AMERCO is the holding company of the leading provider of moving equipment and trucks in North America, U-Haul.
U-Haul benefits from massive network effects that expand in strength each year. The company continues to grow its own network while expanding its dealer base to capture more customers and one-way movers. This creates a flywheel effect that reinforces the efforts of each of these three parties.
The company has expanded its offerings beyond simply moving trucks to attack "all things moving". The company provides various types of moving equipment, accessories, and self-storage. Each of these are highly complementary to the core offering, moving trucks.
U-Haul has begun exercising some of its optionality to expand its already massive network. U-Haul's Moving Help marketplace is the company's venture into professional moving services, which partners with local movers to help U-Haul customers efficiently gain access to professional movers in their areas.
U-Haul has some potential long-term risks, including the fact that the company continues to invest heavily (particularly into its fleet and self-storage facilities) to the point of free cash flow dipping consistently into negative territory, having exposure to large costs in the case that the regulations or status quo in the transportation industry change, and a declining mover rate that has been a secular trend since the 1970s.
Despite the above risks, we think U-Haul's degree of market control and brand name provide protection against most of these risks.
Key Company Metrics
A set of metrics we constantly keep updated to monitor the investment thesis.
Substantially all revenues generated at AMERCO stem from its U-Haul operations; the discussion below, therefore, focuses on the competitive advantages of U-Haul.
The source of all of U-Haul's economies of scale is its first-mover advantage and the aggressive expansion the company undertook to amass such scale. The company started at a time (1945) when one-way moving trucks and equipment were in high demand following the war. Many people sought moving equipment to move from one place to another without having to return that equipment to its original location.
U-Haul's founders - L.S. "Sam" Shoen and his wife, Anna Mary Carty Shoen - experienced this trouble when trying to move from Los Angeles to Portland, OR. They quickly realized that there was no such service that allowed them to move all their belongings and drop off the rented vehicle and equipment in the same place.
Shortly after making their interstate move, the Shoens launched U-Haul in the summer of 1945. Only two weeks later, the first U-Haul trailer stood available for rent in Los Angeles for $2.00 / day.
The company quickly expanded due to what turned out to be a dire collective American need to rent one-way moving equipment and with the help of a fast-growing dealer network around the US at the time.
Within several years, U-Haul took the market by storm with coverage around most of the US by 1949 and most of Canada by 1955.
Today, U-Haul remains the most widely known moving rental service and is the largest of its kind in the US and Canada. Today, there are over 2,000 company-operated U-Haul locations and a network of over 20,000 independent dealers scattered across the two vast countries.
Because of U-Haul's first-mover advantage and aggressive expansion strategy early in its life, customers of the company now enjoy the:
best availability of any moving truck and equipment provider in North America;
largest network of one-way / one-stop drop-off locations throughout the continent;
low and affordable pricing available due to U-Haul's reach and ability to spread costs over an extremely large customer base.
Each of the reasons above make it highly compelling for dealers, movers, and U-Haul to all interact with each other as opposed to any other company and any other party. The three-way relationship works wonders for each party, offering affordable and convenient moving throughout the US and Canada while dealers and U-Haul make tons of money from the sheer size and volume of movers each year.
Barriers to Entry
U-Haul's network of company-operated rental shops and dealers is much larger than its closest competitor, Penske, which only operates about 4,000 combined versus U-Haul's monstrous 21,000-location network.
U-Haul has deep-rooted relationships with its dealers going back to the early stages of one-way moving rentals hitting the market. Penske has been unable to catch up to U-Haul's network size, leaving U-Haul's massive market share mostly unscathed and unthreatened by new market entrants.
In fact, it speaks to the moat U-Haul enjoys today. Convenience is the name of the game, and U-Haul's network of over 5x the size of its closest competitor means that U-Haul is generally a mover's first (and often only) choice.
Since U-Haul is also able to capture such a large share of the market with its vast network, the spreading of costs makes it simple for U-Haul to provide good prices (while also being able to exercise pricing power).
Penske has been unable to take meaningful share away from U-Haul, meaning that much of the industry's growth is within arm's reach for U-Haul. This also means that it is highly unlikely that new emerging entrants enter the market given U-Haul's size as well as the other competitors, even though they are much smaller than U-Haul.
U-Haul's self-storage operations, on the other hand, are much more commoditized. Location is usually not a moat in real estate on its own unless the location is highly sought after by numbers of developers for many use cases. Self-storage facilities tend to sit in rural areas or in the outskirts of cities in industrial areas.
However, U-Haul does take advantage of its wide array of services to de-commoditize these offerings slightly. Sometimes movers require storage while moving between properties or in anticipation of one. U-Haul's month-to-month contracting allows for a high degree of flexibility that movers and residents alike might enjoy.
