October 2, 2017

Breakingviews: Lyft IPO Would Amplify Ubers Troubles

by Breakingviews

An initial public offering for Lyft would amplify Uber’s troubles. The ride-hailing firm is readying to go public as early as next year, Reuters reports. It would be an opportunistic way for the company, which was valued at $7.5 billion in its last funding round, to capitalize on its larger rival’s self-inflicted damage. Fresh capital for the second U.S. player would merely compound the frontrunner’s injuries.

A little over a year ago, Lyft was mulling a sale. The company lagged far behind Uber in drivers, passengers and money raised – and was receding quickly into the rear-view mirror. Uber had become the default app in the U.S. and many other countries, and its scale ignited a virtuous circle: Drivers wanted to work for the company because that’s where the passengers were, and vice versa. Moreover its prowess at raising cash – it had about $13 billion on its balance sheet at that point – meant it could easily outspend rivals and keep pulling away. Lyft couldn’t find a buyer at a fraction of Uber’s valuation of nearly $70 billion.

Suddenly the calculus has changed thanks to a series of scandals, executive flight and firings, lawsuits and multiple government investigations at Uber – including a threat to ban it from London. Boardroom dysfunction and lingering questions about the role of founder and former CEO Travis Kalanick suggest the problems will continue, giving its rival an opening.

Lyft is still relatively small. It passed $1 billion in gross bookings in the second quarter, about one-eighth the amount of its big competitor’s. It also operates only in America, while Uber has a presence in over 70 countries. Yet Lyft is growing faster, and losing less than $100 million a quarter, according to an investor. By contrast, Uber lost over six times as much in the second quarter.

Lyft has well over $1 billion in the bank. Additional capital – whether from new investors, an IPO, or both – would help it expand into more cities, and gain riders and drivers. Stepping on the gas would mean additional losses in the near term, so breakeven probably won’t occur early next year, as the numbers had seemed to indicate. But fresh financial firepower would enable the company to take advantage of Uber’s woes, and should help close the tremendous valuation gap between the two firms.

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