Lift: A bubble that can end up worse than Snap-Lift, Inc. (NASDAQ: LIFT)
LIFT's Botched IPO
In my opinion, Lyft (NASDAQ: LYFT) had some of the worst IPO implementations I've seen since Facebook IPO (NASDAQ: FB) if you look at it from trade perspective. Leading up to the IPO, the company initially positioned itself in a price range of $ 62- $ 68. But they raised this to $ 72. This initially signaled high IPO requirements. Initially, the shares rose to a height of $ 88.60, an increase of ~ 23% from the IPO. As the day went on, the shares began to decline. It ended up falling to a closing price of $ 78.29, down ~ 12% from days high. This may indicate a decline in demand as the day progressed.
On the second trading day, the stock fell at a closing price of $ 69.01, which marked a decrease of ~ 12%. The degree to which Lyft's shares fell, led to the fear of the success of the listing. For Lyft's business, IPO was a success and increased $ 2.34 billion in cash on top of the existing $ 518 million cash cash. This means that Lyft's money table would reach $ 2,858 billion after the IPO and offer a funding cut to compensate for what might be big losses. For shareholders who bought the item, the success was the last word that came to mind. Maintaining the price decline signaled weak initial demand for the IPO. Lift reminds me of Facebook after its IPO. While Lyft's IPO was not so unclear when it came to price trading like Facebook, controversy surrounds both.
Weak original demand for Lyft's stock exchange listing could signal mixed / negative investor sentiment in the future, which adversely affects the shares as catalysts (such as income reports) emerge. Couple this with reports of early investor Carl Icahn who sells the stock, and it can be a period of increased investor uncertainty and increased volatility.
The Only Reason for Buying the Stock: Growth
The only reason anyone would really consider raising their inventory of ~ $ 70 is for the company's estimated growth potential. In the fourth quarter, Lyft ~ 94% experienced Y / Y sales growth, active riders increased ~ 48%, and total rides increased ~ 53%. These numbers are all impressive, but the most relevant numbers to see are the following:
- Active riders
- Total rides
- Income per active rider
- Income per route
These four data points will contribute to to measure platform engagement and how well the platform revenue is developing. Let's start with active riders.
The first metric when analyzing Lyft's growth is how fast Lyft grows its rider base. In recent years, Lyft, instead of expanding internationally, has invested heavily in anchoring itself in the domestic market. This makes sense. After all, platforms such as Uber (UBER) and Lyft come under increased regulation control for a number of practices. In some international areas, platforms such as Lyft and Uber have been directly banned. Why expand into a turbulent international market when there is plenty of room to grow domestically? Let's look at Lyft's rider growth.
(source: DA Davidson, corporate data)
Lifting continues to add at least one million users every quarter. However, the Y / Y comparable numbers are beginning to deteriorate. In Q4 2017, Lift lifted its riders by 6 million riders, an increase of 90%. In the fourth quarter of 2018, Lift lifted its riders with (again) 6 million riders, an increase of 48% . Rider growth begins to decline. This can be misleading, as Lyft consistently adds more than one million riders on a sequential basis.
The problem with Lyft is that I believe Lyft's riders' growth is set up for stagnation in the longer term. Lifting made amply clear in its S-1 SEC filing that they had no expected profitability over the years to come. So, if investors buy Lyft, they buy it for the next 5-10 years, not the next 12-18 months. The problem is that you have to strive for ridesharing to go on a regular basis instead of being a niche part of the transport market. Can Rideshare Be Common? It could, in 5 years plus. There are some problems that can limit the rider's growth. First of all, most of the ridesharing appeal can be in extremely urbanized areas like New York City or Los Angeles, where the cost of ownership and ease of ownership of a car is not ideal.
Crowded cities and high car prices make taxis and platforms like Lift and Uber increasingly ideal. Their usual use has not yet been proven. Smaller urban areas and even righteous lands are less likely to see rapid decisions by Lyft. However, optimists like Citron Research have noted that the trend is real. They point out data points as follows:
- American 16-year-olds with driver's licenses have declined from 46% in 1983 to 26% in 2016.
- By 2018, the 300K lift customers got rid of their car. [19659019] At the first point, there is no direct relationship between rideshare and new driver card registrations. Lifting was created in 2012. Uber was established in 2009. To blame the decline in rideshare is naive. Ridesharing has not gained much popularity over the last couple of years.
With regard to the second argument, this simply shows my point that ridesharing is a niche especially to extremely urban areas where one buys a car really isn't that much of an alternative. Let's put this 300K number in the context of the parent base. Only ~ 1.6% of Lyft's total rider base dropped their cars. While lift customers become less dependent on the car, ridesharing does not replace cars. These 300K customers are most likely customers from areas such as San Francisco, Los Angeles, New York and Washington D.C.
Another point I want to make has to do with the cultural barrier in the United States of previous car ownership. An important goal of socio-economic development (along with owning your own home) is to own your own car. While younger generations are more likely to use Lyft and Uber, it is unlikely that the culture dynamics of US consumers will turn so viciously towards a rider-sharing centric transport economy. In my opinion, ridesharing will be a niche market, unless expectation is a close "180" culture overall.
The next piece of "growth pie" is the idea of increasing the levels of revenue generation. One of the good things about Lyft's business model is the company's ability to generate recurring income. Unlike traditional, established car manufacturers, Lyft focuses more on retaining customers. When a car manufacturer sells a car, the financial goal is to move on to a new consumer instead of securing the quality of the consumer who has just bought it. Lifting is unique. Transport, whether it is your daily commuting or going to a grocery store, is repetitive. Because of this, Lyft can generate recurring revenue as long as customers continue to transport from place to place using the Lift platform.
As the following graphics show, Lyft continues to make progress in making money on their platform:
