I’ll grant HyreCar (NASDAQ:HYRE) this: HyreCar stock is intriguing. HyreCar offers peer-to-peer car rental that allows those without a car to drive for ride-sharing services like Uber and Lyft. At first blush, it’s a seemingly innovative business model that could provide public investors a chance to play the growth of those still-private ride sharing giants.

But a closer look also raises a host of questions, particularly with HyreCar stock already down 28% from its $5 IPO price. Is the business model really viable amidst stiff competition?

What about the rise of self-driving cars, which remain a major part of the long-term investment cases for Lyft and Uber? And perhaps the most interesting question: why is this company public at this point?

Early Growth and HyreCar Stock

Essentially, HyreCar matches people who own cars with those who don’t own cars, but want to work for ridesharing services. HyreCar takes a fee on both ends for its service, while also profiting modestly on insurance fees.

It’s an interesting idea, and early results suggest some success. In 2017, GAAP revenue rose by nearly sixfold, according to the prospectus. That was followed by a 200%+ rise in Q1. Preliminary results estimate a 233% rise in Q2, with guidance for the figure to reach $10 million this year, triple 2017 levels.

Admittedly, HyreCar isn’t profitable or close. Gross margin was just 10% in 2017. But the prospectus cited a possible improvement from insurance savings.

A new deal with American International Group (NYSE:AIG) is expected to boost those margins significantly, to a guided 40%. That’s still not enough to cover current SG&A spend, but this is a young company in growth mode. A lack of near-term profitability shouldn’t be a death knell for HyreCar stock.

Business Model Questions

As impressive as the growth is, there’s reason for skepticism toward the long-term growth model. Quite simply, it’s not clear how well the math works.

A key point of the Uber model is that drivers are benefiting from unused capacity – and thus minimal marginal costs. But that’s not how it works for those renting cars through HyreCar.

The company’s prospectus cites an average weekly rental fee of $200. That includes, at least as of now, a 10% discount for rentals of 7 days or longer – and in many markets like Chicago that average figure looks awfully low. Including Hyre’s take and insurance, the figure gets to close to $300 a week.

That’s a problem given that income appears to be roughly $11 an hour on a net basis (other sources go as high as $16). Even assuming a 60-hour work week, $5 an hour is going to car rental leaving drivers who use HyreCar making maybe minimum wage, if not lower, while also facing a higher tax burden (at least in theory).

For someone looking to pick up extra dollars on a weekend, even higher 2-day rental rates and fees might make effective wages even lower.

More Business Model Questions

Meanwhile, even if the business model perhaps works better than I might expect, there’s a ton of competition. Lyft’s Express Drive offers pre-approved vehicles from Hertz Global Holdings (NYSE:HTZ). Those are relatively new and well-maintained cars, which isn’t the case for all of HyreCar’s offerings, at least from a walk through its website.

Uber has partnerships with Hertz, privately held Getaround in San Francisco, and Fair in select cities. If the market opportunity is as big as HyreCar thinks, the two ride-sharing giants likely will try and take a piece for themselves.

Taking the longer-term view, though, the goal of Uber and Lyft is to put HyreCar out of business. Not directly, necessarily.

But the huge valuations of Uber and Lyft aren’t just based on their disruption of the taxi industry. They’re based on the idea that the companies will run massive networks of self-driving cars in the future.

The goal of both companies is eventually to put their own drivers out of business. No drivers means no HyreCar.

HyreCar Stock Valuation

In that context, I’m not sure HyreCar’s valuation is all that attractive. There are roughly 10 million shares outstanding, giving the company a market capitalization of about $38 million. Including a small amount of debt, EV/revenue is about 4x.

In this market, that’s not that outlandish. Platforms generate relatively strong multiples. Etsy (NASDAQ:ETSY) sells at 10x sales, and even mature, low-growth eBay (NASDAQ:EBAY) at 3x+.

But, again, the business model is a concern. Both companies have far higher gross margins than HyreCar, and that’s not just a scale issue.

More important, investors are paying 5x or 10x sales, in the case of ETSY, because they believe the business will generate huge profits down the line. HyreCar’s business model suggests that will be difficult.

What cash it returns to shareholders likely has to be generated relatively quickly, at least if Lyft and Uber’s plans come to fruition.

And that brings us to the last question about HyreCar stock. Why, exactly, is this company public? It’s an early-stage growth company seemingly much better suited for the private markets. That leaves the possibility that HyreCar went public not because it wanted to – but because it had to in order to fund its growth. Even a $10 million revenue base for 2018 is far better suited for venture capital firms with experience nurturing growth companies.

Even at a discount to the IPO price, there are simply too many questions here. HyreCar is an intriguing business, and it will be fascinating to see how its business model plays out. But that alone isn’t enough to buy HYRE stock, particularly at what is still a reasonably high valuation.

As of this writing, Vince Martin has no positions in any securities mentioned.