Lyft Falls Following Earnings Casting Shadow On Uber As It Prepares To Price Its IPO

Morning Markets: Talk about bad timing.

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Yesterday Lyft reported its first-quarter financial performance. Initially, shares in the company rose a smidge, effectively putting the company on a flat footing for the full day’s trading. Later, it began to slip. This morning, Lyft’s shares are sharply lower, trading down 7.2 percent to $55.13 per share.

Lyft went public at $72 per share, rocketing into the $80s before coming back to earth. The company’s value declines are troublesome for Lyft itself but are more problematic for Uber, at least in the short-term.

The larger company prices its IPO tomorrow, anticipating a first trading day this Friday. (We’ll have lots of coverage, so make sure you’re with us.) But so far, unlike what was largely expected, Uber has yet to raise its IPO price range. Since Uber first proposed its $44 to $50 per-share price range, many have expected Uber to raise its target.

After all, Lyft did just that. And a number of other IPOs this year have done the same. However, as Lyft has slowly slipped following its own debut, Uber has yet to aim higher in terms of its own pricing. Axios’ Dan Primack noted this morning that the company could yet price higher, but that timing is getting a bit tight:

[Trade concerns between China and the U.S.] could help explain why we haven’t yet seen an increased IPO price range, despite widespread talk that the offering is already oversubscribed. (I still wouldn’t be surprised if it happens, but time is running short). [Italics original]

Primack highlights rising trade tensions between the United States and China as a driver of pricing conservatism with Uber’s IPO. It’s another good point. Trade uncertainties coupled to Lyft’s falling value are a tough double-shot for Uber to knock back.

Price This

Let’s play ~~our~~ my favorite game! It’s called Price This!

All we have to do is draw un-nuanced revenue multiple comparisons between Lyft’s current price and value and Uber’s range. The winner is whoever comes up with the correct price for Uber. (Email in a dollar figure in billions if you want to play; first place is free coffee if you want to hang out or a digital fistbump if you prefer). Let’s go:

Lyft’s current market cap: $15.7 billion
Lyft’s trailing twelve months’ revenue: $2.53 billion
Lyft’s trailing revenue multiple: 6.2x

Now recall that Uber is targeting $44 to $50 per share in its IPO. Recent reporting from Bloomberg puts Uber’s impending valuation at the top of its range. So, let’s use that $50 number. It pegs Uber’s worth at $83.8 billion (non-diluted) and $91.51 billion (fully-diluted). I’ve calculated Uber’s last twelve months of revenue (using the mid-point of its Q1 2019 forecast), so let’s have fun:

Uber’s expected market cap: $83.8 billion ($91.51 billion fully-diluted)
Uber’s trailing twelve months’ revenue: $11.76 billion
Implied revenue multiple: 7.13x (7.78x against fully-diluted valuation)

Now we’re getting somewhere. The difference between Uber’s expected, and Lyft’s actual revenue multiples implies that the market appears set to value Uber more per dollar of revenue than Lyft.

Given that Uber is growing more slowly on a year-over-year and sequential quarter basis, it’s an interesting thought. Perhaps public investors may value Uber more highly than Lyft per-dollar of revenue because of its stakes in other ride-hailing companies.

That or Lyft’s falling value is putting Uber’s price out of sync with the market. That is not great news for the larger company. Bear in mind how consistent Lyft’s revenue growth has been in recent quarters:

If that isn’t the sort of growth that money-losing companies like to post I don’t know what is. That makes Uber’s expected price range, and implied revenue multiple hard to grok; Uber has less consistent growth in recent quarters and is shooting for a higher price.

All this sums to make tomorrow (Uber’s IPO pricing) and Friday (Uber’s first day of trading) all the more exciting. See you then.

Illustration Credit: Li-Anne Dias