Investors who want to try their luck on the shares of loss-making Lyft (NASDAQ 🙂 will have to make the decision to believe in the company's excellent growth story and get ready for a long and bumpy ride
The San Francisco-based company generating rides will start trading today after a very successful completion of its IPO, which is expected to raise $ 2.2 billion after the company has raised its expected IPO share price to between $ 70 and $ 72 per share. At $ 72 per share, according to Bloomberg's estimates, Lyft would be estimated at $ 24.7 billion on fully adjusted bases
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This reception shows that investors may be a little too enthusiastic about the second largest run-off company after Uber Technologies, despite sales doubling to $ 2.2 billion in 2018, fueled by explosive growth in the number people that their cars & # 39; s for the comfort of a hassle-free, technology-driven ride.
But these numbers tell only one side of the story. Lyft doesn't earn any money yet. In fact, the money is burning and there is no insight into when it will become a profitable business. Lyft lost $ 911 million in the 2018 increase of 32% over the year before and burned around $ 350 million in cash.
Over the past decade, investing in loss-making technology companies has been a mixed bag and investor enthusiasm for a & # 39; hot tech IPO & # 39; did not return in all cases. Some earned fortunes by, for example, buying Amazon shares (NASDAQ :). The e-commerce giant had a negative free cash flow for four of the first five years as a public company.
Snap-in-photo sharing parent (NYSE :), on the other hand, was a disaster for those who believed in the company's potential and rushed to share their shares purchase at the $ 17-a-share IPO price. Snapstock was trading $ 10.79 at the close of yesterday, about a third of the value after the sliding of its post-IPO hype.
A solid business model
However, we believe that Lyft's business model is solid. With a strong underlying demand for trouble-free, safe and affordable transportation service, Lyft is in an excellent position to continue to grow its sales: the company had 30.7 million drivers and 1.9 million drivers in 2018, a huge volume that it company helped to increase $ 8.1 billion in total bookings during the year. This explosive growth has also helped Lyft increase its share to 39% of the US market, measured by the number of trips.
While racing in the race with Uber to become the first publicly traded attraction, Lyft aggressively expanded to smaller and medium-sized cities in North America. Unlike Uber, who is trying to do a variety of different things to impress investors for his own planned IPO later this year, Lyft has not shifted the focus from his main ride-delivery company.
Although there is a strong reason to bet on Lyft's future prospects, investors should also remember that the company has not yet shown a profit motive. In her application to the Securities and Exchanges Commission, Lyft warns that spending may continue to rise and that it may not be able to achieve or maintain profitability in the future.
Heavy losses and a lot of expenses, in our opinion, can keep stocks under pressure. In addition to these company-specific risks, investing in every IPO in the late bull cycle has its own downside. The majority of today's tech giants have not gone through a recession and we do not know whether the tech start-ups, which are still in the red, can withstand a strong decline in economic activity.
Bottom Line
Given the uncertain global macro environment, we do not advise investors to add additional risk to their portfolios, especially in the area of ​​starting technology companies. That said, the ride occupation activity will not die and at some point Lyft will find a way to balance his books. The stock has a strong appeal and after the successful IPO has the momentum and a lot of money to burn. If you are a risk taker, Lyft shares are worth taking.
