March 18, 2019

Breakingviews: Lyft leaves investors with options – and questions

by Breakingviews.

Lyft has finally revealed its target stock-market value. Based on Monday’s revised draft prospectus for its initial public offering, the ride-hailing firm is aiming for a market capitalization of up to $23 billion. That’s compatible with a $100 billion-plus valuation for Uber Technologies, next in line to go public. It leaves investors with options – but also questions.

The smaller Lyft has been quicker out of the IPO gate, arguably giving it first dibs on investment dollars that might otherwise have been soaked up by Uber. After news reports touting a valuation of as much as $25 billion, an indicative range that starts at $18 billion – at the low end of the company’s price range and excluding dilution since Dec. 31, 2018 and additional shares the underwriters could sell – and ratchets up from there isn’t too shocking.

Lyft’s valuation, including all those elements, tops out at over 10 times last year’s revenue of $2.2 billion. That means Uber, with a top line five times as big in 2018, could snag a 12-digit worth on a comparable basis. For investors in either one, though, it’s hard to see a path to profit, and Lyft’s prospectus doesn’t promise one. The company’s focus on North America and personal transportation is narrower than Uber’s broader geographic and business spread, but the differences are swamped by the huge losses both make.

As to corporate culture and governance, Lyft founders Logan Green and John Zimmer talk about improving people’s lives. A less aggressive stance than Uber’s under Travis Kalanick, founder and former chief executive, may have helped Lyft gain market share in the United States in recent years.

Yet Lyft’s IPO comes with a less desirable feature: special shares, boasting 20 votes each, that will ensure Green and Zimmer essentially control the company with nearly half the voting power despite a combined economic interest under 5 percent. How Uber’s structure will look isn’t yet clear, but it’s a blemish on Lyft’s otherwise squeaky-clean governance image.

Some investors may still want to decide between the two bets. If their fear of missing out allows them to look past the absence of foreseeable profit at either company, though, it’s hard to see any sensible course other than to put money on both.

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