Dec 23, 2023Liked by Bright Ideas

Good article. The only point of agreement that I have with you is that U-Haul's scaled dealer infrastructure provides tremendous barriers to entry. I think that you take the data of declining movers rate a little too lightly. Movement is often a result of major life events like marriage, a new job, birth of children, and sometimes death. Americans have been moving from one residence to another less and less over the years as a result of various factors. Just to name two that quickly come to mind:

1. lower marriage rates: ~80% of all households were comprised of married couples in 1949 vs. ~50% as of 2020. The less these events take place, the less movement will be generated as a result of marriages.

2. increasing share of women participating in the workforce: ~30% of married households in the U.S. were dual-income vs. 50% today. Moving decisions become incrementally harder to make when they affect two as opposed to one person.

Also, I'm not sure that COVID provides good indication of what the future of movement/migration might be. As remote-work accommodations gain greater acceptance amongst employers, getting a new job becomes less of a reason to move residence.

U-Haul has been able to grow decently over the years due to share gain and rental penetration. On a forward basis, it's worth thinking about how much of these two levers they've already exhausted before being squarely correlated to the actual number of moves that take place in the U.S. To give you an example in another industry, Booking Holdings (NASDAQ: BKNG) historically grew 30-40% because a percentage of that growth came from (a) online penetration of travel (i.e., more people booking travel accommodations online), (b) OTA share gain in online channels (i.e., OTAs or Online Travel Agents like BKNG taking share from hotel websites as less people booked accommodations on Marriott.com and increasingly went to BKNG), and (c) BKNG share gain from other OTAs as the company acquired competitors. On top of all this, there was also the natural tailwind of more people traveling as average income levels rose. Today, BKNG has exhausted levers (a), (b), and (c). They're left with the raw demand for travel, which is still strong but definitely not 30-40% as history had it.

Another thing, I'm not sure that SOTP is appropriate here. If equipment rental and storage benefit from the synergies you articulated, which I tend to agree with, then separating both businesses may yield results different from what you're seeing presented today. For example, do they still enjoy lower CAC if both businesses are separated?

Lastly, many argue that the company deploys a scaled economies share model (you can track this by dividing rental revenue by gross equipment PP&E over the years - it's been declining, maybe intentionally?). I'm not sure that scaled economies shared is a sound formula to use in the face of structurally declining end-market demand. With ROIC of ~11% on avg. from 2012-2019, it's worth asking if that's an acceptable starting base from which to make projections. As businesses grow larger, the opportunity set shrinks. With the current capital allocation policy, I'm not sure that investors are being compensated for the risk of what's always an unknown future, though in U-Haul's case quite predictable.

Great article! Also, shares have moved nicely lately. Congrats if you participated in the move.

Expand full comment

How did you calc revenue / transaction? I don't believe they disclose it explicitly..

Expand full comment