Everyone has heard of Uber but Lyft is another gig economy ride-sharing star that largely operates in the US.
While Uber has been mulling its own IPO (initial public offering) for ages, Lyft has made the first move, and it has got lots of investors very excited.
The San Francisco-based company’s decision to join the US stock market today (29 March) looks well timed. The early price range for Lyft was pitched at between $62 and $68 per share yet the offer has been oversubscribed to such an extent that the offer price has been set at $72. That values the business at an eye-watering $24bn.
That makes Lyft the largest tech IPO since Alibaba in 2014.
TREADING WARILY
But before pressing the buy button on online trading accounts, UK investors should consider the staggering scale of the challenge the company faces to start making a profit.
Lyft is burning through cash fast. It chalked-up $911m of losses last year on $2.1bn revenue, a 32% hike in red ink. Before that the business had run-up losses of $688m in 2017 and another $683m in 2016.
Being in the red at IPO hasn’t stopped other technology companies from making investors money. Neither Amazon or Tesla were profitable at IPO (the latter still isn’t), yet both share prices have increased enormously over the years. Then again, both Twitter and Snap (the Snapchat app operator) have been investment disasters.
UNPROVEN MODEL
Lyft has a completely different business model to the above tech companies, and it remains unproven.
For a start, it is already expanding beyond taxi services, throwing millions of dollars at bike and scooters sharing schemes.
That’s a lot of increased overhead and it is interesting that Lyft has shown no appetite to join Uber in the increasingly competitive food delivery business (read about Just Eat here).
Lyft has also faced a backlash over pay, with drivers in California going on strike last year as its savage road wars with Uber and others takes its toll on finances.
Lyft also faces increasing regulatory scrutiny and appears to be banking on self-driving technology becoming mainstream down the line.
NO SAY FOR INVESTORS
The stock being offered to investors also come with very limited voting rights. Dual stock structures like this are rare in the UK and only allowed in certain circumstances but they remain popular in the US, particularly with tech companies.
There is no doubt that the ride-sharing explosion has, and continues to, massively disrupt short journeys around the world.
Operators like Lyft and Uber can benefit from the network effect, a virtuous circle where more consumers using these services attract more drivers, and more ride-sharing cars on the road mean more customers signing-up, and so on.
But the premise for the average person is that these rides are cheaper than old fashion cabs (and much cheaper than black taxis). This implies pressure on fares, while drivers need to earn fair pay, potentially leaving Lyft and its peers in the middle of a nasty squeeze.
As is often the case with Unicorn tech IPOs in the US, hype and growth potential tend to set the mood early on, with balance sheet strength and cash flow cans kicked down the road. For how long is the $64m question.
