Friday saw the Nasdaq IPO of Lyft, the transportation network company that popularized the ride-sharing model (now termed ride-hailing) in the United States and that controls around a third of the US market.
The launch went well: the company, faced with the high demand, priced the 32.5 million shares on offer at a highish $72, at the top of the range defined by analysts, surging 20% to $87.24, and then closing at 78.02, putting the value of the company at around $27 billion ($22.2 at the closing), well above its previous valuation of $15.1 billion, which is a multiplier of about eleven times over its income.
So far, so good: this is the largest IPO since Alibaba in 2014, making its founders and investors rich, unlike its drivers who staged several strikes in the days leading up to the IPO. Alphabet, for example, has more than doubled its money on Lyft to $1 billion in just 17 months, while Andreessen Horowitz, who chose to invest in Lyft rather than Uber, mainly due to the character and culture of its founders, has seen the value of its stake rise to $1.2 billion. The company’s shares were very popular among young investors, who see it as a kind of pop cultural icon.
Lyft’s IPO is being interpreted as further proof of the importance of the so-called gig economy. At the same time, it highlights its problems and limitations, the position of badly paid workers banned by law from unionizing with no employee benefits, and whether its business model has a future. Above all, it forces us to consider if the company can consolidate its value, given that it has lost more than $3 billion since its founding in 2012, although it has been able to attract more than $5 billion in venture capital.
As well as making its founders and investors rich, Lyft is also proof that a company can go to the markets telling investors that “someday” it will have a margin of 20%, but without saying when that day will be. In short, Lyft’s future depends entirely on the fundamental cost of its operations, the driver, being replaced by autonomous driving vehicles.
Lyft’s IPO establishes a couple of fundamental points: the first, that huge, medium-term losses and placing hopes of profitability in a vague “someday” is the new normal. The second is that large numbers of investors believe that autonomous driving technology will be adopted by companies without too many problems within a reasonable time frame. This is the only way to understand Lyft’s valuation and IPO, as with Uber’s upcoming launch: disruption is coming. In the face of a change as all-encompassing as autonomous driving, short-term benefits are secondary: investors want to be part of that disruption in which, inevitably, there will be winners and losers. Ignore at your own peril.
