At the moment Lyft (LYFT) is following the path of IPOs that have failed in recent years, such as Snap (SNAP). The IPO is supposedly oversubscribed and points to a first jump in the stock. However, the company is facing significant challenges, evolving into a profitable business model in an increasingly competitive environment, similar to that of the social messaging stock, which fell to $ 5 after the initial bang.
Source: Lyft Twitter
Already At Scale
The second-largest on-demand carpool service plans to sell 30.77 million shares in an IPO this week. The company also offers Underwriters 4.62 million shares for over-allotments. Assuming a median of $ 65, Lyft will charge $ 2.2 billion in fees, if the additional shares are fully exercised by the underwriters.
While Reuters indicates that the deal is already oversubscribed, the company faces significant problems with profitability, which affects equity markets in public markets more than private ones. In addition, both Lyft and Uber (UBER) have reached levels that should already provide a level of profitability that can not be significantly improved in a market in which these competitive giants have more money.
The problem with holding IPO Shares is the result, so you should not get bogged down by the nuances of dual share classes. Any investor in a growth company wants the start-up management team to oversee the business. Otherwise, you should invest in a growth company where hedge funds can undermine the management team. If you do not like the management team or the business model, investors do not have to invest.
In Q4 & # 188, Lyft had an incredible 18.6 million drivers, who together needed 178.4 million rides. Average customers take almost 10 trips per quarter or just over 3 trips. The numbers are now distorted to include scooters and motorcycles from the acquired Motivate.
Source: Lyft S-1
Anyone reviewing the quarterly data may find that growth rates are slowing. In the third quarter, the total number of trips increased by 15.9 million, representing a sequential gain of 10.9%. In the last quarter, the growth rate slowed to exactly 10.0%.
One can analyze the growth of the driver similarly and come to the same conclusion. In fact, the numbers are actually impressive that Lyft can still achieve significant sequential growth on this massive scale of drivers and rides. The carpooling company can easily grow more drivers and additional rides per driver.
The problem remains that the company reaches a booking scale of more than $ 8 billion and still loses almost 50% of its revenue. Together with Uber, industry has created a significant business to improve transportation for individuals looking for a better system than the outdated taxi network or possession of a vehicle. However, none of the companies has figured out how rides must be calculated at prices to make a profit. 19659011] The winner so far has been the customer, who receives better service at a lower cost, and private investors who own stocks that are significantly above the initial investment. Whether these venture funds can offset their IPO investments is quite another matter:
Failed Business Model
Lyft wants to discuss the Transport-as-a-Service or TaaS concept, but the company has no idea How it generates profits under such a plan is when Uber and increasingly Waymo (Jag) (NASDAQ:, 99L) compete alongside the existing taxi network. Switching to autonomous vehicles only increases competition when both Lyft and Uber have no advantage over a driver network in which they have invested billions.
For 2018, Lyft lost $ 911 million, an increase of $ 223 million over the previous year. The biggest problem remains that costs rise as fast as revenues. Some of the margins improve as the process progresses, but investors should not be fooled by runaway operating costs.
Source: Lyft S-1
The company only lost 42% of its sales, up from 65% in 2017, but the story is not really better. Lyft still lost an estimated $ 1.50 on each of the 619.4 million trips last year.
The problem is that the contribution per ride was only a meager $ 1.71. Lyft has to double its contribution per trip to completely eliminate operating losses.
Source: Lyft IPO Roadshow
Lyft needs a positive cash flow business model to survive in the AV world, in which Waymo is already a leader in the market and owned by a company is a cash balance of over $ 100 billion. After the IPO, Lyft will only have over $ 2.5 billion and still burns cash to quickly reduce its cash balance.
While there are big questions about how Lyft can achieve profitability, the biggest problem for investors is the valuation of the IPO. The company wants a market capitalization of $ 23 billion, after losing a ton of money last year with sales of $ 2.2 billion.
The valuation multiplier adds up to the potential of a small business, but it does not work well public markets. Assuming a $ 3.0 billion revenue target for 36% growth this year, Lyft would, based on these initial trading prices, trade in the following stock valuations, with ~ 340 million outstanding shares issued:
- $ 50 = $ 17 Market value, P / S 5,7x . 19659026] $ 65 = $ 22B $ Market Value, P / S 7.3x
- $ 75 = $ 26B Market Value, P / S 8.7x
- $ 100 = $ 34B Market Value, P / S 11.3x
My initial estimate is that Lyft receives a big boost from the oversubscribed IPO. It is unlikely that the market will go down so much from the original range as such. The only option below is $ 50, which is provided for analysis only. The potential is for the stock to trade at $ 75 and near $ 100 in the first week.
Such a price level would become a major problem for retail investors who might be caught holding the bag on the street. Rob Sanderson, an analyst at MKM Partners, sees a $ 65 worth of stock with an EV / S multiple of 6x for Internet marketplaces, but the figure is rather ridiculous for a secondary firm in a money-losing industry. The multiple is much more reasonable for the primary actor in a cash flow generating market.
The most important factor for investors is that Lyft is ready to make a hot public offering. Private investors will want to avoid this IPO, unless shares in the IPO are received, which are quickly reversed.
The Ride-Sharing company faces a highly competitive environment with a long road to earning profits just in time to move the company towards AVs. The stock is likely to snap in on initial trading and push the IPO estimate to 10 times the estimate, with no real potential to create positive cash flow.
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