Lyft IPO: Is It Worth A Look?

Global investors are watching the Lyft IPO very closely. The ride sharing company is beating Uber to listing on the stock market and people are watching with interest. 

Whilst some investors are weighing up the opportunity whether to get in or not, others are treating it as a test drive before Uber lists later this year.

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What We Know About the Lyft IPO

Lyft is listing on the NASDAQ looking to raise around $2bn in the process. They will offer 30 million shares to the public but the exact price per share is unknown.

As it is still early days, the listing stock price will be between $62 to $68 per share. As with all IPO’s, the price you pay is related to how close you are to the initial offering.

If there is enough demand, they have the option of selling an additional 4.6 million shares bringing the total raised to approx $2.4bn. The big question here is “IF” they have demand.

Based on this info, Lyft would be valued at $21bn, which is up from a valuation of $15bn from June last year.

Looking At The Numbers

The key thing to know here is that Lyft is losing money. And a decent amount at that. In 2018 they lost $911m and in 2017 it was a loss of $688m!

Revenue for the company is growing at a rapid rate. In fact, it has doubled over the past 12 months from $1.06bn to $2.16bn.

Lyft operate on a model of “clip the ticket” meaning they take a percentage of revenue from each ride. The total number passengers actually paid was $8bn, but the company takes around 27% of the fee. The remaining obviously goes to the driver.

They key to Lyft being profitable is in charging more than the 27% fee for using the service.

What Will They Do With The Money?

A vital question that every investor needs to ask when investing in an IPO is “What are the company planning to do with the money?”

Lyft have outlined a growth strategy for the $2bn+ they hope to raise from the IPO. It can be broken down to three broad categories

Grow its rider base

Introduce different vehicles ( like bikes and scooters)

Build an autonomous vehicle service

In terms of using funds from an IPO, this strategy looks okay. The upside is that they are all focused on growing the business and its revenue. They are not paying big bonuses or using the funds for admin costs.

Long Term Thinking

The ultimate end game though will be in the autonomous vehicle sector. Uber have been vocal about their intention in this space and Lyft will need to keep up.

In fact, the autonomous vehicle sector has always been a long term play from both Uber and Lyft.

Why? Well remember how I said that Lyft take around 27% of fees with the remaining going to the driver? If you remove the driver from the situation then Lyft will be taking 100% of the fees!

What About Uber

A big issue that I can see is that Lyft are listing before Uber. There is a concern that people will sit on the sidelines and wait for the Uber IPO as it’s a much bigger company.

In 2018 Uber had revenue of $11bn compared to $2bn for Lyft. They also operate in over 60 countries compared to Lyft that are just in the states and Canada. Whilst that does mean Lyft have more room for expansion, it can be difficult to take on a first market mover.

The other key part of all this is that Uber is looking to list on the stock market not long after Lyft. There’s a general belief that most investors will sit on the sidelines waiting for the bigger company to list on the exchange.

Conclusion

There are a lot of finance writers saying that this company won’t live up to the expectations in the initial listing. Whilst we still need to wait for the official listing price of the stock, many experts claim that there will be an initial dip in the price with a more positive long term future.

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