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- The ride-hailing app Lyft is set to price its initial public offering after Thursday’s closing bell.
- Lyft is the clear No. 2 in the ride-hailing-app business, trailing Uber.
- The company has a “golden opportunity” but also faces four keys risks, according to the Wedbush analyst Dan Ives.
The ride-hailing app Lyft is set to debut on the Nasdaq on Friday morning at a valuation of more than $20 billion.
Ahead of the company’s initial public offering, the Wedbush analyst Dan Ives put out a note saying the company had a “golden opportunity” in a $1.2 trillion market. The figure, which Lyft defines as its total revenue opportunity, is the amount spent on transportation in the US each year. Of that, US consumers spend $95 billion annually on public transportation.
“We think ultimately saying that the full amount of consumer spend being disruptable is a bit disingenuous but also doesn’t mean that the opportunity isn’t massive,” Ives wrote. “The full amount is disrupted would mean consumers stop spending on cars completely.”
Lyft generated $8 billion of bookings in 2018, nearly 40% of the roughly $20 billion US ride-share market, which is set to double in size over the next two years, according Ives. It is the clear No. 2 to Uber, the market leader, whose share is approximately 60%. Combined, the two companies control about 98.1% of the market.
To stand out from Uber, Lyft has positioned its brand as one of social responsibility and corporate values. Uber has been dogged by a series of controversies including a sexual-harassment settlement and the forced departure of CEO Travis Kalanick.
Despite Lyft’s massive opportunity, Ives says the company faces “a number of potential risks/uncertainty” including competitive pressures from Uber and new entrants, a tough path to profitability in the near term, an uncertain regulatory picture, and competition in the autonomous-driving space. Here’s what Lyft said about those risks in its IPO filing:
1) Competitive pressures from leader Uber and new entrants
Lyft faces intense competition not only from Uber, which is set to go public in April, but also from a slew of emerging competitors such as Juno and Via. Car manufacturers such as Tesla and BMW may also emerge as competitors as they develop autonomous capabilities that could be used in ride-hailing fleets.
2) Lack of a path to profitability in the near term
Lyft has lost more than $3 billion, including more than $900 million last year. It also sees increased expenses in its future as it builds scale, so profits need to pick up to justify a valuation above $20 billion. Lyft has also forecast a pretty payout for employees, with an estimated $1.3 billion in costs associated with stock options.
3) Regulatory uncertainty
Lyft cites a host of regulatory risks in the nascent ride-sharing market, with the company subject to laws regulating ride-sharing limits, driver employment, and personal-injury risks. In addition, looming regulations on the potential of autonomous vehicles could dramatically shape the industry.
4) Positioning within the next-generation autonomous-driving arms race
Numerous companies are developing autonomous-vehicle technology that may compete with, or even replace, Lyft. The Google subsidiary Waymo appears to be the most advanced, but others include Apple, Baidu, and Uber.
Lyft is developing a fleet of autonomous vehicles in Las Vegas but is far behind the market leaders. Morgan Stanley has said Waymo, which has logged 8 million autonomous miles, could be worth as much as $175 billion.
Ives holds an $80 target — an 11% premium to the top end of the $70-to-$72 range where Lyft’s IPO is set to price. Notably, he is a Tesla bull, with a price target of $390 — 40% above where shares were trading Thursday morning.
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