The Strategist

Lyft going public: Is it a good time to choose IPO?

03/12/2019 - 11:28

Uber’s competitor Lyft has released a statement that describes particulars of its work for potential buyers of shares. What have we learned about the company?

Tony Webster
Tony Webster
Lyft, Uber's American rival, is nearing IPO. Meanwhile, the company has revealed the IPO filing, a multi-page document explaining essence of the business and its main indicators for potential investors. Now it is possible to dive into details of the company’s business.

Lyft is catching up. There are no Uber indicators in the paper, but there is a link to third-party independent reports. According to their data, in two years the share of Lyft in the market of taxi aggregators has increased from 22% to 39% - already almost parity. It looks like the second player approaches the first. 

Lyft is growing fast. Key business indicators are going up. In 2018, turnover of the platform and the number of trips through Lyft increased by 75%, and revenue doubled. Nevertheless, the space for growth is still enormous. Based on Lyft's 39% share and excluding Canada, it turns out that the entire taxi aggregator market in the United States now amounts to about $ 20 billion. On the other hand, an average American makes an average of six trips per year by Uber and Lyft together, and it’s not an outstanding achievement.

Lyft is unprofitable. For 2016 and 2017, the company squandered $ 700 million, and 900 million - in 2018. The losses are growing much slower than revenues or number of trips. However, they are still very large. The company is in the red even without taking into account costs of management and development. A positive result can only be achieved if marketing is also zeroed out, but this is a completely scholastic exercise.

In fact, Lyft is an IT company. Cost of development is very significant in the cost structure of Lyft, and its share only grows every year. In 2018, in amounted to $ 300 million, 14% of revenue or a third of the total loss. These are very large numbers, both in absolute and relative terms. The company is heavily investing in process automation and analytics.

Experiments are still insignificant for the business. The paper pays a lot of attention to experimental and innovative projects of the company. Lyft is experimenting with a subscription, when a passenger buys a number of trips in advance, which helps save money if you use it to the maximum.

In addition to taxi, Lyft offers rent of bicycles and electric scooters. The company is moving into B2B: already 10,000 companies pay for taxis for employees of their clients. Alas, a detailed description of each of these innovative areas ends with a postscript “the revenue is insignificant.” This business is still the good old taxi service, and the rest is still in the status of experiments.

The situation with unmanned vehicles is more interesting. The paper mentions autonomous vehicles 86 times and always with the most positive connotations. Nevertheless, Lyft writes in the paragraph about the R&D budget that spending on drones has less impact on the growth of total expenses than hiring programmers for development of the main product.

Passengers like it. Lyft claims that 80% of its new customers come on their own, organically, and not at the expense of paid promotion: good service is attractive in itself. It is clear that this statement is a little bit exaggerated. For example, those who came after seeing a TV ad are also recorded as organic. However, 80% is an excellent result for a growing business. Another indicator of growth of efficiency is reduction of marketing cost in terms of increase in the number of trips. In 2017, the new trip cost $ 4.76 from the advertising budget, in 2018 - $ 4.35, which is 10% less. Optimization is not so large, but the lack of growth indicator is important. The potential audience does not fade and the market does not end.

Old customers are still there. Lyft is proud that those who first used the service in 2015 made 67 million trips in 2018 against 25 in 2015. “Almost threefold growth,” says Lyft, reporting that passengers have become more active. Is it right? In 2015, users joined the application gradually throughout the year, more often at the end of the year than at the beginning. With the same intensity of use in fewer months, they automatically drove less. In 2018, the same people were with Lyft for all 12 months, for comparison, their indicators should be divided by at least two. However, the numbers remain beautiful even after adjusting for the starting year. Over time, people on average do not disconnect from the service, but on the contrary, use it more.

A startup is still a startup. Classic textbooks say that IPO sums up the youth of a company. The period of rapid growth was replaced by the time of stable dividends, the company became clear and predictable, it was time to the public market, now pension funds and mass investors can easily invest in it. Recently, IT-unicorns have regularly behaved differently and gone to the stock exchange long before reaching profit, but Lyft is in a hurry even against their background.