Lyft Inc. is one of the most famous unicorns slated to go public in 2019. The ride-hailing company will begin trading on the Nasdaq on Friday under the symbol "LYFT." It plans to sell 30.7 million Class A shares, and on Wednesday increased its IPO price range to between $70 and $72 from between $62 and $68. At the upper end of the spectrum, this would mean a valuation of over $24 billion.
Like many of its peers, Lyft is adopting a dual-class structure with each Class A share entitled to one vote and each Class B share entitled to 20 votes. Logan Green and John Zimmer, the company's founders, will own all of the Class B stock and have 49% of voting power.
The IPO was reportedly oversubscribed on the second day of the investor roadshow. However, while Lyft bulls see massive growth potential for the capital-light company in a rapidly evolving $1.2 trillion U.S. transportation market, the firm still faces major issues, per a recent Barron’s report. At the forefront of its woes include mounting losses, which surged by more than 32% year-over-year (YOY) to $911 million for full year 2018. This has raised questions regarding whether the Silicon Valley-based firm can post a profit in the long-term.
Second, on the competitive front, Lyft is challenged with making money as the number two ride hailing company behind global market leader Uber Technologies Inc. Additionally, the firm faces regulatory concerns in largely uncharted territory, making it a risker play. Others are concerned about the fact that control will remain with Lyft’s two co-founders, and lastly, some say that Lyft’s IPO filing omits details necessary for investors and analysts to create a financial model for the company.
Collision Course: 6 Pitfalls Facing Lyft Investors
- Widening losses increased to $911 million
- Competition against market leader Uber
- Regulatory concerns
- Control will remain with co-founders
- IPO filing insufficient to create financial model
Source: Barron’s, Bloomberg
Famed LUPA Companies Gear Up for IPOs
Lyft is part of a group of four stock nicknamed “LUPA,” comprised of companies that were born into the mobile app generate and have become a vital part of today’s consumer economy. Lyft, its main rival Uber, travel industry disruptor Airbnb, and web-based photo bulletin board Pinterest, have all either filed to go public, or have been rumored to be considering an IPO in the near future.
Critics of the 2019 unicorn IPOs focus on the fact that many of the companies slated for the public markets are still operating in the red. Meanwhile bears suggest that their business models don’t look sustainable in the long-term.
As for Lyft in particular, competing against Uber at home and in international markets, where Uber is the clear market leader, is a unique challenge. Both companies remain at the mercy of regulators, who threaten business in major hubs like New York. Barron’s adds that Lyft CEO Logan Green, and President John Zimmer, both co-founders in their 30s, will hold a combined 49% of the vote following a conversion of their Class A shares into super-voting Class B stock with 20 votes each. Meanwhile, their economic stake in Lyft will stand at about 5%. This scenario would make it hard to oust management.
Others remain concerned over lack of financial clarity.
"It’s never good when companies decide to not be straightforward about the math of their business, and these guys told us almost nothing you need to build a model,” said Rett Wallace, CEO of Triton Research Inc, per Bloomberg. “I would suspect, given the incentive structure, that Lyft had many, many M&A conversations with buyers that would have been able to see the detailed numbers.”
Wallace added that, “one could speculate that the lack of success in those conversations might have impacted the company’s willingness to disclose more detailed numbers to its backup buyers in the public market.”
Risks aside, the prospects for Lyft remain robust. Revenue skyrocketed to $2.2 billion in 2018 from $343 million in 2018, with the firm stealing another 17% of the market as of year-end, with a 39% share. The company received its first buy rating ahead of its IPO as DA Davidson initiated coverage at buy.
Management recently highlighted the fact that cars are utilized merely 5% of the time, yet cost Americans $1 trillion annually, leaving plenty of room to grow the market and capitalize on the rapidly booming gig economy. At the same time, the company is pushing into new growth markets like bike sharing, scooter rentals, and autonomous driving technology. Without showing it can turn a profit, however, many more conservative investors may want to remain on the sidelines.