Lyft off?

On Friday March 29th, the NASDAQ opening bell was rung not in its home of New York but thousands of miles away from a converted warehouse in Los Angeles. The market was opened by Logan Green and John Zimmer, founders of the popular ride-hailing app Lyft, to announce its first day of trading as a public company. The IPO, valuing the company at $24 billion, was closely followed by investors and many saw it as a rare opportunity to catch a Unicorn –the company was worth far more than $1 billion prior to going public. These investors toppled over each other to snag their piece of this mythical creature which pushed shares up 25% to $90 on their first day of trading. Less than four weeks later, some are likely to regret this FOMO (fear of missing out) as shares currently trade at below $60. But many remain optimistic about Lyft despite its post-IPO slide, placing user growth over earnings as the company continues to expand while operating at a loss. Others question how this will set the tone for the highly anticipated IPO of Uber, its largest competitor expected to fetch a valuation of up to $120 billion.

Both bears and bulls point to Lyft’s tremendous growth to support their case; while revenues grew from $1.05 billion in 2017 to $2.15 billion in 2018, losses widened from $689 million to $910 million in the same period. Management clearly prioritizes growing users over achieving profitability as the company claims to have expanded its share of the U.S. ride-hailing market from 22% in 2017 to 35% in 2018. However, Uber remains the dominant player with the majority of the market. Whereas Lyft has 23 million users and facilitates 1 million rides per day, Uber’s app trumps those numbers with 75 million users and 15 million daily rides. Uber is also much more internationally focused, with 27 million users based outside of the USA. This all translates to much higher revenues of $11.27 billion in 2018, all the while making a much more compelling case to approaching profitability. In 2018, the company reported a loss of $1.8 billion, down from a loss of $2.2 billion the year before.

This fierce competition is not the only thing Lyft has on its plate; it also faces lawsuits from investors and even its own drivers. In 2018, dozens of Lyft drivers in California took the company to court claiming they are not being paid minimum wage. Like Uber, who ended a similar lawsuit with a $20 million settlement, Lyft does not classify its drivers as employees bur contractors –thereby avoiding the legal obligation to pay its drivers minimum wage. Many investors also feel betrayed by the company, with two class action lawsuits accusing it of lying about its market share prior to its IPO. When the company went public it claimed a 39% share of the ride hailing market. This figure was put into question when Uber’s prospectus, released less than three weeks afterwards, contradicted this by claiming it had a 65% share –it took only simple math to find the two did not add up. This supposed misinformation is said to have contributed to the drop in share price after Lyft went public, leaving disgruntled investors to claim damages.

Nevertheless, many optimists point to Facebook’s IPO to justify their patience with Lyft. The social media giant shed half its value just months after its IPO in 2012 as investors were doubtful of whether it could monetize its 1 billion active users to achieve profitability. Now, shares trade at around $180, far above its $38 IPO price, and the company posted an impressive $22 billion profits for 2018 from its 2.32 billion monthly active users. Just like Lyft, Facebook’s IPO also drew a lot of attention as it was a unicorn before going public. However, it was one of the largest IPOs ever seen and the largest tech IPO at the time, which limits comparability given that Facebook was valued at more than four times Lyft’s IPO valuation.

Lyft will continue to be a closely followed company as it furthers its growth. However, competition with the far larger and more mature Uber will only increase as it is expected to have its own IPO in around May of this year. Nevertheless, Lyft will remain closely followed as some see its meagre post-IPO performance as a bad omen for the Unicorns that are planning on going public in the coming months. Whether it will owe up to its many promises in the future remains uncertain, but it is certainly a company worth keeping an eye on!

Written by: Jasper Thouin