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If you’ve ever gotten into a taxi you’ve hailed from a ride-sharing app, the chances are you’ve probably wondered how much money the company makes. They claim to have carried out over one billion rides worldwide. It seems like big business and they have been recently floated on the stock market as an initial public offering.
Lyft’s initial offering was $72 but this increased to $87.24 meaning a modest profit for those who were quick on the offer.
This IPO is also perhaps a precursor to Lyft’s greatest rival Uber debuting on the market, which is expected shortly.
But with the company making a significant loss last year and it’s brand recognition not nearly as great as Uber’s, is Lyft stock IPO worth investing in or is Lyft a very risky investment and the company doomed to fail?
Before investing in any company, it’s important to understand the background and context of the business. Ride-sharing companies, however big and profitable they seem, are no different.
Lyft was initially established as Zimride in 2012 by Logan Green and John Zimmer. It was inspired by a trip Green made to Zimbabwe where he saw ride-sharing in action. His idea was to create a carpool service for college students.
By initially connecting the app to Facebook, the idea was to create a ride-sharing app where students would know the people they were sharing with. This would help college students connect with each other as well as offer the practical service of getting them safely from A to B. It was a massive success.
Zimride changed its name to Lyft in 2013 and changed track to focus on the general public as well as students.
Lyft grew rapidly. In 2014 they launched in 24 cities in one day. This brought the total number of cities it operated in up from 36 to 60, out-growing Uber. It also slashed its fares by 10% to undercut Uber.
Whilst this kind of growth might suggest that this is a company which is doing very well, it also shows a willingness to gamble which could very easily backfire on the shareholders. This growth was funded by a Series D seed investment of $250 million.
Whilst this kind of investment shows that investors are prepared to put their money where their mouth is in terms of supporting the business model it shows that the business owners are not focused on reinvesting their own profit. They are expanding on the basis of the outside investment.
It is normal for companies to go to for series C seed investment. But it is unusual for them still to be seeking investment beyond this level at series D. In fact, Lyft has now gone to series I and completed 19 rounds of funding.
Whilst this makes for great headlines in e-mail press releases that will no doubt catch the eye of a journalist looking for a story, it masks a bigger problem.
Despite this investment, Lyft is still making a loss. There is nothing wrong with funding a business venture with a loan or an investment if you are certain it will be successful. Bonsai Finance even offers personal loans with no credit checks that could allow you to fund a small business or make an investment yourself.
But it is important to be aware that this is a bubble that could very well burst and investing in Lyft is a high-risk strategy.
The Competition – Uber
Another way of judging whether to invest in Lyft is by examining how it compares to the competition. If the competition is dominating the market or has a competitive edge then investing in Lyft might not be a great long term idea.
Lyft’s principal competition is Uber. Uber is reportedly about to launch their own IPO which would value the self-driving section of the company alone at $5-$10 billion.
The company as a whole could well be valued at $120 billion, one of the largest and most valuable private companies in the world.
But, as with Lyft, it is important to look behind these headline figures. Uber is still making a huge loss of $1.8 billion in 2019. This is an improvement on previous years. However, it still illustrates that the company is plowing all of its assets into expansion and growth rather than trying to generate a steady profit.
This is similar to what Lyft is doing. However, with bigger investment and a more recognizable brand, Uber seems more successful than Lyft at this stage.
Both Lyft and Uber are banking on the success of self-driving cars and this is what their investment is being spent on.
Being able to judge which company will succeed and be the first to make these a reality is another good way of judging whether to invest in Lyft IPO.
Uber had a major setback when one of its driverless testing cars killed a pedestrian in March 2018. It paused its driverless testing programme and did not resume it until December.
The negative media attention that this generated was a major setback, whilst competitors such as Lyft and Elon Musk’s Tesla have been making waves.
Lyft has partnered with Aptiv, a specialist company that builds self-driving cars, and has offered a very limited autonomous driving services in Las Vegas. They also have a host of big names on board including the creator of Google Streetview, Luc Vincent.
It does appear that Lyft has the upper hand at the moment and is further along-the-road in the development process of self-driving cars. However, this may change once Uber has launched its own IPO and potentially have a much bigger investment to play with.
Lyft Stock IPO, Is it Worth it?
Like many investments today, it is too early to say whether investing in Lyft stock IPO will pan out to be a wise decision. However, it is clear that this is not necessarily an IPO for someone who wants a small but guaranteed return.
This is a high risk and long term investment that could turn out to bear fruit or it could be a disaster. Be sure to do your research. This could also include learning more about our financial news service before you make your decision. Click here for more information.