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Lyft, Uber, Pinterest: Are Internet unicorns really worth billions?

  AirBnB, Lyft, Uber and Pinterest logos

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This week was a significant period for the US stock market.

Lyft, the company for Ride Hail, sold it to the public for the first time announcing a march of "unicorns".

A stream of these companies ̵

1; defined as more than $ 1 billion worth of private venture-backed companies, including Lyfts rival Uber, online scrapbooking company Pinterest and home-sharing site AirBnB.

And they attract amazing ratings. Uber, for example, could be worth about $ 120 billion in one round.

For Lyft, their shares listed on the NASDAQ Stock Exchange at $ 72, giving a market value of just over $ 24 billion – more than five times the size of about the British high street Marks & Spencer.

But unlike M & S, which has existed for over a century, Lyft is only seven years old – and still makes no profit.

"I researched a lot about private venture capital companies," said Ilya Strebulaev, a finance professor at Stanford University.

"We find that the unicorns are on average overvalued by about 50%" [19659012] Should investors stay away?

Lyft makes some big claims in the IPO.

The business model is based on the idea that a car is expensive, and with urbanization, people are being forced away from their own vehicles to services to get around.

According to the US, private households spend over $ 1.2 trillion a year in the US alone. That's the price that Lyft goes for.

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The founders of Lyft, John Zimmer (left) and Logan Green, are multimillionaires after the flotation
Rett Wallace, founder and chief executive of Triton Research, said Lyft's business model has advantages. "The idea that you do not need a car that you do not use, maintain, insure and transport 95% of the time … Transportation could be done better than what Detroit gave us."

However, transport as a service is an emerging industry.

Tom White, senior research analyst at DA Davidson, says, "There is not much evidence yet that this is happening on a broad scale."

There is some data showing a shift, he said. For example, the proportion of 18-year-old Americans admitted to driving dropped from 76% in 1986 to 62% in 2016, according to the Department of Transportation.

But comprehensive vehicle ownership data "suggests that it does not have much impact yet."

Then there are Lyft's losses.

Between 2016 and 2018, revenue rose sharply from $ 343 million to $ 2.1 billion. Its losses, however, jumped from $ 682 million to $ 911 million.

Uber also suffers losses, although the number dropped from $ 2.2 billion in 2017 to $ 1.8 billion last year.

According to Strebulaev, the risk of venture capital is usually hedged Companies make losses, "because they basically make profits to achieve very high growth or high levels".

But "the question for all and for the investors," he said, "is the question of whether the Lyft and Uber business model can change them. At some point, very substantial losses in profits … and whether the market will endure these losses becomes. "

It feels like a familiar area. It's been almost 20 years since the peak of the dotcom boom and its messy consequences.

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Snap's share price has dropped since floating in March 2017

Mr. Wallace said, "We had a little taste of what a dot-com crash looks like in Snap's story."

Snap Inc.'s turbulent time since its launch in New York two years ago at $ 17 a share. including a controversial redesign of the flagship news app Snapchat. The stock is now listed at $ 10.

"Many investors have lost money with Snap," he said. "We have a taste of what it looks like for investors to rush into these things and get killed."

Are people too careful?

Mr. White said there was a big difference between the Internet companies of the late 1990s and early 2000s and now.

"These companies are much bigger and more established in many ways," he said. "They were able to build massive private capital, stay private longer, and reach a size and size that was quite rare for a company that went public the last time."

Prof. Strebulaev said: "In the previous cycle, business models were more a promise for the future and a promise of future revenue.

" Many businesses today have such revenue. Now it's about a promise of future profitability, which is very different.

Lyft plans to spend $ 2.3 billion on the IPO to invest in acquisitions and technology.

There is already money and resources for autonomous driving.

It works with the Irish Aptiv teamed up to test self-driving cars in Las Vegas, where they've spent thousands of trips, and developed their own autonomous vehicle system in their Level 5 engineering center.

However, driverless cars are still far from public roads

And Mr White says that in order for hail companies to make transport services a cheaper alternative to car ownership, prices may fall by 30% -40% – a move that would affect Lyft's financials.

What does this mean for other initial public offerings?

In addition to Uber, Pinterest and AirBnB, the supervised office provider WeWork and the Messaging company Slack considered stock market li sting.

Prof. Strebulaev suggests a reason why so many companies are considering that the relocation will take place this year for economic reasons.

"If there is a recession, the IPO window could be closed," he said. "That happened in 2000, of course, when the IPO window closed when not a single company went public."

"Can this happen tomorrow? I can not wait. Can this happen in the next six months? I think that's not unlikely."

There is a danger, however, if there is a run on the market Investors could be burned.

Mr. Wallace said, "I think if I lost $ 1 billion a year in my business and I could sell it to a number of American retail investors, I would definitely be ready for the IPO window.

"Look at the losses – someone has to pay for these losses."

Prof Strebulaev said: "What I believe, and it's not really about Uber and Lyft, it's about an average unicorn of them, and it is difficult to imagine, on the basis of historical evidence and my research, that all of them will succeed. "

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