will probably prefer global insurance companies to local or regional ones, the analysts say. Because every sharing car replaces as many as 13 regular cars, disrupted companies in the automotive sector include Volkswagen (VLKAY) and General Motors Co. (GM).
The analysts pointed to LendingClub Corp. (LC) as one key sharing firm in the money lending space, while saying that Visa (V) and Mastercard (MA) could be other beneficiaries, but retail banks and mortgage lenders could lose out.
Meanwhile, in the travel and leisure sector, where a doubling in sharing capacity from providers like Airbnb, Onefinestay and CouchSurfing International reduces hotel revenues by around 4 percent, Tripadvisor (TRIP) and Priceline Group (PCLN) could benefit while Hyatt Hotels Corp. (H) could be disrupted.
For the peer-to-peer sharing and selling of pre-owned goods, the analysts point to Etsy (ETSY), eBay (EBAY) and Chegg (CHGG). They say Amazon.com (AMZN) and MercadoLibre (MELI) could also benefit, while durable goods producers and retailers could be disrupted.
Egol says established companies will increasingly collaborate with pure sharing-economy companies to add marketing value.
Recently, Starbucks Corp. (SBUX) teamed up with Lyft on a loyalty program, and General Motors invested $500 million in the ride-share company.
Until more sharing economy companies go public, investors can make derivative investments by buying shares of companies that are invested in private sharing-economy companies, says John Divine, assistant editor at InvestorPlace Media.
One such play that can make for meaningful exposure to the sharing economy is the shares of Expedia (EXPE), which last year bought vacation rental site HomeAway, he says.
Other investments would include Alphabet (GOOG), because it has invested in Uber, and GM, for its investment in Lyft, he says. But those investments aren’t going to be hugely meaningful to Alphabet or GM’s bottom lines because they are such large companies, he says.
The best way for retail investors to get in on the sharing economy is through Tesla Motors Corp. (TSLA), Divine says. The company has a leg up on vehicle technology and eventually will end up competing with Uber, he says. But that play will take a number of years to develop, however, so investors will have to be patient, Divine says.
When Uber does go public, Divine says the company may initially be overvalued. At that time, it may make sense for the retail investment community to sit back and wait for the valuation to settle out before buying shares, he says, noting how Facebook (FB) shares fell after its initial public offering but then rebounded.
Lyft and Airbnb could also make good investments depending on what their IPOs price them at, Divine says. Lyft will probably grab more market share from Uber, and Airbnb has stood the test of time and has as strong network of users, he says.
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How to Invest in the Sharing Economy originally appeared on usnews.com
