Ride-hailer Lyft ready for IPO

Ride-hailing company Lyft's initial public offering this week will give investors the opportunity to place their bets on a company with a history of losses in an unproven sector.

Wall Street analysts said Lyft's offering of 30.7 million shares at $62 to $68 each is about four times oversubscribed, suggesting a strong first day of trading when the deal is brought to the Nasdaq Stock Market, possibly on Thursday.

If shares sell at $65 a share, the midpoint, the deal would value the company at about $23 billion.

Lyft is burning through cash to build market share, and its rate of revenue growth is slowing. That may be a sign of trouble because the company has nothing to fall back on if revenue slides sharply, analysts said.

"Lyft is a great idea and a great company, but can it ever make money?" John E. Fitzgibbon Jr, editor of IPOscoop.com, told China Daily. "That's the key question. The rate of growth is slowing, but as a company matures, you can't expect revenue to double from year to year."

Lyft's revenue grew to $2.2 billion for the year ended Dec 31, 2018, from $1.1 billion in 2017 and $343.3 million in 2016.

In December, Lyft had a total deficit of $3.6 billion, and losses have continued to grow. However, the company's heavy spending has paid off because Lyft's North American market share increased from 22 percent to 39 percent in the last two years, the company said in its pre-IPO registration statement filed with the US Securities and Exchange Commission.

This is what intrigues investors: For the quarters ending March 31, 2016 to Dec 31, 2018, the number of rides provided by Lyft has grown from 29 million to 178.4 million. Revenue per rider has grown from $15.88 to $36.04. Lyft keeps about 20 percent of each fare, the company said.

But Lyft warns, "Our limited operating history and or evolving business make it difficult to evaluate our future prospects and the risks and challenges we may encounter."

Congestion pricing — a fee to drive in a city center — would drive up fares and may make ride-hailing less attractive. Lyft must spend money to manage its expansion into new areas, retain qualified drivers and be sure its ride-hailing software is up to date and easy to use. Lyft's huge advantage over traditional taxi companies is that it does not buy or operate its fleet.

Lyft and Uber are similar companies with different business plans. Lyft is focused on North America and reportedly is growing faster, while Uber is a larger company.

Uber has used its strong brand to expand into food delivery and bicycle sharing and is active around the world. It is strong is Australia and New Zealand, but sold its operation in China to Didi Chuxing, to Yandex in Russia and to Grab in Southeast Asia. Anti-trust concerns ended prior merger talks between Lyft and Uber.

Uber has not yet filed with the SEC to go public, but is expected to launch its IPO in April on the New York Stock Exchange, according to bloomberg.com. Typically, the first deal to market in a new sector gauges investor interest, and the second or third company to go public is often the strongest. This pattern emerged during strong investor interest in internet companies and hardware makers in the 1990s and even played out in the craft beer craze.

In a research note, Tom White, an analyst at D.A. Davidson in New York, rated Lyft's IPO a buy, with a price target of $75 a share. He cited Lyft's "impressive US market share gains" and foresees "continued growth of the broader ridesharing market" as more city dwellers give up their cars and view auto transportation as a service.

In its SEC registration statement, Lyft said US consumers spend about $9,500 a year each on cars, or a total of $1.2 trillion nationwide. Yet most owners use their car about 5 percent of the time, and it remains parked the other 95 percent.

Reliance on cars has changed the American landscape, as limited-access highways have devastated some urban neighborhoods.

"We believe that cities should be built for people," Lyft said in its IPO prospectus filing with the SEC. "Roads and parking lots have replaced too much green space."

That statement is likely to resonate with Lyft's targeted market: ecologically aware urban professionals with money in their pockets.

But astute marketing may not be enough to carry the day in a dynamic, competitive market.

IPOscoop.com's Fitzgibbon stresses the key question: "Can Lyft ever be profitable?"