Lyft (LYFT) is set to start trading on the Nasdaq this morning after the company raised $2.3 billion in this year’s most highly-anticipated IPO yesterday evening. The company priced 32.5 million shares at $72. The company was originally expected to sell 30.8 million shares at $62-68. The price range was lifted to $70-72 this week given strong demand. 

Lyft is the number two ride-sharing company in the US. Uber, its much larger competitor, is also set to IPO in the coming weeks or months. A number of other high-profile tech companies are expected to follow as well in what appears to be a strong pipeline of deals in the queue.

This deal is likely to set the tone for a red-hot IPO market in 2019. 

The fundamental difference between Lyft and its rival Uber that that Lyft is focused on the US ride-sharing market while Uber is also focused on the global ride sharing market, food delivery, freight and autonomous driving.

As a result of Uber’s diversification, Lyft has been able to increase its market share in the US to 39% as of December, up from 22% two years ago. 

The company is aggressively investing in the Transportation as-a-service (TaaS) market. US consumers spend $1.2 trillion annually on transportation. The company estimates that its ride-sharing marketplace is available to over 95% of the U.S. population, in addition to a recent launch on some Canadian cities. 

Lyft has shown phenomenal revenue growth and huge losses as it scales its ride sharing network.

In 2018, the company grew revenue 104% to $2.16 billion while its net loss increased to $911 million from $688 million in the prior year. Take a second to marvel at those numbers as this year’s hottest IPO to date is running at a net loss of nearly a billion dollars.

Bookings grew 76% in 2018, driven mainly by an increase of between 47% and 74% in Active Riders in each of the quarters of 2018 compared to the same periods in 2017.

Cost of revenue increased $583.9 million. 89% due to an increase of $318.5 million in insurance costs, an increase of $109.6 million in payment processing fees and an increase of $74.9 million in hosting and platform-related technology costs.

On the positive side, as a percentage of revenue, cost of revenue decreased from 62% to 58%. Sales & Marketing expense was up 42%.

The company warns that it may never achieve profitability in its prospectus.

Lyft will have sustain strong double digit revenue growth for a several years before ever coming anywhere near close to break even. We are still in the very early innings in terms of this transition to TaaS. While smaller upstarts continue to enter the space, Uber and Lyft enjoy a duopoly in the TaaS market.

Ridesharing industry has crushed the value of taxicab medallions in large cities, but has also expanded the taxi market dramatically due to is convenience, by reducing the use of public transportation and car ownership in urban areas. The potential upside case comes from autonomous driving, which would reduce costs dramatically. The emergence of autonomous driving would make the market more competitive but would also shine a light on the strategic value of the company's scaled ride-sharing network. 

Rakuten, General Motors (GM), CapitalG -- Google's (GOOG) venture capital firm, all own more than a 5% stake in the company. Andreessen Horowitz and hedge fund manger Carl Ichan have also invested in the company. 

The $72 IPO price values the company at 11.3x 2018 revenue or 6.6x 2019 revenue, assuming revenue growth slows to 70% this year from 104% in 2018. This will get some investors to argue that the company is “cheap” on a forward basis.

The small float and strong demand for the offering means the stock will likely open well above $72.

Let the games begin!


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