We did an initial read of the Lyft ($LYFT) S1 and came away with the following:
An ESG Play?
Management is playing up the “ESG” angle of their investment case. That’s an investing style that is gaining traction where companies are environmentally responsible, socially conscious and have strong corporate governance.
Management suggests they qualify for a number of reasons:
- Ride-sharing is more efficient which translates into fewer cars. It can also lead to greater use of “greener” modes of transportation like bikes, scooters and mass transit.
- Drivers are able to work their own flexible schedules and are supported by Lyft to meet their goals. (The $10K bonus for drivers with 30,000 trips isn’t bad either.) They also note that Lyft offers work options to older people, veterans and many others for whom other forms of part-time employment might not be suitable.
- Lyft opens the get there by car option for less affluent people that would never be able to afford to own their own vehicle. This essentially “democratizes” access to a car to get around rather than having to rely on mass transit.
- Communities gain via increased local connections, greater local spending by Lyft drivers and a number of donated ride programs like get-out-the-vote and disaster relief.
Looking at Numbers
The top-level numbers for Lyft are below. Much as been made of their large ongoing loss from operations which was close to $1B for the year 2018. Almost any way you look at it Lyft shareholders will need to wait to see operating profitability on the horizon. It is worth noting that the direction of the P&L isn’t bad – revenue as a % of bookings is increasing and gross margins were up to a respectable 42% last year.
We hope the roadshow provides some additional insights on where management *thinks* they can take margins over time and how they will get there. Lyft might also provide some kind of geographic analysis which shows what they can achieve in an area where they feel they have reached a stable share of the business and good economics.
We won’t get the proposed valuation and share count until an updated S-1 is filed. However, the word is that they are planning to raise $2B to $3B with a valuation between $20B and $25B. But valuing Lyft shares will be tricky since there are few, if any, great comparable companies that are public. So far the best proxy put forward is GrubHub ($GRUB) which is profitable. GRUB shares trade at a 7.6x ratio of market capitalization to revenue. If one applied the same figure to $LYFT the company would be valued at $16.7B.
Based on that discrepancy this will be quite an IPO to watch carefully though pricing and in the aftermarket. No doubt Uber management will be going to school on this one.
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