Lyft - Stock Worth the IPO Hype?

If you’re into technology and investing, the top story last week was Lyft going public. The company sold more shares than expected and those shares were priced at the top of the anticipated range. In the first day of trading, Lyft shares rose more than 20%, and the market cap touched $30bn for a bit - an incredible number. This is particularly amazing when you consider the last valuation was $15bn in June 2018 and $7bn in 2017.

So, you're telling me that Lyft really doubled in value in less than a year and then doubled again after another year? And ‘not just’ by hundreds of millions, but by billions?! All of this with being founded just 7 years ago? Anybody who has founded a business or worked at a startup/small business, or even headed a BU with P&L responsibility, would look at that YoY valuation growth and literally say WTF.

I really like Lyft, I use the service consistently, and I really hope they do well. But is it a good investment right now? I would say no. Here are my top three reasons why buying the stock isn’t a good idea at this price:

1.    They lost $1bn last year – and losses rose ~50% from last year: I get it, people will say but they increased their number of rides, and they increased their revenue. And, they’ll get their costs under control, they’ll spend less to market, and they’ll find ways to get more sticky riders -- and then* they’ll start to make money on rides (right now they lose ~$1.50 per ride ($1bn loss/~600m rides)). Cool, well when these operating and financial metrics stabilize, let me know.

2.   Employment / policy issues: With the increase in sentiment for protections for employees and the popularity of the ‘gig’ economy, I don’t see it being improbable at all that Uber/Lyft (or other ‘gig’ like enabler jobs) have to declare their drivers as employees vs. independent contractors. Employees can be eligible for traditional benefits like overtime, minimum wage, health insurance, and other protections. Yes, I know Uber, GrubHub, and others have been successful in courts contesting the employer vs. contractor debate, but we know that policy always lags tech, and my gut tells me that as the government sees a way to make money, even if under the guise of protecting the worker - it’ll happen. If Lyft’s expenses go up exponentially, it’s hard to see how they overcome point #1 above.

3.   Industry trend to Autonomous vehicles: Here is the two-edged sword - if AVs become significantly more popular, won’t my point #2 be negated? Yes, but if AVs become really popular, I don’t believe you will be using Lyft or Uber, you’ll be using a GM, a Google, or an Apple AV. These companies have put enormous engineering resources and cash toward AV. Lyft has 20 autonomous cars, in their entire fleet, but they are operated in partnership with Aptiv - so even in this respect, they aren’t ahead of any tech or adoption curve.

There are tech darlings like Amazon, Tesla, and others that didn't turn a profit for a long, long time and their stock still went up exponentially - but in my opinion those were industry-changing businesses. Lyft, in its current form, is not. To put it simply, Lyft and Uber currently enjoy a duoply that I don’t think will be the same landscape in a year.   

Again, I really do like Lyft but it is hard to see why anyone would feel compelled to invest in their stock at this price given their big losses, potential huge legal ramifications, lack of proprietary emerging tech and negligible switching costs. For buying a single stock, my time horizon is 3+ years, and I do not feel pressured to buy in anytime soon.

Will Lyft turn in to a TSLA (~$16 return on $1 invested in IPO about 9 years ago), TWTR (~$1.25 on $1 invested over 6 years), SNAP (~$.65 on $1 invested over 2 years) or Pets.com ($0)? The market is efficient and will tell us in due time.

Disclaimer: The above is my own interpretation only and should not be taken as financial advice. I do not have any investments in Lyft, and before doing any buying or selling, please do your own research.