IPOs: Giant hopes and giant losses for Lyft
Lyft’s app has a 39 percent share of the U.S. market.(Sipa)
Lyft has taken the lead in the race against its bigger ride-hailing rival, Uber, to go public, said Maureen Farrell in The Wall Street Journal. By unveiling the prospectus for its initial public offering last week, the seven-year-old startup finally gave investors a chance to see “just how burgeoning the business of ride-hailing apps has become.” Lyft’s growth is eye-catching. Revenues leaped to $2.16 billion in 2018 from $1.06 billion the year before, and the company says its share of the American market grew to 39 percent—gaining ground on Uber, which is more focused on growth outside the U.S. Lyft’s total market value after an IPO is widely expected to exceed the $15 billion value investors put on the company in its last private round of financing, though it would still be a fraction of Uber’s projected valuation.
One number that stood out from Lyft’s prospectus is a $911 million net loss in 2018, said Dan Primack in Axios.com. It’s the largest ever for a company entering the public markets for the first time. And it represents a “massive hurdle,” given there is no path to profitability. “Uber once said its ride-hail efforts were profitable” in North America, but it hasn’t reaffirmed the claim lately. And Lyft keeps losing money at a staggering rate. So what guarantees that “ride-hail is actually a viable business?” It’s reasonable to wonder whether demand will ever be much greater, said Shira Ovide in Bloomberg.com. “Optimists can point to the growth rate,” but there’s plenty to remain pessimistic about. For one thing, “Lyft’s costs for items like insurance, credit-card payments, and expenses” on technology eat up more than half the revenues. Lyft doesn’t have to produce a physical product, “yet has the gross margins of a clothing retailer.”
Paying drivers is the biggest expense for ride-hailing companies, said Ashley Nunes in USA Today—close to $6 billion for Lyft in 2018. “Driverless technology” promises to wipe this cost off the books, and both Uber and Lyft are investing heavily in it. But it comes with caveats. Until the systems prove to be flawless, paid drivers will be needed for supervision even of autonomous cars. “Driverless does not mean humanless.” Already, Lyft’s timescale for autonomy has taken a step back, said The Economist. In September 2016, Lyft’s president and co-founder, John Zimmer, said the majority of Lyft’s rides would be made by self-driving vehicles within five years. The prospectus moves the goalposts and now says that’s still 10 years away.
Unprecedented legal and political uncertainties remain for the ride-hailing apps, said Cat Zakrzewski in The Washington Post. Lyft is already actively grappling with lawsuits challenging its classification of drivers as independent contractors, not employees, and notes in its filing that a change to the worker classification law could be costly. It’s making big bets on scooters and bikes, even though local officials across the country have been raising concerns about safety. And there is increased scrutiny of the data-handling practices of major tech companies. “Data privacy laws could adversely affect its business” and create new costs. For years, private investors have assumed the risks of rapidly shifting laws and regulations. Now public investors will be exposed, too.