- Lyft officially filed for its initial public offering on March 1, beating Uber to the punch.
- The company cleared $2 billion in revenue in 2018, doubling its figure from 2017.
- Despite rapid growth, Lyft is losing money at a rapid rate as it battles with Uber for market share.
The S-1 — the SEC filing that makes a company’s plans to go public official — for Lyft came out on on March 1, giving investors their first detailed insight into the company’s finances and a clear sense of what its IPO will look like. And, notably, it’s beaten its primary competitor Uber to the punch. This is one ride Lyft doesn’t want to share.
The S-1 reveals that Lyft — which will trade under the ticker LYFT — is operating like one would expect from a fast-growing startup. As revenue explodes, losses are following suit, leaving it unclear whether Lyft will be the next hot tech stock or if it’s destined to keep losing money until it reaches the end of the ride.
Although there is still quite a way to go before you can invest in Lyft stock, the filing indicates that the company should be publicly traded by mid-2019. But does this mean the average investor should start saving up so that they can grab shares once the ride-sharing company hits the stock exchange? Maybe not.
Although there are plenty of reasons why Lyft bulls believe it’s a great investment, there are also some red flags that might give others pause before they start shelling out money for the stock. Here are three reasons why you might reconsider your pending investment in the Lyft IPO.
1. Lyft Is Losing Money — a Lot of It
Privately held companies like Lyft don’t have to regularly report financial information like publicly traded firms do, so the first S-1 filing prior to an IPO can often provide the first official insight into the company’s books.
Lyft’s S-1 shows the company doubled its revenue in 2018, a year after it more than doubled it in 2017. But it’s come at a cost; the ride-sharing firm’s losses for 2018 rose to more than $910 million from $688 million in 2017.
Although it’s suffered major financial losses, the fact that Lyft’s revenue is growing much, much faster than its losses could be viewed as a positive sign. And it’s also not unexpected for a rapidly growing young company to be prioritizing growing its market share over profits. However, any company with a run rate that’s about a billion dollars in the red on an annual basis has to be viewed as a fairly risky investment.
In fact, in the section on “Risk Factors,” Lyft’s S1 contains a section with this deeply concerning header: “We have a history of net losses and we may not be able to achieve or maintain profitability in the future.”
2. Lyft Is Not the Industry Leader
Of course, although Lyft might be the first in with its S-1, the ride-sharing elephant in the room remains Uber, which is currently much, much larger than its primary competitor. Uber’s valuation, meanwhile, has been pegged at as much as $120 billion, and its $2.7 billion in revenue for the second quarter was more than double Lyft’s revenue for the first half. If it sustains that rate for a full year — and if anything, it’s likely to continue increasing — that would mean Uber is hauling in close to $11 billion a year in revenue.
If Lyft wants to keep growing, it’s going to be going head-to-head with Uber every step of the way. Or, mile driven, as it were.
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3. Falling Markets Could Undercut Near-Term Growth
It’s also worth noting that there are some serious headwinds for the entire stock market that could end up hurting a stock like Lyft after it goes public. Concerns about a looming recession, a trade war with China and slowing global economic growth have all conspired to send stocks south late in 2018.
A company like Lyft is going to fall into the category of a “cyclical” stock — or one that tends to rise and fall more with market sentiment — meaning that a bear market could hurt it more than other market players, especially after you consider the huge losses it’s posting. If more conservative investors are rethinking their portfolio for a falling market, the hot new IPO that’s burning through cash at a rate of over $60 million a month is probably going to be easier to let go of than more defensive stocks.
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