Are Uber And Lyft Responsible For This Stock's 35% Decline?

Taxi medallions represent a highly regulated market where, even if demand increases, the supply may not rise sufficiently to meet increased demand.  This dynamic has driven up the cost of the taxi medallions issued by city governments and increased overhead for taxi drivers.

The Washington Post chart below illustrates the bull market in taxi medallions since 2000.

Looking more closely at recent data, however, it seems possible the medallion market has peaked and upstarts like Uber and Lyft have popped the medallion bubble.

Taxi drivers in Chicago, for example, are facing competition from Uber, which is adding more supply along with flexible pricing structures. “A seven-mile ride from the Loop to the University of Chicago in a medallion taxi costs about $26, including tip. The same trip cost $12.29 this April with UberX, the lowest-cost service option from Uber,” according to the New York Times.

Related Link: Uber Confirms $1.2B Financing Round

Against the backdrop of increased competition for taxi drivers, lender Medallion Financial Corp’s TAXI shares have fallen approximately 35 percent over the past 12 months.

Medallion claimed that in 2013, “More than 70 percent of our medallion lending activity was in New York, where we benefited from the tremendous growth in medallion values during the year. The price of a fleet medallion rose to a record $1.3 million in 2013 and the individual medallion hit $1 million.”

At the end of 2013 the company showed medallion loans on its books at $297,891,000. As of September 20, 2013 that number grew to $303,502,000, an increase of 1.88 percent. Meanwhile, the value of New York City medallions have been declining. Recently, the latest average monthly medallion price came in at $871,667, according to data compiled by the New York Times.

How much can Medallion Financial be expected to grow with declining medallion values and new, unregulated, driver supply entering the market? With no medallion overhead, how can taxi drivers, and their financiers like Medallion Financial compete with Uber and Lyft?  Simple supply vs demand economics may explain the decline in TAXI stock and medallion prices.