Lyft (LYFT 80.87, +8.87, +12.32%) started trading on the Nasdaq this
morning after the company raised $2.3 bln in a highly-anticipated IPO yesterday
evening. The company priced 32.5 mln shares at $72. The company originally
expected to sell 30.8 mln shares at $62-68, but the price range was lifted to
$70-72 this week given strong demand. LYFT opened at $87.24.
While Levi Strauss (LEVI) thawed the ice on the IPO market last week, this landmark offering represents the first ride-sharing company to hit the public markets and one of the biggest technology IPOs of all time.
Lyft is the number two ride-sharing company in the US, and its much larger rival Uber is also set to IPO in the coming weeks or months along with a number of other high-profile technology companies in what looks like an attractive pipeline of deals in the queue. This deal seems likely to set the tone for a red-hot IPO market in 2019.
Lyft is squarely focused on the US ride-sharing market while Uber is also focused on the global ride sharing market, food delivery, freight, and autonomous driving. As a result, Lyft has been able to increase its market share in the US to 39% as of December, up from 22% two years ago.
The company is aggressively investing in the Transportation as-a-service (TaaS) market. US consumers spend $1.2 trln annually on transportation. The company estimates that its ride-sharing marketplace is available to over 95% of the U.S. population, in addition to a recent launch on some Canadian cities.
Lyft sports phenomenal revenue growth and huge losses as it scales its ride sharing network. In 2018, the company grew revenue 104% to $2.16 bln while its net loss increased to $911 mln from $688 mln in the prior year. Bookings, which reflect the total dollar value of transportation spend that it facilitates through its platform, excluding certain reductions like pass-through amounts paid to drivers and regulatory agencies, grew 76% in 2018, driven mainly by an increase of between 47% and 74% in Active Riders in each of the quarters of 2018 compared to the same periods in 2017.
Going down the income statement, cost of revenue increased $583.9 mln, or 89%, due to an increase of $318.5 mln in insurance costs, an increase of $109.6 mln in payment processing fees and an increase of $74.9 mln in hosting and platform-related technology costs, all of which were driven by significant growth in the number of rides. On the positive side, as a percentage of revenue, cost of revenue decreased from 62% to 58%. Sales & Marketing expense was up 42%, primarily due to an increase in costs associated with driver referral and targeted rider incentive programs.
The company warns that it may never achieve profitability in its prospectus. Lyft will have to sustain strong double-digit revenue growth for a several years before coming close to break even. We are still in the very early innings in terms of this transition to TaaS. While smaller upstarts continue to enter the space, Uber and Lyft enjoy a duopoly in the TaaS market.
The ridesharing industry has crushed the value of taxicab medallions in large cities, but has also expanded the taxi market dramatically due to its convenience, by reducing the use of public transportation and car ownership in urban areas. The potential upside case comes from autonomous driving, which would reduce costs dramatically. The emergence of autonomous driving would make the market more competitive but would also shine a light on the strategic value of the company's scaled ride-sharing network.
Rakuten, General Motors (GM), CapitalG -- Google's (GOOG) venture capital firm, all own more than a 5% stake in the company. Renowned VC firm Andreessen Horowitz and hedge fund manager Carl Ichan have also invested in the company.
Assuming 338 mln shares on a fully diluted basis, the $72 IPO price values the company at 11.3x 2018 revenue or 6.6x 2019 revenue, assuming revenue growth slows to 70% this year from 104% in 2018.
We thought that given the small float and strong demand for the offering, the stock would likely open well above $72, giving the company a market value close to $30 bln. As it was, the stock did indeed open far higher at $87.24.
- OUR VIEW
- LEARNING CENTER