IPO

An inside look at Lyft's IPO filing

March 1, 2019 View comment (1)
The ridesharing race toward the highly coveted first IPO of the year is heating up as Lyft publicly unveiled its S-1 filing on Friday. The San Francisco-based company will trade on the NASDAQ under the namesake ticker symbol LYFT. Co-founders Logan Green and John Zimmer were declared to have voting control, confirming reports from February that the two would retain majority control through supervoting shares.

The filing officially puts Lyft in the lead in its IPO competition with Uber, which still needs several weeks to solidify public offering preparations, according to Reuters. Both companies have historically sought to beat each other in an aggressive tit-for-tat atmosphere, with even sensitive topics like treatment of sexual assault victims seemingly being fair game. In May 2018, Uber announced it would allow drivers and passengers to sue the company for claims of sexual assault, instead of requiring arbitration. In response, Lyft quickly acknowledged Uber's decision and announced it would adopt the same policy.

Lyft reached a $15.1 billion valuation in June 2018, following a $600 million Series I. While the company's S-1 currently holds a placeholder value of $100 million for its anticipated raise, it could garner an IPO valuation in the range of $20 billion to $25 billion.

To further understand Lyft's potential as a public company, we reviewed key facts and figures from the company's history and its S-1 filing:

Lyft's time as a private company

Founded: 2012

Total venture capital raised: $4.91 billion

First achieved unicorn status: 2015, with a valuation of $2.7 billion after a $680 million Series E (up from a $971.4 million valuation after a $250 million Series D in 2014)

Principal investors (Stake):

Key figures

2018 revenue: $2.16 billion, up from $ 1.06 billion in 2017 and $343.3 million in 2016

2018 net loss: $911.3 million, up from $688.3 million in 2017 and $682.8 million in 2016

US market share (as of December 2018): 39%, up from 22% in 2016

Active Riders (riders who booked at least one ride per quarter): 18.6 million for 4Q 2018, up from 12.6 million in 4Q 2017
 
Lyft's Active Riders chart

Importance of rider growth: "The number of Active Riders is a key indicator of the scale of our community and awareness of our brand. We believe that the growth of our Active Rider base is also indicative of our long-term revenue growth potential."

Reducing expenses

One of Lyft's biggest expenses is related to the independent-contractor drivers that the company has fiercely insisted are not employees, and which Lyft says have collectively received more than $10 billion in earnings since the company's founding, per the S-1.

While driver lawsuits and fair-wage initiatives have additionally weighed on its finances—such as the newly enacted post-expense minimum wage of $17.22 for drivers in New York City—Lyft's ideal solution would be to simply replace most drivers with autonomous vehicles. This would lead to the business taking a greater chunk of passenger payments that were previously sectioned off for drivers.

The current business model involves paying drivers based on time and mileage, with occasional bonuses. While many rides—such as shorter, less-expensive ones—may be losses for the company once driver pay and bonuses are subtracted, the company plans to expand the Lyft Shared program to improve profit margins. This program matches multiple riders going toward the same general destination with one vehicle. The driver is paid the same amount based on time and mileage, despite the additional passengers' payments, which Lyft pockets in full.

The company's dependence on the high profit margins involved in shared rides is underscored by its being called out as a material risk in the S-1:
 

The fare charged to the riders is decoupled from the payment made to the driver as we do not adjust the driver payment based on the success or failure of a match. Accordingly, if the discounted fare quoted and charged to our Shared Rides riders is less than the fixed amount that drivers earn or if our algorithms are unable to consistently match Shared Rides riders, then our business, financial condition and results of operations could be adversely affected.


At present, the emphasis on that profit margin is essentially a coping mechanism to help offset paying drivers, and it would serve as an evergreen moneymaker if autonomous vehicles were to largely replace Lyft's human drivers, a transition the company says it plans to realize within a decade:
 

In the next five years, our goal is to deploy an autonomous vehicle network that is capable of delivering a portion of rides on the Lyft platform. Within 10 years, our goal is to have deployed a low-cost, scaled autonomous vehicle network that is capable of delivering a majority of the rides on the Lyft platform


As a further pivot away from dependence on humans and the associated costs, the company is also investing in rental bicycles and scooters, a strategy that was evident in the months leading up to the IPO filing. It launched the first Lyft Scooters in Denver last September and purchased bicycle-sharing platform Motivate for $250.9 million in July.

As Lyft prepares to go public, the currently unprofitable company is heavily selling itself on the potential of autonomous vehicles and alternative last-mile transportation that doesn't require human operators, such as scooters and electric bicycles. The company's ability to deliver on this goal may be one of the most important factors in determining the long-term value of investing in the IPO.

This article has been updated to remove an inaccurate mention referring to co-founder share ownership percentages.

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