The “sharing economy” represents a new paradigm in 21st century global business. According to a September 18th report from Credit Suisse Equity Research, while the huge media hype surrounding “sharing economy” firms like Uber may be overblown, the reality is that this new collaborative approach to services is already having a major impact on several sectors of the economy.
Eugene Klerk and the Credit Suisse team describe their approach: “This note aims to provide context to the broader “sharing” theme by outlining the breadth of services that are being offered, reviewing the demographic demand side for them and in conjunction with our key sector analysts outlining the potential implications for key affected sectors.”
Understanding the impact of the sharing economy
Klerk et al. emphasize that the development of the “sharing” model is still in its infancy and a great deal of uncertainty remains regarding everything from public acceptance to business models to the degree of regulation. That said, the CS team says there is enough data today to draw a few conclusions about the future of the sharing economy.
First, investors should not underestimate compounding growth. Back in 2008, Airbnb only made one booking per day on average. In 2015, it is averaging a booking every 1.5 seconds.
Second, “sharing is global and much broader than just millennials.” Recent surveys show that over 40% of people in developed markets and over 60% of those living in emerging economies would participate in the sharing economy. Keep in mind that sharers typically own homes, have children and have relatively high incomes. Both women and men actively participate in the sharing economy.
Sharing is also about much more than just making/saving money, as it includes socially valued characteristics such as minimizing the carbon footprint, meeting other people and improving global sustainability. The growth of the sharing economy is much more than just a reaction to the recent recession.
The sharing economy involves many industries across all regions. In their report, the Credit Suisse team identifies more than 200 companies active in sharing across the globe. They highlight that Big Data, the Internet of Things (IOT) and smartphone penetration are key aspects of almost all sharing models.
Studies suggest that the potential size of the sharing economy is large. A recent analysis by PWC estimates that sharing revenues will hit $335 billion by 2025, up from $15 billion in 2013. Klerk et al agree with this estimate given that close to 50% of those aged 16-54 today expect to be sharing services in the future.
Klerk and colleagues argue that the sectors that stand to lose out as the sharing economy develops include include transport, financials, travel & leisure and business services. They highlight the fact that an increasing number of players in these sectors are developing relationships with sharing companies, saying “‘If you can’t beat them, join them’ appears to be the motto here.”
The CS analysts also note those that will benefit from the growth in sharing include the providers of the sharing services and also the enablers. They point to payment system providers and social media companies as examples.
Regulation coming, but won’t slow growth much
It is obvious that regulation of sharing services will increase, and the process is already underway in many localities. That said, Klerk et al. say that regulation is unlikely to “have a material impact on the potentially disruptive impact of sharing.” They argue that that market forces, consumer preferences and digitization will drive growth despite increasing regulation.
The analysts also note that a more regulated market might actually strengthen larger sharing firms as the growing costs brought on by regulation are likely to become an obstacle for small firms.
Finally, Credit Suisse has some interesting thoughts on VC valuations – the analysts state:
Valuation levels are also rapidly increasing: Unicorns are no longer special
Another indication of the growth potential for the sharing economy can be seen from the valuation levels that these VC investments imply. More specifically we refer to the number of so-called “Unicorns” or private companies with a perceived valuation of US$1bn or more.
The number of start-ups that have reached a US$1bn or more is accelerating and reached 124 in July this year, up from just 4 in 2009. According to CB Insight data the total implied valuation for all these companies combined reached US$468bn or a 36-fold increase from the US$13bn valuation in 2009.
The conviction from early stage investors in the growth potential for the sharing related companies is also clear. The number of “sharing Unicorns” reached 44 in July this year with a combined implied valuation of cUS$220bn. Seven companies currently have a perceived valuation of more than US$10bn, of which Uber and Airbnb are by far the largest with US$51bn and US$25bn, respectively.
