Lyft Inc. Is it success story or flop business?

Lyft’s IPO attracted a lot of attention to ride-sharing market. Let’s take a look on company’s business model, financial details and possible risks.

Company established in 2012 with a clear mission :”Improve people’s lives with world’s best transportation”. Lyft fast growth in multimodal transportation network resulted in debt accumulation. The company operates in the United States and Canada.

This article based on Lyft’s S-1 form filed with The United States Securities and Exchange Commission (March 1, 2019).

Because of rapid growth of ride-sharing services, Lyft was able to establish a scaled network of drivers and riders. The Company’s strategy is transportation as a service (TaaS) which encourage riders to prefer on-demand service over car ownership.

The Lyft solutions:

  1. Ride-sharing marketplace: 18.6 million active riders and 1.1 million drivers (as per December 31, 2018).
  2. Bikes and scooters. For price effective last mile coverage. Maximum speed 15MPH.
  3. Public transport. For riders convenience displayed integrated third-party public transportation data.
  4. Autonomous vehicles. Ride-sharing company’s choose to invest in autonomous vehicle development. It’s bet for the future with no guaranteed profit. Lyft in strategic partnership with Aptiv facilitated over 35.000 rider (Las Vegas) of autonomous vehicles with driver available for safety purpose.

The Lyft’s active riders number grown significantly since 2016. In screenshot presented official data from Lyft report. In 2 years number of active users grown from 3.5 million to 18.6 million.

In order to grow the amount of active riders Lyft innovated drivers and riders experience in next ways:

  1. The Lyft Drivers app.
  2. The Lyft Riders app.
  3. In-app navigation.
  4. Driver destination mood. Driver match only with riders which going in driver’s intended destination.
  5. Express drive program. The main idea is to match third-party rental car companies with drivers who need to rent a car.
  6. Driver dashboard. Useful feature with enables drivers to see their statistics in order to maximize their earnings.
  7. Driver advisory council.
  8. Skills certification for better career.
  9. Concierge service for organizations. This service enables organizations to book rides for employees and customers.
  10. Mobile repair centers on-demand.
  11. Express pay. Instant cash out to debit card with fixed fees.
  12. In-app tipping. Drivers earned more than $750 million in tips.
  13. Passengers and drivers rate each other experience. If rating 3 star of less than app will never match this passenger and driver again.
  14. Drivers hub. This facility used for drivers training, events, etc.
  15. Subscription plans.
  16. Transportation for events and corporate business travel program.
  17. Various partnerships.
  18. Highly qualified staff and availability of foreign offices.
  19. Ongoing trademark and service mark registration.
  20. Intellectual property protection.

The best way to understand the financial situation of Lyft is by going through their financial report filed with The United States Securities and Exchange Commission.

Company’s consolidated statement of operations data for 3 years available on the screenshot.

Company’s total revenue grown significantly from $343 million in 2016 to $2.1 billion in 2018. In same time cost of revenue also increased from $279 million in 2016 to $1.2 billion in 2018.

In 2018 the research and development cost reached staggering $300 million. In 2018 Company spend $803 million on sales and marketing (mostly on advertisements).

Company not profitable. In 2018 net loss $911 million. In March quarter 2019 the company posted $1.1 billion dollar losses. Lyft, Inc never declared or paid any cash dividends on their capital stock. In The Report mentioned that Company currently intends to retain any upcoming earnings and do not expect to pay any dividends in the foreseeable future.

Company’s Chief Executive Officer (Logan Green) in 2017 received stock awards for more than $41 million. Company’s Executives Vice President and Chief Product Officer (Ran Makavy) in the last two years received $22 million in stock awards. Company’s Chief Operating Officer (Jon McNeill) in 2018 received $32 million in stock awards. Impressive numbers considering that company did not achieve profitability.

Main Lyft’s risks:

  1. Limited operating history (established in 2012).
  2. Complicated revenue forecasting.
  3. History of net losses. In 2016 net loss $682 million, in 2017 net loss $688 million, in 2018 net loss $911 million.
  4. Intense competition from Uber, Inc.
  5. New offers and features which may not give profit in future.
  6. Platform hosted and supported by Amazon Web Services.
  7. On January 2019 Lyft and Amazon Web Services entered into an agreement. Lyft committed to spend at least $300 million on Amazon Web Services (January 2019 – December 2021).
  8. Product pricing.
  9. Customer support expenses.
  10. Platform related compilations. Software malfunction. Network malfunction.
  11. Payment gateways malfunction.
  12. Geographic expand which may be limited in some areas.
  13. Theft of bikes and scooters.
  14. Skilled workers.
  15. Drivers classified as contractors. If this change, than it will result in higher cost for the organization.
  16. Drivers background check up.
  17. Availability of on-demand skilled drivers.
  18. Ability to attract new drivers in a cost-effective manner.
  19. Insurance policy and cost. Recently insurance companies raised insurance premium.
  20. Certain government entities and airports made mandatory to obtain permits and pay fees for access.
  21. Brand value and brand reputation.
  22. Disruption in supply chain.
  23. Increasing expenses for sales and marketing.
  24. Risks related to autonomous vehicle development.
  25. The possibility of new ride-sharing competitors.
  26. Law and regulations. Any possible change may negatively impact business.
  27. Tax policy.
  28. Legal cases and investigations.
  29. Data privacy policy.
  30. Ability to carry forward debt.
  31. Company may require additional capital.
  32. Country’s macroeconomic environment.

Lyft Inc filed for an IPO and aggressively priced at the top of the price range. The opening price was more than $88 per share, but in less than two months share fell to $48.

Public opinion about IPO was created by the media. During two months on share market two similar IPO happened: Lyft and Uber. Both companies are loss making and did not provide guarantees that will achieve profitability anywhere soon.

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