Lyft has grown rapidly over the past few years with 18.6 million people taking at least one ride in the last quarter of 2018, as opposed to 16.6 million in late-2016. Since founded by John Zimmer and Logan Green in 2007, the company has had two major funding rounds of $530 million and $150 million, as well as signing one partnership with GM who invested $500 million as part of the Series F $1 billion fundraising effort.
A couple of weeks ago the company announced its initial-public-offering (IPO) process, opening at $72 per share. An instant skyrocketing of nearly 10% on the first day has then faded and is today (9th of April) back to its IPO price. This raises some thoughts on the future outlooks of Lyft regarding their long-term business plans. According to Lyft´s S1, which was unveiled in early March, the company had revenues of $2.2 billion in 2018 but still some huge losses of $911 million. How will they continue, and will they ever reach profitability?
Another interesting question is whether this market introduction will affect Uber, who will reportedly IPO in April. Will they push it back to focus on other strategies, or will they also IPO while they are still a larger player than Lyft? Uber recently bought Careem (middle-eastern ride-hailing company) for about $3.1 billion – was this a strategy to show future public investors that they will continue to grow or just a way to justify the huge losses that we know Uber also has?
No doubt that the ride-hailing market has increased its customer shares, but still 17 million new cars were sold in the US last year. Either they try to expand their ride-hailing business vastly, or they enter new markets to approach profitability from other directions. Ride-hailing is obviously an easy way to make revenue, but hard to profit from and as more city regulations like congestion pricing pop up, they are forced to change their thinking. Consequently, both Lyft and Uber are now becoming “transportation-as-a-service” actors by expanding to other transportation modes like AVs and micromobility (bike sharing and electric scooters). Both companies have said that they even intend to become a piece of the public transit ecosystem. But the question still remains, will any of these roads lead to profitability?
Electric scooters offer a relatively small capital expenditure but have met tough regulations in cities and each scooter company is currently operating at loss due to short lifespans. AVs might offer profitability as driver costs are eliminated, but the technique is not yet mature and require vast and long-term investments to develop. Lyft and Uber differ on how they approach this market, as Lyft is currently making a ton of partnerships (like Aptiv, drive.ai and Waymo) to open their platform for autonomous rides, whilst Uber is placing lots of capital to develop their own self-driving stack. Regardless of which path that leads to profitability (if any), it will cost a lot of money, which might be one explanation to why Lyft (and seemingly also Uber) is entering the public market.
It will be interesting to see how the path forward for Lyft is influenced by the fact that they start seeking assistance from public investors. Moreover, Lyft has always been slightly overshadowed by its bigger competitor and many probably thought that Uber would beat them to IPO. Perhaps this move will give Lyft a new advantage on its rival.
Written by Hampus Alfredsson, RISE Viktoria.