Lyft priced its shares at the top of an already scaled-up range, $72 a share, for its debut this morning on the Nasdaq stock market, where the familiar celebratory confetti (Lyft pink, of course) rained down on the Lyft team gathered at the stock exchange.
Everyone’s excited because it’s not that often a big consumer IPO in a hot, new, highly anticipated space hits the market. It marks an opportunity for retail investors, and it delivers a huge return on investment for Lyft’s biggest investors–Andreessen Horowitz, GM, Fidelity, and Rakuten–each of which have stakes worth more than $1 billion. It saw a pop of 20% at market open.
Despite the initial fervor and excitement, though, there are plenty of questions about Lyft’s long-term viability.
Lyft’s losses are not waning. As its prospectus indicated, losses have mounted every year for the last three years. Lyft took its biggest loss–over $900 million–in 2018. Proponents will say it’s building a company for the future and fighting for market share in order to reach profitability.
Lyft’s market share is much lower than its competitor Uber, which is expected to go public later this spring. While Rakuten, an investor in Lyft, says the company has a 39% share of the ride-hail market, Second Measure, which has no relationship with Lyft, estimates the company has a 30% share. (Second Measure analyzes credit card and debit card data to calculate market share.) During 2017 when Uber was suffering a spate of scandals, Lyft’s market share rose from 15% to 26%, according to Second Measure. But it’s unclear what will propel the company forward now. In 2018, it ticked up from 26% to 29% of U.S. ride hailing.
In addition, Second Measure reports that Uber has better rider engagement: “In the past year, riders have called an Uber an average of 5.8 times per a month, compared against an average of 4.9 rides per a month for Lyft.” That said, there are several cities in which Lyft is winning, or close to it. The company has overtaken Portland, Oregon, and Oakland, where it has 56% and 52% of the market, respectively. There’s promise in Seattle too, where Lyft has a 45% share.
“One way that I’ve heard this business being viable in the longer term is to get into a market and dominate it,” says Jason Schloetzer, professor of accounting at Georgetown University, who specializes in the gig economy and corporate governance. “Then you’ll have pricing power to raise prices over time as if you were a near monopoly in the city.”
But regulatory issues loom for ride hailing. There is renewed pressure from drivers for these companies to pay fairer wages and implement other protections. Some workers are also pushing for reclassification from contractors to employees. Such a shift would meaningfully impact Lyft’s bottom line.
Lyft has also moved into other transportation options. It acquired Motivate, the largest bike-share provider in the U.S., and it subsequently launched a shared scooter program in 14 cities. It’s also making a $50 million investment into city infrastructure projects and (of course) developing its own self-driving technology. Motivate has faced heightened competition of late in the bike- and scooter-sharing world. Lime, Spin (acquired by Ford), Bird, and Jump (acquired by Uber) are all vying for commuters. GM is also developing electric bikes for launch later this year, according to the Wall Street Journal. Much like car hailing, all of these companies are incurring significant operating losses in their quest to be a monopoly or in the expected duopoly.
Meanwhile, self-driving car technology is still just a twinkle in the eye. Last year in particular was a rough one for the industry. In the wake of a tragic fatality involving one of Uber’s self-driving cars, the company put that program on ice for a while. A Tesla on autopilot was also involved in a driver death, which hasn’t exactly stoked confidence in self-driving technology. Even if we write off those incidents as flukes, there are still other problems. At present, self-driving cars can only really operate in dry, sunny conditions, though the technology is likely to evolve to withstand weather basics like rain and snow. But there is this nagging question of whether self-driving cars can succeed at all, given the difficulty in training cars for all the possible scenarios they might encounter. Many people building self-driving cars have pushed off their expectations of its ubiquity to some vague future date. All this to say, Lyft is betting much of its future on a big unknown.
As a result a lot of hedge-fund managers with investments in Lyft are bearing down, though it remains to be seen how mom-and-pop investors behave.
Lyft itself seems to be hedging on its own success: “If we are unable to efficiently develop our own autonomous vehicle technologies or develop partnerships with other companies to offer autonomous vehicle technologies on our platform in a timely manner, our business, financial condition, and results of operations could be adversely affected,” the company cautioned in its prospectus.
Much of today’s excitement doesn’t surround the company’s future, so much as an opportunity to make a quick buck. “This huge demand is because people are going to make a short-term profit,” says Reena Aggarwal, professor of finance at Georgetown’s business school. Investors of varying skill will also be excited to see how Lyft fares on the market in its early days, as a way to test what lies ahead for the IPO market.
“This is going to set the trend,” says Aggarwal, “What does it mean for the next several that are coming down the pipeline?”