Morning Markets: Lyft raised its IPO price range. Here’s what the math looks like ahead of the ride-hailing company’s debut.
As expected, Lyft‘s IPO will cost more than its initial target range of $62 to $68 per share. The ride-hailing company published a new S-1/A document, detailing a new price range of $70 to $72 per share.
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The new range more establishes a higher minimum valuation for the Lyft IPO (from $62 to $70, a 13 percent change) than it does boost the top end of its valuation (from $68 to $72, a 6 percent change). But given Lyft’s recurring cash consumption, the ability to raise more capital is likely welcome regardless.1
Lyft enjoyed ample access to capital while a private company, raising $4.9 billion according to Crunchbase data. Its IPO could see the company add an extra $2.5 billion to that total in a single day. Lyft is expected to price this afternoon, and begin trading tomorrow morning. We’ll have more on its final price later tonight when it becomes known.
Lyft is kicking off a run of IPOs by highly-valued private technology, and technology-powered companies. The popular ride-hailing shop may be the first out of the gate, but business video chat service Zoom and social media giant Pinterest have also publicly filed and should quickly follow.
In addition to the three firms with public S-1s, there are a number of other unicorns looking to go public soon who have privately filed to go public. In the wings, then, are companies like Postmates and Uber; nearly ready to go out, just not quite yet.
Given Lyft’s pole position, the firm’s IPO is a tone-setting moment for the market as much as it is a money-raising gambit by the transportation firm. If Lyft storms ahead during early trading, other firms with similar high-growth, high-loss models could be heartened into accelerating their offerings or aiming at higher prices. (We’ve seen evidence of this drafting effect already.)
Of course, in reverse, if Lyft stumbles in its public market moment, it could cast a pall across the current unicorn migration heading West to East across the country towards the halls of Wall Street.
The precise valuation of Lyft at $72 per share, the top of its new range, is tricky to calculate as it depends on how you count.
Employing only issued Class A and B shares gives Lyft a valuation of around $20.5 billion. But if you add in seven million shares of Class A stock that were available for exercise as of Dec. 31, 2018, the number goes up. And Lyft has nearly 32 million Class A shares promised through RSUs that hadn’t vested at the end of last year either. Add those in (as most of them will vest), and the valuation goes up even more.
We’ll use the higher number this morning, because why not, let’s have fun. At $24.3 billion, Lyft’s $2.16 billion in 2018 revenue provides the firm with a trailing revenue multiple of 11.25. Note that using trailing revenue metrics to calculate multiples makes things look worse (more aggressive, that is) than they really are; using Lyft’s Q4 2018 revenue to set a run rate (multiplying it by four to get a more accurate look at the size of Lyft’s business), Lyft is worth a more modest 9.1 times revenue.
That’s a software-level multiple for a company with non-software-like gross margins.
But let’s stop being scolds for a moment. The point of calculating Lyft’s Q4 2018-driven revenue multiple is to allow us to determine what Uber would be worth at the same multiple.
- Uber Q4 2018 revenue: $3.02 billion
- Uber run rate using Q4 2018 figure: $12.08 billion
- Uber’s implied valuation using Lyft’s upper-end IPO price range revenue multiple of 9.1: $109.9 billion.
That looks like a good number. But hold on. Lyft grew more than 100 percent in 2018. Uber grew 43 percent during the same time period. It is far from clear that Uber will be able to secure the same revenue multiple as its smaller, more quickly-growing rival.
Still, the Lyft IPO is sketching the picture of the sort of valuation that Uber has long wanted. More when it prices.
Illustration: Li-Anne Dias
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