LYFT Pre-IPO Analysis

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LYFT Pre-IPO Analysis

LYFT, Inc.

With the S-1 filing available on the U.S. Security and Exchange Commission website I took a look over the upcoming public offering of Lyft, Inc. Below are a few of the key quotes from the filing:

  • “Lyft is one of the largest and fastest-growing multimodal transportation networks in the United States and Canada. To date, we have facilitated over one billion rides.”1
  • “Car ownership has also economically burdened consumers. U.S. households spend more on transportation than on any expenditure other than housing.1 In the United States alone, consumers spend over $1.2 trillion annually on personal transportation.2 On a per household basis, the average annual spend on transportation is over $9,500, with the substantial majority spent on car ownership and operation.3 Yet, the average car is utilized only five percent of the time and remains parked and unused the other 95%.4”1
  • We believe that the world is at the beginning of a shift away from car ownership to Transportation-as-a-Service, or TaaS.”1
  • Today, our offerings include an expanded set of transportation modes, such as access to a network of shared bikes and scooters for shorter rides and first-mile and last-mile legs of multimodal trips. We also recently added information about nearby public transit routes in select cities to offer riders a robust view of transportation options. Our multimodal platform enables TaaS, which we believe offers a viable alternative to car ownership.”1
  • Our U.S. ridesharing market share was 39% in December 2018, up from 22% in December 2016.6 This growth comes from both new drivers and riders as well as increased ride frequency. For the quarter ended December 31, 2018, we had 18.6 million Active Riders and over 1.1 million drivers who provided rides.”1
  • Pioneering Autonomous Vehicle Strategy. We are investing in autonomous technology and employ a two-pronged strategy to bring autonomous vehicles to market. Our Open Platform provides market-leading developers of autonomous vehicle technology access to our network to enable their vehicles to fulfill rides on our platform. Simultaneously, we are building our own world-class autonomous vehicle system at our Level 5 Engineering Center, with the goal of ensuring access to affordable and reliable autonomous technology. We believe that the strength of our brand, our trusted relationships with riders and our expertise in operating a ridesharing network at scale, as well as our two-pronged strategy to bring autonomous vehicles to market, will be competitive advantages that will enable us to capture value in the emerging autonomous vehicle ecosystem.”1
  • “In a 2016 survey, 57% of U.S. respondents who used sharing services said that well-priced and convenient offerings could cause them to give up ownership altogether.15”1

Positives Highlights:

Lyft is working towards addressing some of the issues with transportation, as the industry stands today. Negative aspects of the transportation industry include the high cost of transportation (car ownership, insurance, service/repair, and fuel), the environmental toll that a large amount of vehicles on the road is causing, and the time lost from being a part of growing traffic trends. Keep in mind, as the population has grown, so too has the amount of cars are on the road.  Lyft’s attention to solving these widely understood issues will likely bode well with investors who are increasingly factoring ESG criteria into their investment decisions.

Source: LYFT S-1 via SEC

Headlines will likely be touting Lyft’s top line growth in the weeks to come. The firm brought in $2.1B of total revenue in 2018 (a 103% increase from 2017), but netted -$911M (an increase in annual losses of 38% from 2017’s net losses of $688M). While the losses are growing, the margins tell a story of improving cost management. For instance the cost of revenue as a percent of total revenue has fallen from 81% in 2016 to 58% in 2018. Total net loss was almost 200% of revenue in 2016, in 2018 net loss had improved to 42% of total revenue.

The number of active riders, defined as “…all riders who take at least one ride on our multimodal platform through the Lyft app during a quarter. An Active Rider is identified by a unique phone number.” has continued to grow (orange bars) along with the total number of rides (green bars).

LYFT total rides and riders

On a related note, the revenue per active rider and the growth of that amount is showcased in the graphic below.

LYFT revenue per active rider

As you can see, the revenue per active rider has a very positive trend, the growth in that value is still a largely positive as well.

Concerns:

Competition in the market is high, likely due to the large addressable market. For instance a recent article by Bloomberg stated the following, “GM, which plans to debut a robo-taxi service late this year, already offers car-sharing through its Maven unit and has invested $500 million in Lyft’s ride-hailing business.”2 “In Europe, Daimler AG and BMW AG on Feb. 22 said they’ll pour more than €1 billion ($1.1 billion) into their jointly owned car-sharing and ride-hailing businesses. The year-old umbrella venture, ShareNow, is expected to become the world’s largest car-sharing operator; it will weigh purchases of startups or established players along with collaborations, Daimler said.”2 In addition to the competition listed above, juggernauts are operating or working to enter this market (I.E. Alibaba, Apple, Alphabet, Uber, Tesla).

Cash burn is very high at the moment for Lyft. The firm is using financing sources to expand its operations as its operating cashflows trend in the right direction. As shown in the graphic below, cash flow from operating activities was -$281M in 2018 (an improvement from the -$394M from CFO in 2017) and investment activities have increased (from $991M in 2017 to $1B in 2018). These cash outflows have been funded through financing, thus far that financing has been in the form of redeemable convertible preferred equity. “Cash provided by financing activities was $775.4 million, $2.0 billion and $852.2 million for the years ended December 31, 2016, 2017 and 2018, respectively, which consisted almost exclusively of proceeds from issuance of redeemable convertible preferred stock, net of issuance costs.”1

LYFT cash flow

Conclusion

The Transportation-as-a-Service (“TaaS”) industry is growing fast and the benefits of that growth have yet to be fully appreciated. As people save time and money on transportation the external benefits to other businesses and the well-being of people will likely have a large and positive snowball effect. The costs to build out a reliable TaaS network should not to be understated, the road to profitability for Lyft is likely still 5 years out or more. Cash flow from operations may turn positive before that time but financing costs (additional debt as well as interest payments on the debt) and investing costs will continue to rise. This will not be a stock for the faint of heart especially with Uber filing for their own IPO later this year. I will not be touching this IPO myself and would advise everyone to tread carefully until the financials show improvement.

Sources:

  1. https://www.sec.gov/Archives/edgar/data/1759509/000119312519059849/d633517ds1.htm
  2. https://www.bloomberg.com/news/features/2019-02-28/this-is-what-peak-car-looks-like?te=1&nl=dealbook&emc=edit_dk_20190228

*All graphics were made in Microsoft Excel using data from EDGAR, the SEC Electronic Data Gathering, Analysis, and Retrieval system.

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