Lyft vs. Uber: Is the company ready to become the first public taxi aggregator?

Uber rival Lyft has released a prospectus that describes how it works for potential stock buyers. What have we learned about her?

Lyft, Uber's US rival, is getting closer to an IPO. In preparation, the company published a "prospectus" - a multi-page document explaining the essence of the business and its key indicators for potential investors. From it it was possible to learn details about the company's business. 

Lyft is catching up . There are no figures for Uber in the prospectus, but there is a link to independent third-party reports. According to them, in two years, Lyft's share of the taxi aggregator market has grown from 22% to 39% - already almost parity. The network effect does not cement the leader advantage forever, the winner does not take all. You can use Lyft promo code driver 2023 in the United States by visiting our website.

Lyft is growing fast . Key business indicators are growing. In 2018, the platform's turnover and the number of rides through Lyft increased by 75%, and revenue doubled. However, there is still huge room for growth. Based on Lyft's 39% share and ignoring Canada, the entire U.S. taxi aggregator market is now worth about $20 billion (including aggregators, fleets, and dispatch services). Or, on the other hand, the average American adult makes six trips a year through Uber and Lyft combined — this is not even close to part of everyday life for the majority of the population.

Lyft is unprofitable . The startup burned $700 million in 2016 and 2017, and $900 million in 2018. Losses are growing much slower than travel or revenue, but they are still very large. The company is operating in the red even without taking into account the costs of management and development. A positive result can be achieved only if marketing is also reset, but this is already a completely scholastic exercise.

Lyft is truly an IT company . Development costs are a significant part of Lyft's cost structure, and their share is only growing every year. In 2018, R&D costs are $300 million, 14% of revenue or a third of the loss. These are very large numbers both in absolute and relative terms. The startup really invests a lot in process automation and analytics, which distinguishes it from the "control room with an application."

Experiments are still insignificant for business . Prospekt pays a lot of attention to experimental and innovative startup projects. Lyft is experimenting with a subscription where a passenger pre-purchases a package for a certain number of trips, a "pass" that helps save money if used to the maximum.

In addition to taxis, Lyft offers per-minute bike and electric scooter rental services. Lyft moves into B2B, with 10,000 companies already paying for taxis for their customers' employees. Alas, a detailed description of each of these innovative areas ends with the addition "revenue from it is negligible." The real business is still the good old “from point A to point B in a car with a driver”, the rest is still in the status of experiments.

Even more interesting is the situation with unmanned vehicles. The phrase autonomous vehicle occurs 86 times in the prospectus and always with the most positive connotations: “We believe in the future, we are one of the leaders, we already have excellent results.” However, in a paragraph about the R&D budget, Lyft writes that spending on drones has less of an impact on the growth of overall costs than hiring programmers to develop the main product.

The last of those features  is shared ride. If two people who don't know each other are driving in roughly the same direction, Lyft invites them to sit in the same car. In theory, this is beneficial to absolutely everyone: the passenger saves, the driver and the service earn extra money, and even the environment suffers less. The authors of the prospectus 32 times mentioned the shared ride in a positive way, but never mentioned its popularity or economic effect.

Passengers love it . Lyft claims that 80% of its new customers come by themselves, organically, and not through paid promotion: good service is attractive in itself. It is clear that in this statement he is cunning. For example, the "victims" of television advertising are also recorded as organic, nevertheless, 80% is an excellent result for a growing business. Another indicator of efficiency gains is the reduction in the cost of marketing in terms of the increase in the number of trips. In 2017, a new trip cost $4.76 of the acquisition budget, in 2018 — $4.35, i.e. 10% less. The optimization is not that great, but the absence of growth in the indicator is important. The potential audience does not burn out, the market does not end, installations do not become more expensive.

Old clients don't leave. Lyft is proud that those passengers who first used the service in 2015 made 67 million rides on it in 2018, up from 25 million in 2015 when they first discovered the app. “Nearly a threefold increase,” says Lyft, reporting that passengers have become more active. Not to put a footnote here - impudence on the verge of fraud, it cannot be considered so. In 2015, users connected to the aggregator gradually during the year, taking into account its growth, more often at the end of the year than at the beginning. With the same intensity of use in fewer months, they automatically drove less. In 2018, the same people were with Lyft all 12 months, for comparison, their indicators must be divided by at least two. However, the cohorts remain excellent even after adjusting for the starting year. As time passes, people on average do not disconnect from the service, but rather,

A startup is still a startup . In a classic textbook, an IPO sums up a company's youth. A period of rapid growth has been replaced by a time of stable dividends, the company has become understandable and predictable, it’s time to enter the public market, now pension funds and mass investors can easily invest in it - they won’t lose much. In recent years, IT unicorns have regularly behaved differently and entered the stock exchange long before reaching a profit, but Lyft is in a hurry even against their background.

The economy does not fit with any assumptions, incredible growth is included in the assessment, the business model by and large has not yet developed - in all respects it is still a start-up, not a corporation.

The desired capitalization of $ 20-25 billion is 2.5-3 annual turnover of the platform, or 10 revenues. Incredible numbers. Let's look at Google, a modern and trendy company. The P / E ratio - the company's value divided by profit before taxes (EBITDA), it has 23.5, and this is a lot, the exchange believes in Google. Visually, Lyft cannot be compared with it, since EBITDA is negative. But let's do a thought experiment. Suppose Lyft doubled the number of rides, at the same time increased the commission per driver from 27% to 40%, kept marketing, development and management costs at current levels, and after all these feats is still worth $ 20-25 billion on the stock exchange - then his P / E will be like Google.

It is possible that the predicted and even greater growth will happen, but it must be firmly understood that an optimistic future is now being sold at an IPO, and not a real present.