Lyft’s Oversubscribed IPO And The Path To Profitability

Morning Markets: Lyft’s IPO is looking hot, so strap in for a risk-on market.

Lyft is carrying more than merely its own weight by being the first, major U.S.-based tech company to public markets this year. And, according to Reuters, the domestic ride-hailing giant’s IPO is oversubscribed. As the original report notes, the market’s outsized interest in the firm’s shares could allow Lyft’s proposed IPO pricing to grow, boosting its resulting valuation. The Uber rival could also raise more capital in the process.

It’s all things go for Lyft. The market enthusiasm for the enthusiastic ride-hailing decacorn’s public offering also bodes well for Uber, whose IPO is expected in weeks.

This is revelatory. Yesterday we explored Lyft’s expected levels of profitability, as detailed by the firm itself in its roadshow. Little time was spent in the presentation, according to those able to view the deck (I was declined), on losses. More time was spent on growth and the narrative thereof.

Which makes sense, given that Lyft’s long-term plan is to run an adjusted EBITDA (in this case, earnings before interest, taxes, depreciation, amortization, and the pesky cost of share-based compensation among other costs) margin of 20 percent. Add in those costs, and the company isn’t expecting much in terms of GAAP margin in the future.

So much for the vaunted path-to-profitability as a requirement for loss-making tech IPOs. Lyft’s IPO is more similar to Snap’s own than merely both being mega-deals; Snap remains far from profitability. Lyft is the same.

For reference, Lyft lost more in its most-recently reported two quarters than in any other known period. Here are its quarterly net losses starting with Q1 2017, to the fourth of 2018, the most recent that its S-1 included:

  • Q1, 2017: $127.9 million net loss
  • Q2, 2017: $126.4 million net loss
  • Q3, 2017: $194.2 million net loss
  • Q4, 2017: $239.8 million net loss
  • Q1, 2018: $234.3 million net loss
  • Q2, 2018: $178.9 million net loss
  • Q3, 2018: $249.2 million net loss
  • Q4, 2018: $248.9 million net loss

That’s not a path to profitability. That’s a march to a new loss plateau.

So the Lyft lesson is an echo of what we learned during Snap’s debut: Losses only matter if your growth story doesn’t bend gravity towards itself; post enough revenue expansion (in the above-listed periods, Lyft’s revenue grew from $172.8 million in Q1 2017 to $669.6 million in Q4 2018) and you can keep losing as much money as you’d like.

And that’s good news for Uber, which is larger than Lyft when it comes to both top line, and red ink.

Illustration: Li-Anne Dias.

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