Lyft just went public. At IPO, it was valued above $20 billion. It’s the first ride-hailing business to
hit the market, beating next month’s expected IPO of
bigger rival Uber. They’re also sort of known as the
underdog and they’re probably the lesser known of the two
major ride-hailing companies. So for them to get out there first,
as far as the name brand recognition angle, I think that’s
pretty big for them. But Lyft has yet to turn a profit. In fact, it’s far from it. So they lost almost a
billion dollars last year. Its IPO papers filed earlier this
month made it crystal clear the ride-sharing company is deeply
in the red. Lyft had a net loss of $911 million
in 2018, but its promise to investors: 20 percent margins. Eventually. Lyft told investors that we talked to
that they would eventually get to 20 percent EBITDA margins. They did not say when, which
is concerning for some of them. I talked to one investor
that called it loosey-goosey. But not all investors are scared
away by Lyft’s red ink. It’s no secret that
Lyft is losing money. It’s almost a billion dollars a year. But there’s still this sense
of excitement around the IPO. A lot of tech investors look
at Amazon as an example. And we know that Amazon was losing money
for the first four or five years that it was public. So there’s a lot of optimists out
there looking to buy Lyft, regardless of if it’s losing money on day one. I think this is the
best time to come out. They’re doing a great job. The major market, the
macro market, is good. IPO sentiment is good. I think Lyft is exactly the kind of
stock that can work in a slower growth environment. Lyft has grown cautiously but quickly
since it launched in 2012. Founders Logan Green and John Zimmer first
created Lyft as an offshoot of Zim Ride, a longer distance ride sharing
app the duo created in 2007. Now Lyft operates in 300
markets in the U.S. and Canada. At Lyft’s founding in 2012, taxis
accounted for 99 percent of ride-share trips in the U.S. With the rise of Lyft and Uber,
which was founded in 2009, taxis now represent just 13 percent. Lyft says its number of quarterly active
riders tripled in the last two years. In 2018, it had
a total of 30.7 million riders and 1.9 million drivers. Those drivers are paid an undisclosed
percentage of total gross booking value. According to Lyft, this means
its drivers have earned $10 billion and given more than one
billion rides since it launched. But some drivers say
they aren’t paid enough. Lyft, Lyft, you’re no good. Treat
your drivers like you should. It’s expensive to navigate the regulatory
environment in each city and to insure the business. Insurance costs Lyft up to a dollar per ride
or 30 percent of each ride’s revenue. The more money that they make and
the more people they get on their platform, the more money they lose. They have to spend money to market
in different cities, to get drivers, to get customers and maybe take
customers away from Uber. Despite losing money, it’s making strides
to catch up with Uber. Lyft says it now holds
39 percent of the U.S. ride-share market, up from 22
percent two years earlier. Uber holds almost all
the remaining ride-share market Investors are viewing this
as a duopoly. So you’ve got Coke and Pepsi. You’ve got AT&T, Verizon. So if one does well, it’s likely
that the other will do well. So it’s not necessarily
Uber versus left. You might benefit from both. There were investors that were
looking into buying both. Uber is expected to
go public in April. Valued as high as
$120 billion dollars. But Uber’s growth to number one
has been riddled with controversy. In 2017, after a particularly bad
year of scandals, Uber founder Travis Kalanick stepped down. Kalanick is out entirely, at least
as CEO of Uber, reportedly under pressure from some of
the start-up’s largest shareholders. Meanwhile, Lyft gained a reputation for
being the friendlier of the two. When we started our company, there
wasn’t a regulatory infrastructure for for Lyft. We were picking up
people in personal vehicles. But we created a criminal background
check, a driving record check, a million dollar insurance policy because it
was the right thing to do. The fact that it is founder led and
it’s led by these founders who are, you know, very focused on corporate
responsibility and sort of socially conscious values, I think is a big
reason why the brand has taken off recently and led to the share gain. And they’ve also been benefited a little
bit from disruption at one of their competitors over the last
couple of years as well. And they’ve kind of
capitalized on that. There’s even a clause in its IPO
papers meant to preserve that friendly reputation. Lyft has committed to spending
the greater of 1 percent of profits or $50 million annually
on social impact efforts. Analysts say Lyft’s image as
the smaller, friendlier cousin is appealing, despite its
lack of profits. One of the things we like about Lyft
being a little smaller than Uber is the fact that they
are more focused. They’re not trying to fight multiple battles
in multiple countries and multiple different kind of end markets. Uber has aggressively pursued international
markets, offering rides in more than 65 countries. Meanwhile, Lyft focused on getting to
95 percent of the U.S. and just added its first international
locations in Canada last year. Uber has also put a lot
of focus on diversifying: Uber Eats, bike-sharing, scooters, Uber Freight, air
taxis and its own autonomous driving tech. Although slower to diversify, Lyft is
also investing in other modes of transit. Last year, it bought Motivate, a
bike sharing company that has 80 percent of the U.S. market. It also has scooters in
13 cities, recently added nearby transit information to its app and
is using self-driving cars. Lyft has facilitated more than 35,000
rides in autonomous vehicles so far through a partnership with Aptiv. 33,000 people die every
year in car accidents. And so for us, we’re not going to
bring any product to market until it’s safe and ready to be deployed. But there is an important
reason behind all this. Not only just having autonomous rides,
having more affordable rides, and getting our cities off of
this car ownership addiction. Growing in these directions has
meant a lot of spending. Still, a recent SIG report estimates
Lyft will become profitable, but it may take seven years. Near term, we’re seeing signs that
there is leverage in Lyft’s model, particularly when it comes to incentives
for drivers and riders, also on just sort of traditional
sales and marketing. And then long term, there’s the
potential for autonomous vehicles and autonomous technology to basically reduce the
amount times that Lyft has to pay a driver. And that could be a big,
big lever for profitability. Lyft leads a big wave of Silicon
Valley companies rumored to be going public in 2019. So will it be a smart investment? You need to be careful
with these fresh-faced IPOs. Short term I’m betting this one turns
out to be a real good trade. As a longer-term investment,
call me skeptical. The idea of them getting to 20
percent margins: is it this year? Is it in 10 years? Nobody really knows. Lyft also hasn’t spelled out a clear
plan of how they’ll get there.