Alex Newman | Mar 08, 2019 10:40PM ET
The Lyft IPO will be coming sooner rather than later. Fortune reported that “Lyft will beat Uber in the ride-sharing startups’ race to an IPO this year,” and that Lyft could make its filing public in a few days to a week. The company will likely start trading on the NASDAQ in early April, and expects to be valued at $20 to $25 billion.
The public filing will be a game-changer, as we will gain a much clearer understanding of Lyft’s finances. By filing before Uber, Lyft is hoping to gain buzz and potentially attract investors who do not want to wait a few months for the Uber IPO. And Lyft is nowhere as controversial as Uber, which is a target of governments and activists for allegedly underpaying its drivers as well as past workplace controversies which saw Uber CEO Travis Kalanick resign in 2017.
Nevertheless, I remain convinced that Uber will be a much stronger investment than Lyft, though I am not particularly confident in Uber either. Investors will probably be better off avoiding both IPOs and wait until the lock-up period expires, but you should pick Uber if you are determined to get a ridesharing company in your portfolio.h3 Ridesharing’s Potential/h3
If there is a single major difference between Lyft and Uber, it is that the former is focusing exclusively on ridesharing while Uber has branched out into other businesses such as freight, self-driving cars, and Uber Eats. A bet on Lyft is a bet on whether you believe ridesharing will continue to be successful going forward.
There are indications that the ride-sharing market will continue to grow rapidly, with a 2017 Goldman Sachs (NYSE:GS) report predicting that the global ride-sharing market will hit $285 million by 2030 compared to a global taxi market worth $108 billion. Much of this growth will come from overseas. This means that Lyft, which does not have a presence outside of North America, has greater room to grow than Uber.
But there are some caveats. Much of this growth is coming in China, where Uber was forced out in favor of Chinese ridesharing company Didi. We have seen Europe enact regulations against Uber in order to protect their taxi drivers and drive back an American company, which means that Lyft’s ability to actually take advantage of global ride-sharing growth may be more difficult than anticipated.
Even within the United States, there are reasons to be concerned about ridesharing’s future. Joseph Vitale, an automotive expert with Deloitte, pointed out to Barron’s that ridesharing has only made congestion worse as they are less efficient than taxis. This could provoke a response from many governments who already distrust Uber for how it has changed things for better and for worse. And while Lyft does not have Uber’s negative reputation, it could be hit in the process. There are also additional concerns about how ridesharing will thrive if there is an economic downturn soon as many expect to happen.h3 Looking for Alternatives/h3
In short, the ridesharing market may not be as appealing as Lyft wants investors to believe. And while Uber will suffer if ridesharing falters, it is investing in all sorts of alternative markets. Uber’s attempts at developing a self-driving car were a failure, but Uber Eats has been highly successful and is the most profitable unit within Uber according to CB Insights.
Lyft has done a good job competing against Uber, as Inc. reported that it doubled its revenue in the first nine months of 2018 compared to the same period last year and increased its gross profit margin. And it has plans to expand beyond ridesharing with bikes and carpooling.
But Lyft is still losing money, and Uber’s emphasis on branching out into new industries, including delivery jobs, is better than Lyft’s more singular approach. Investors will have to decide whether high revenue growth will be enough to compensate for high net losses and debt. And while we cannot make a firm decision until we see the exact numbers, investors should always be wary of tech IPOs like that.h3 Skepticism and Patience/h3
The Lyft IPO is a bet on the ridesharing market, and there are good reasons to be skeptical of ridesharing moving forward. Even if you are not skeptical, there is a very good chance that Lyft’s IPO will be incredibly overvalued due to the hype around this company. And if it is not overvalued on launch day, it will be in the days to weeks afterward especially since it is going public before Uber.
Investing in either Lyft or Uber in their IPOs will be risky, as their fame means that their shares prices will likely be heavily elevated. But due to the risks in the ridesharing market, Uber is arguably a better prospect despite the greater controversy. This could massively change once each company’s financial numbers are made public, so continue to pay attention to any moves Lyft and Uber make.
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