Assessment of Lyft’s IPO Filing
Len Sherman, Adjunct Professor of Business
March 19, 2019
Analyzing Lyft’s plans provides no convincing evidence that the company is on a credible path to profitability. Lyft’s year-on-year operating losses grew by 38% in 2018 to $978 million. The company indicates that it is still growing rapidly, with the vague notion that greater scale will allow greater efficiencies, but it neither articulates what those efficiencies are, nor references why it can become profitable when Uber can’t, despite 5X greater scale.
The root cause of Lyft’s continued heavy losses remains the structural weaknesses in its ridesharing business model. All ridesharing companies face bounded demand and supply, undifferentiated service, low barriers to entry, low customer and driver switching costs, high variable costs, virtually no economies of scale, limited network effects and considerable regulatory and legal risk. As a result, no major global ridesharing companies have been able to achieve profitability, including those with dominant (>70%) market share leadership in their core markets.
Looking forward, Lyft’s path to profitability will be severely challenged by a number of factors, including but not limited to:Limits to how much farther it can continue to disproportionately capture future revenue gains at the expense of drivers; Slowing growth in the sector, escalating the frequency of profit-killing price promotions; Thin margins and stubbornly high operating costs, in the absence of strong scale economies or network effects; and growing regulatory risk in many major markets, likely to increase Lyft’s costs, cap growth or both.
The bottom line? Lyft’s statement in the S-1’s section of risk factors may be chillingly accurate: “We have a history of net losses and we may not be able to achieve or maintain profitability in the future.” --Lyft S-1 Registration Statement, page 21
Dan Wang, David W. Zalaznick Associate Professor of Business
March 20, 2019
I think it is surprising that $0.14 on average of every Lyft rise goes to Amazon Web Services. This shows that the platform economy depends more heavily on cloud solutions than many investors actually realize. It is evident, thanks to the increasing contributions margin, that Lyft has been able to reduce costs through economies of scale and economies of learning. However, investors have to realize that investing in Lyft is really an investment in the entire ride-sharing and mobility platform industry. On the other side, investing in Uber would be more about investing in the future of logistics.