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How Much Sense Does Lyft At $20B Or $25B Make?

Morning Markets: IPO season is back on at last. Let’s talk about Lyft’s rumored valuation.

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News broke yesterday that Lyft’s IPO is racing towards us, with the popular ride-hailing company set to begin its roadshow in mid-March, and the company ready to publish its S-1 document as soon as next week. The unicorn, which originally filed privately late last year, looks set to beat rival Uber to the public markets.

A final tidbit of information came out yesterday that caught our eye. According to Reuters, who broke the story on Feb. 20 concerning Lyft’s impending roadshow, “Lyft now expects to be valued at between $20 billion and $25 billion in its IPO.”

I couldn’t recall where that valuation fit compared to Lyft’s preceding valuations, and, honestly, what its most-recently known revenue figures were. My brain is an Uber-mush. So, let’s quickly recall what we knew, and stack those data points next to Lyft’s expected price tag.

History Lessons

Let’s rewind the clock to 2017. Reported in early 2018, Lyft detailed some of its financial performance. According to contemporaneous coverage from CNBC: “Ride hailing [sic] company Lyft says it booked over $1 billion in GAAP revenue for 2017, and showed revenue growth of 168% in Q4 versus the prior year’s quarter.”

That’s a useful set of metrics as it includes an absolute revenue result and a growth pace.

A quick note on what the statement means, however. In corporate accounting, “GAAP,” an acronym, means “no bullshit.” So, when we see “GAAP revenue” in the case of this Lyft metric, we can assume that the $1 billion revenue result is something near to what the company could report in an IPO filing; it’s not polluted with stuff that won’t eventually count as revenue.

From that 2017 result, we can turn to what Lyft did in 2018. For more detail on Lyft’s performance during the first half of 2018, read this summary. If you don’t have time (I understand), here’s the short version: Lyft’s revenue grew from $412 million in the first half of 2017 to $909 million in the first half of 2018. That’s a growth rate of over 120 percent.

However, the growth and larger revenue base cost Lyft: The ride-hailing unicorn lost $255 million in the first half of 2017 (precisely what this metric counts isn’t clear, so treat it as more directional than definitive), and $373 million in the first half of 2018.

Lyft’s Growth

We don’t have an H2’2018 Lyft revenue result, sadly. But we can make up our own by using different growth rates. The resulting figure will let us see what sort of revenue multiple the ride-hailing company could enjoy at valuations of $20 billion and $25 billion.

Presuming that Lyft grew its H2’2018 revenue by, say, 30 percent from its H1’2018 total would give the company about $2.1 billion in revenue. At a $20 billion valuation, the company is worth just under 10 times its 2018 revenue haul. At $25 billion, the figure rises to a multiple of just under 12.

(Reference articles on changes to the IPO filing process rule book can be found here, and here.)

For fun, push up Lyft’s growth pace, boosting its H2’2018 revenue, as far as you think fair, and see what the change does to the implied revenue multiple range that Lyft could enjoy in 2019. At 40 percent H1’2018 to H2’2018 growth, for example, Lyft’s full-year revenue reaches nearly $2.2 billion. Its revenue multiples at $20 and $25 billion slip to 9.2 and 11.5. At 50 percent they fall to 8.8x and 11x flat.

Are those rich, neutral, or stingy revenue multiples? Let’s ask Uber.

Uber At $120B

Uber’s fourth-quarter financial results recently came out (our coverage here), but what we want more than a quarter’s view is a full-year tally. So, let’s lean on our friends at TechCrunch:

“Compared to the entire fiscal year of 2017, Uber’s gross bookings increased 45 percent, to $50 billion in 2018. That resulted in a GAAP revenue increase of 43 percent, from 2017 to $11.3 billion. Losses also improved (decreased) from $2.2 billion in adjusted EBITDA losses in 2017 to $1.8 billion in 2018.”

The figure we care about the most there is the $11.3 billion figure. Recall that Uber’s rumored IPO valuation is $120 billion. When we last compared Uber’s results to the price tag, we didn’t have its fourth-quarter results. We do now!

At a valuation of $120 billion, Uber is worth about 10.6x its 2018 revenue tally. That’s right in the same range as what Lyft is reportedly aiming for. However, Uber is growing more slowly than its smaller rival in percentage terms (this is when scale becomes an effective incumbency tax in side-by-side percentage growth comparisons!).

If Uber can command a similar revenue multiple despite larger losses (in gross terms; we’ll have a better idea of relative performance when we have both S-1s) and slower growth (implied via recent performance; again, we’ll see) will be interesting. Certainly Uber has more of a global story to tell. Lyft, in contrast, has a domestic tale alone.

So What?

Summing for those of us who got bored, Lyft’s reported target IPO valuations seem pretty in line with what Uber is expecting for itself. How effective each company will be at convincing investors that it’s the special one of the two isn’t clear, but they are seemingly close in terms of targets for now.

With Lyft just over the horizon, get hyped. We’re finally going to get some gosh-darn decacorn liquidity (Dropbox wasn’t worth $10 billion when it went public, so its IPO doesn’t count) and that’s exciting.

More when we get our mitts on the S-1.

Top Image Credit: Li-Anne Dias.

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