Lyft just went public. At
IPO, it was valued above $20 billion.
It's the first ride-hailing business to hit the market, beating next
month's expected IPO of bigger rival Uber.
They're also sort of known as the underdog and they're probably the lesser
known of the two major ride-hailing companies.
So for them to get out there first, as far as the name brand recognition
angle, I think that's pretty big for them.
But Lyft has yet to turn a profit.
In fact, it's far from it.
So they lost almost a billion dollars last year.
Its IPO papers filed earlier this month made it crystal clear the
ride-sharing company is deeply in the red.
Lyft had a net loss of $911 million in 2018, but its promise to investors:
20 percent margins. Eventually.
Lyft told investors that we talked to that they would eventually get to 20
percent EBITDA margins.
They did not say when, which is concerning for some of them.
I talked to one investor that called it loosey-goosey.
But not all investors are scared away by Lyft's red ink.
It's no secret that Lyft is losing money.
It's almost a billion dollars a year.
But there's still this sense of excitement around the IPO.
A lot of tech investors look at Amazon as an example.
And we know that Amazon was losing money for the first four or five years
that it was public.
So there's a lot of optimists out there looking to buy Lyft, regardless of
if it's losing money on day one.
I think this is the best time to come out.
They're doing a great job.
The major market, the macro market, is good.
IPO sentiment is good.
I think Lyft is exactly the kind of stock that can work in a slower growth
environment.
Lyft has grown cautiously but quickly since it launched in 2012.
Founders Logan Green and John Zimmer first created Lyft as an offshoot of
Zim Ride, a longer distance ride sharing app the duo created in 2007.
Now Lyft operates in 300 markets in the U.S.
and Canada.
At Lyft's founding in 2012, taxis accounted for 99 percent of ride-share
trips in the U.S.
With the rise of Lyft and Uber, which was founded in 2009, taxis now
represent just 13 percent.
Lyft says its number of quarterly active riders tripled in the last two
years. In 2018, it had a total of 30.7
million riders and 1.9
million drivers.
Those drivers are paid an undisclosed percentage of total gross booking
value. According to Lyft, this means its drivers have earned $10 billion
and given more than one billion rides since it launched.
But some drivers say they aren't paid enough.
Lyft, Lyft, you're no good. Treat your drivers like you should.
It's expensive to navigate the regulatory environment in each city and to
insure the business. Insurance
costs Lyft up to a dollar per ride or 30 percent of each ride's revenue.
The more money that they make and the more people they get on their
platform, the more money they lose.
They have to spend money to market in different cities, to get drivers, to
get customers and maybe take customers away from Uber.
Despite losing money, it's making strides to catch up with Uber.
Lyft says it now holds 39 percent of the U.S.
ride-share market, up from 22 percent two years earlier.
Uber holds almost all the remaining ride-share market
Investors are viewing this as a duopoly.
So you've got Coke and Pepsi. You've
got AT&T, Verizon.
So if one does well, it's likely that the other will do well.
So it's not necessarily Uber versus left.
You might benefit from both.
There were investors that were looking into buying both.
Uber is expected to go public in April.
Valued as high as $120 billion dollars.
But Uber's growth to number one has been riddled with controversy.
In 2017, after a particularly bad year of scandals, Uber founder Travis
Kalanick stepped down.
Kalanick is out entirely, at least as CEO of Uber, reportedly under
pressure from some of the start-up's largest shareholders.
Meanwhile, Lyft gained a reputation for being the friendlier of the two.
When we started our company, there wasn't a regulatory infrastructure for
for Lyft.
We were picking up people in personal vehicles.
But we created a criminal background check, a driving record check, a
million dollar insurance policy because it was the right thing to do.
The fact that it is founder led and it's led by these founders who are, you
know, very focused on corporate responsibility and sort of socially
conscious values, I think is a big reason why the brand has taken off
recently and led to the share gain.
And they've also been benefited a little bit from disruption at one of
their competitors over the last couple of years as well.
And they've kind of capitalized on that.
There's even a clause in its IPO papers meant to preserve that friendly
reputation. Lyft has committed to spending the greater of 1 percent of
profits or $50 million annually on social impact efforts.
Analysts say Lyft's image as the smaller, friendlier cousin is
appealing, despite its lack of profits.
One of the things we like about Lyft being a little smaller than Uber is
the fact that they are more focused. They're
not trying to fight multiple battles in multiple countries and multiple
different kind of end markets.
Uber has aggressively pursued international markets, offering rides in more
than 65 countries.
Meanwhile, Lyft focused on getting to 95 percent of the U.S.
and just added its first international locations in Canada last year.
Uber has also put a lot of focus on diversifying: Uber Eats,
bike-sharing, scooters, Uber Freight, air taxis and its own autonomous
driving tech.
Although slower to diversify, Lyft is also investing in other modes of
transit. Last year, it bought Motivate, a bike sharing company that has 80
percent of the U.S.
market. It also has scooters in 13 cities, recently added nearby transit
information to its app and is using self-driving cars. Lyft
has facilitated more than 35,000 rides in autonomous vehicles so
far through a partnership with Aptiv.
33,000 people die every year in car accidents.
And so for us, we're not going to bring any product to market until it's
safe and ready to be deployed.
But there is an important reason behind all this.
Not only just having autonomous rides, having more affordable rides, and
getting our cities off of this car ownership addiction.
Growing in these directions has meant a lot of spending.
Still, a recent SIG report estimates Lyft will become profitable, but it
may take seven years.
Near term, we're seeing signs that there is leverage in Lyft's model,
particularly when it comes to incentives for drivers and riders, also on
just sort of traditional sales and marketing.
And then long term, there's the potential for autonomous vehicles and
autonomous technology to basically reduce the amount times that Lyft has
to pay a driver. And
that could be a big, big lever for profitability.
Lyft leads a big wave of Silicon Valley companies rumored to be going
public in 2019.
So will it be a smart investment?
You need to be careful with these fresh-faced IPOs.
Short term I'm betting this one turns out to be a real good trade.
As a longer-term investment, call me skeptical.
The idea of them getting to 20 percent margins: is it this year?
Is it in 10 years?
Nobody really knows.
Lyft also hasn't spelled out a clear plan of how they'll get there.