Lyft got a BIG Lift: Valauation Doubled from 7.5 to 15 Billion Dollars


(Bick Bhangoo) #1

This is the ongoing saga of two great competitors, one large the other larger. This is the story of Lyft versus Uber. Uber reached fame quickly by growing exponentially through forced feeding the public in total disregard of regulators.

Lyft was the so-called good boy on the block. Lyft followed the rules and didn't try to outsmart the government

Sounds like a good cop bad cop story? Well, it's a bit of worst cop bad cop story because Lyft is just like Uber but has a better PR minded CEO at the helm.

After all, you don't get to be a "green" company by donating some of your incoming fees to a carbon dioxide recycler that plants trees, while your cars continue to spread their carbon monoxide exhaust gasses into the air.

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Oops, sorry, actually you do. What a genius that Logan is.

OK, now that we have established that Lyft is led by some geniuses, which is obvious, let's take a look at what they have done now.

Some facts and figures:

$600 million: That’s the latest investment injection that Lyft managed to raise in their Series I round of funding. This round was led by Fidelity and was joined by Senator Investment Group. Series I make Fidelity one of Lyft’s biggest investors, with an overall investment of $800 million.

$5.1 billion: That is what Lyft has managed to raise since it started its venture. Among the investors that Lyft attracted are AllianceBernstein, Baillie Gifford, and KKR & Co.

$15.1 billion: This is the current estimated value of Lyft, which is more than double the estimated value set during their Series G stage, which was $7.5 billion in April 2017.

35% Market share: This is what Lyft claims to have in the US ridesharing market, where Uber holds 65%. This is a great increase in market share since January 2017's estimate of 22%.

$7.7 billion: This is the evaluated Q2 bookings for Lyft.

Now let's take a quick peek at Uber

$21 billion: This is what Uber has managed to raise from investors since it's venture started. The investors include SoftBank, Tencent & TPG.

$62 billion: This is Uber's current estimated value, which was driven up at the end of 2017 from $48 billion with SoftBank's $1 billion investment that saved Uber from drowning.

Analysis

Lyft is by no means a small company; in fact, it's a very large one. While its operations are only based in the US and Canada, this market is being enough and is still open to more expansion.

This line of investment allows Lyft to remain private, while Uber pursues an IPO and is still fighting many battles in many countries all over the world. Lyft retains its focus on local markets and continues to expand at a controlled rate.

Now for some more facts, both companies are losing money heavily due to the constant fee war and the instability of the markets. This instability comes from regulation upgrades, new fees, and the ever-contended status of drivers.

However, the real reason both companies are losing money is due to three main factors:

Marketing & PR: The costs being expended on maintaining a marketing and PR edge are astronomical. While OPEX is being reduced continuously, and as maintaining app and server integrity are high, it is a drop in the ocean when compared to the marketing and PR costs.

AV: Both companies invest heavily in researching autonomous vehicle technologies. Uber is much more heavily invested in this than Lyft, and these are billion-dollar expense accounts.

However, Lyft didn't argue with Google, nor did they take on some unscrupulous engineers to lead the Freight AV way. Lyft's partnerships in AV include Waymo (after leaving Uber), NuTonomy, and Ford.

They were in a partnership with GM, but GM pulled out to pursue its AV dream alone when it realized it didn't need a middle-company.

Subsidized Fares: At the end of the day, both companies are pulling in around 20% of the fares from rides. Uber generates more income from UberEats and Freight (although Freight is failing) the income from all the costs being generated by AV and PR are just too much for both companies to overcome.

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What Money Means to Lyft

Lyft's latest injection of capital will help it continue to seek new sources of revenue, including their latest escapade in investing in Motivate for $250 million. This is a deal to buy out a bike-share business, which will hopefully generate much more profit than ridesharing.

Having stated this, Lyft continues to expand its activities all across North America. It has no intentions of going overseas, they have a large enough market in this area, and rightly so.

Personal Observation

Lyft continues to come up with a lot of subsidized attraction and deals, such as free rides on St. Patrick's day, free rides to various Rallies, and 4th of July, as well as many more localized pop-up deals.

These deals are a sign that Lyft will continue to lose money, and continue to expand. The more it expands, the more money it loses, and this leads me to consider the following two questions:

  1. How long will investors allow Lyft to lose money before deciding this is a bum deal?
  2. How long will Lyft continue to lose money before deciding to raise fees to cover losses?

The Pessimistic View

These are two hard questions to answer since they provide a catch-22 scenario, where Lyft needs to retain its market share and also grow. It can only do this by being cheaper than its competitor. Lower prices mean continuing losses.

How long before the losses mount up and investors pull out? What will happen after the company is closed?

The Optimistic View

Will both Uber and Lyft realize that they have to raise fares and do so together? As fares gradually increase, in small increments, such as 1c a mile every month, will this lead an opening for a new ridesharing competitor to come in and lose billions while chomping up a market share?

Or will this scenario lead to a profitable Lyft?

The Bottom Line

Personally, I don't see any major ground-shaking changes for either company during 2018. Both companies will continue to rally passengers with subsidized fares.

Both companies will continue to lose money through AV research, and both companies will continue to raise their overall transportation market share in the US and Canada.

Perhaps 2019 will bring a more interesting future to this market, since that is when Uber goes public, and that is when Lyft will face its greatest challenge.