Less than two weeks ahead of its highly-anticipated $2 billion initial public offering, US ridesharing giant Lyft already has Wall Street bulls pounding the table. D.A. Davidson analyst Tom White has initiated coverage of Lyft with a “buy” rating and is expecting big growth numbers ahead.
Lyft filed its S-1 form on March 1 and began its roadshow for potential IPO investors this week. The company expects to sell $2 billion worth of shares at a price of between $62 and $68 per share and begin trading on March 29.
White estimates the firm’s market capitalization at around $21.9 billion. He says Lyft represents a unique opportunity for investors to have their first crack at a public ridesharing company. Ridesharing apps have been one of the fastest-growing businesses in the US, led by market leader Uber.
“Our buy rating reflects LYFT’s impressive recent U.S. market share gains and momentum, the continued growth/expansion of the broader ridesharing market, and the stock’s reasonable EV/Sales multiple,” White says.
White says the ridesharing business is following a similar trajectory of disruption as other on-demand businesses such as entertainment and computing. As populations continue to get more concentrated in large cities, he says the “Transportation-as-s-Service” (TaaS) model will become even more popular.
Uber is by far the market leader with an estimated valuation of around $100 billion. However, Lyft has been gaining market share. The firm has aggressively marketed itself as an alternative to Uber by emphasizing its focus on social responsibility and corporate values. Uber has suffered from multiple scandals involving sexual harassment, drug use, and a toxic corporate culture.
White estimates Lyft’s share of the US ridesharing market has nearly doubled from just 22 percent to 39 percent in the past two years alone.
Looking ahead, White says Lyft’s explosive growth should continue, creating a unique opportunity for investors. D.A. Davidson projects 56 percent revenue growth in 2019 and another 30 percent revenue growth in 2020.
In addition to Lyft’s expansion, White says the ridesharing market itself is growing rapidly. Americans currently spend an estimated $1.2 trillion annually on personal transportation. Over the long-term, ridesharing companies will gain more access to this massive market as personal vehicle ownership declines. In the meantime, he says ridesharing growth will create a $105 billion opportunity for Lyft and its competitors by 2029.
White even says Lyft has a wildcard opportunity in autonomous driving, but it may need a bit of outside assistance.
“We question LYFT’s competitiveness when it comes to scaling its own autonomous driving system (primarily due to relative lack of scale and a late start,) but believe LYFT’s ‘platform’ play for other autonomous driving players can help afford LYFT some time to either perfect/scale its own technology or secure a long-term partner,” he says.
While Lyft’s IPO offers investors some compelling upside, there are certainly risks involved. Lyft’s S-1 revealed the company had a net income loss of $900 million in 2018. White says that loss will increase to $1.19 billion in 2019 as Lyft invests heavily in growing its business. IPO Investors need to be confident Lyft can turn a meaningful profit in the long-term.
“There is some evidence that TaaS is already reducing personal car usage/ownership, but for ridesharing to represent a compelling alternative to personal car ownership for most Americans in large cities, we believe prices still need to fall ~30%-40% from current levels,” White says.
There are also concerns about whether or not Lyft can keep up with Uber and others in AV technology. White is also concerned about what types of regulations could come down from Washington as the ridesharing market grows.
Finally, high-profile technology IPOs like Lyft and Uber don’t have a great track record on Wall Street. Eight of the 10 largest technology IPOs in history had their share prices fall between 25 percent and 71 percent in the year following their first day of trading.