The company also offers discounts on storage units if a U-Haul truck was rented. Using this method, U-Haul is able to easily onboard truck rental customers into its storage facilities at a compelling price with tons of flexibility. On top of this, once customers begin using U-Haul's storage services, the switching costs to move all their belongings to another facility from a competitor grows high. This allows for U-Haul to exercise pricing power once customers are settled in.
U-Haul is mostly recognized for its orange and white trucks, but the company has been able to morph itself into a one-stop shop for all things related to people "moving things".
U-Haul also provides and / or sells:
trailers and towing equipment;
U-Box containers (used to store personal belongings for shipment to another area)
self-storage units and RV, Boat & Car storage;
boxes and packing supplies;
moving labour; and
hitches and other accessories, including bike racks and ball mounts.
To a greater extent than its competitors, U-Haul can rely on its brand name and wide customer base with varying uses for its products and services to "mix-and-match" its offerings, all of which are provided in-house, including optional insurance.
U-Haul has, in our opinion, de-commoditized what could have been a commodity-like business with few key players of similar size and offerings. However, because U-Haul effectively controls the market, many customers are drawn to U-Haul to move equipment, personal belongings, and vehicles. This allows U-Haul to cross-sell and upsell many of its offerings, allowing the company to capture a wider base of what already is a large addressable market (i.e., do-it-yourself moving).
The presence of these offerings further extends the convenience factor that U-Haul offers, consistently making it a top choice among consumers.
The moving market is still in a state of growth and will continue to be for the foreseeable future. To clarify, the rate of population that moves each year has been in a secular decline for over 40 years in the US. Meanwhile, U-Haul has been increasing transactions during this time, capturing share and increasing transactions across its many use cases, of which moving homes is included. Both in Canada and the US, home affordability is becoming an increasing concern, which may spur more home sales and rental transactions as priced-out individuals and families seek refuge in lower cost areas. It is possible this may even create a reversal in the trend of the declining mover rate in the US. Continued immigration, particularly in Canada, will likely keep transactions high and growing as well.
U-Haul's network grows stronger by the year, creating a flywheel effect that is predicated on drawing in more customers by offering more one-way stop locations and the convenience that comes with it. We believe that U-Haul's strong presence around the US and Canada means that the company is more likely to expand and be successful by reinvesting into more locations (both company-owned and dealer-run). This will strengthen the network effect by offering an even more robust network for customers to take advantage of while dealers and U-Haul rake in cash.
U-Haul is already exercising some optionality to grow further and provide more options to customers and cross-selling opportunities to the company. As mentioned earlier, U-Haul is somewhat de-commoditizing the self-storage business by recognizing that movers may have storage uses. These users get one month free of rent while also being able to enjoy month-to-month payments instead of standard term contracts. U-Haul also operates Moving Help, a service on U-Haul that helps find local movers that will use the movers' rented U-Haul equipment to make the move. This is a highly compelling offering that branches outside of the do-it-yourself moving market into the professional sphere. With this offering, U-Haul can use its relationship-building expertise and vast network of locations to pair professional moving companies with movers.
A potential long-term risk to U-Haul is a potential future requirement to update its fleet either to meet new safety standards or to be in line with the status quo.
For example, should the industry begin to undergo mass electrification, U-Haul would need to replace tens of thousands of trucks within a relatively short period of time.
Alternatively, U-Haul can begin today, but this would mean large expenditures that will likely result in no incremental return. In other words, consumers will likely demand similar prices to the ones in place today despite the heavy costs that would be incurred by U-Haul and its competitors.
While there is certainly a case for the declining mover rate to flip upwards or stall, at the very least, it is also possible that it continues to decline. High prices could damper the number of home transactions that are happening if high prices occur everywhere. This may mean that individuals and families might be more likely to settle in to their current dwelling for longer and reduce the number of moves an American or Canadian family performs in their lifetimes.
On the flipside of this, if space is an issue for some families that are priced out of the market, this may mean higher demand for U-Haul's self-storage business.
Free Cash Flow Negative
AMERCO has been recording negative free cash flow for consistently for several years. While these investments are necessary to expand the fleet of U-Haul and increase rental capacity at the U-Haul storage facilities, they provide investors with some uncertainty as to what the financial health of the company will be down the line. The company continues to rack on more debt with the hope that these investments will pay off.
We believe this is a valid concern and one that must continually be monitored. U-Haul has massive market share in the do-it-yourself moving market, which is a plus. However, it may be difficult for investors to evaluate just how profitable or accretive the acquisitions of the self-storage facilities in particular are today.