Ride-hailing company Lyft’s proposed initial public offering (IPO) reveals plans to use proceeds to fund ongoing operations even after amassing $2.28 billion in losses since it began operating three years ago.
While Lyft has achieved massive growth as a privately held company, it has also suffered vast losses that had not been disclosed publicly until it recently filed its preliminary prospectus with the U.S. Securities and Exchange Commission (SEC). Tremendous revenue growth will be needed for Lyft to turn around its money-losing ways.
Investors who have been waiting for these so-called unicorns — privately held startups with $1 billion plus valuations — to go public, soon will have an opportunity to buy shares. Although Lyft is the newest unicorn, some other well-known ones include Uber, Airbnb and Pinterest. The stock will be listed on Nasdaq with the ticker LYFT.
Large Growth and Deep Losses
Lyft’s proposed initial public offering indicated it would raise $100 million, but that amount could change before the proposal is approved by the SEC. The company’s losses show that it needs fresh capital to fund its operations and the IPO would provide an avenue to do so, as well as give the company a real-world valuation.
Reuters reported that Lyft could be valued between $20 billion and $25 billion in its IPO. Such a lofty valuation could aid rival Uber Technologies Inc., which is expected to give a proposed initial public offering of its own next. A $25 billion valuation would show the company trading at over 10 times its annual revenue.
In 2018, Lyft posted $8.05 billion in bookings, 76 percent more than the previous year. Revenue for the year totaled $2.16 billion, which doubled from 2017. The company reported that it had 30.7 million riders and employed 1.9 million drivers in 2018.
Nonetheless, Lyft incurred losses of $682.8 million in 2016, $688.3 million in 2017 and $911.3 million in 2018, totaling more than $2.2 billion in net losses since inception.
Lyft’s proposed initial public offering reported that 34% of its riders spent more at local businesses as a result of using the ride-sharing service. Plus, 47% of riders explore more areas of their city.
Charities also have benefited, with 700,000 unique riders participating in Lyft’s Round Up & Donate program. Another noteworthy tidbit is that 14% of riders use Lyft cars to connect to public transit.
More than 1 billion cumulative rides were given last year in 300-plus markets in the United States and Canada. Lyft has confined itself thus far to those two countries, but its leaders have expressed an interest in expanding elsewhere.
At the New Economy Summit 2018 in Tokyo, John Zimmer, Lyft’s co-founder and president, said, “We would love to be in Japan, and we also will be looking at that possibility.”
However, expanding to new countries could increase Lyft’s already sizable and growing losses.
According to CNBC, Japanese ad-tech company Rakuten has the largest stake in Lyft, owning 13 percent, followed by General Motors’ 7.8 percent, Fidelity’s 7.7 percent, venture firm Andreessen Horowitz’s 6.3 percent and Alphabet’s 5.3 percent.
Lyft’s proposed initial public offering stated that it will have a dual-class structure for its shares. Its Class B common stock has 20 votes per share and its Class A common stock, which is the stock it will soon be offering, has one vote per share.
Co-founders Logan Green and John Zimmer individually will hold their own percentage of stock in the company. However, Lyft’s proposed initial public offering has not revealed what those percentages will be. The two co-founders each own 1,180,329 of the Class A common stocks. Although this is a small percentage of the 240,597,591 currently available shares, Green and Zimmer are expected to retain majority voting control in the company due to the dual-class structure.
Facebook (NASDAQ:FB) CEO Mark Zuckerberg used a similar method to retain control of his company, as did the co-founders of Snapchat (NYSE:SNAP) with their business. This is not necessarily a deterrent for potential shareholders, but it will make it difficult for investors to oppose any of Green and Zimmer’s decision making.
Lyft’s proposed initial public offering reports that the company has facilitated more than 35,000 rides in autonomous vehicles with a safety driver since January 2018. However, the same document also disclosed, “If we are unable to efficiently develop our own autonomous vehicle technologies or develop partnerships with other companies to offer autonomous vehicle technologies on our platform in a timely manner, our business, financial condition and results of operations could be adversely affected.”
Although chances are that driverless cars will not be flooding the streets anytime soon, based on current road testing, prospective investors in Lyft should take that risk into account before committing to buy shares. Self-driving cars likely will not completely take over the ride-hailing industry but could turn out to be a competitor in the same way that Uber is a Lyft rival.
For Interested Investors
Lyft’s proposed initial public offering states, “We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.” It is possible that Lyft eventually will pay dividends, but there is no evidence of that happening anytime soon.
The ride-hailing company recorded revenue of $343 million in 2016, up to $1.1 billion in 2017 and $2.2 billion last year. Revenue doubled from 2017 to 2018, but that is still a slowing growth rate compared to years prior.
Although it is typical for startups to suffer sizable losses, the great extent and steady, significant increases of Lyft’s losses and decelerating growth rate, are factors shareholders should consider. The company will need to maintain enormous revenue growth and financing due to its rapidly rising losses to be able to continue operating.
The company showcases immense growth, but interested investors should, as always, conduct their own due diligence to decide whether or not this equity is a suitable for their portfolio. To view Lyft’s proposed initial public offering, click here.