Lyft has managed to secure a head start on larger ride-hailing app peer and competitor Uber with yesterday marking the first day of the technology company’s IPO road show. It is hoped the tour of the USA will successfully drum up investor interest in a public listing that is targeting a valuation of up to $23 billion. The larger Uber, which offers the same ride-hailing app service, as well as being one of the major players in driverless vehicle technology, will launch its own IPO next month.
Lyft’s IPO, if it comes in at the upper range of the targeted valuation will represent the 10th largest tech IPO to have ever taken place on Wall Street. It will also be the biggest since Snapchat parent Snap Inc. went public in 2017. However, Lyft faces the unenviable challenge of selling its own prospects to money managers from under the hulking shadow of the Uber IPO a month later. The latter’s IPO is expected to value the company at between $100 and $120 billion.
Lyft represents a serious competitor to Uber on the two companies’ USA home front, where the former has built up a ride-hailing market share of over 30%. Uber accounts for the lion’s share of the remainder. However, Uber has a much more developed international presence as well as diversification. As well as being one of the biggest investors in driverless vehicle technology, Uber has also branched out into food and parcel delivery as well as Uber Freight, which allows users to book shared freight transport through an app.
Lyft’s pitch to investors faced with a choice between the two rival IPOs (though of course investors might choose to spread their risk by splitting any capital allocation between the two) will centre upon its more focused business structure, positioning Uber’s diversification as a potential weakness. It will also play to a reputation that has been hit by fewer scandals than Uber, whose aggressive approach to expansion and company culture has been called into question numerous times over the past couple of years.
Uber famously saw its application for its London license renewal declined, though it won it back on a probationary footing following appeal. Transport for London had ruled that the company was not ‘fit and proper’ to hold a license after its failure to report crimes or alleged crimes to the police and a lack of rigour in its background checks for drivers.
One criticism of Lyft’s IPO strategy has been that the company plans to sell 30 million Class A shares, which have fewer voting rights than Class B shares. Following the IPO Lyft’s president and CEO, Logan Green and John Zimmer, both co-founders, will still control close to 50% of the company’s voting rights.
Ken Bertsch, executive director of the Council of Institutional Investors criticised the structure earlier this month with the statement:
“Lyft’s dual-class share structure leaves investors virtually powerless. This is highly risky for long-horizon investors and for the integrity of the capital markets.”
Potential investors not put off by the lack of voting rights attached to the shares to be sold via the IPO can be expected to focus on profitability. Both Lyft and Uber are loss making as they focus on building market share and investors considering both IPOs will be looking for clear forward guidance once when the two companies expect to turn the corner into profitability.
Those investing online from the UK will have to wait for the IPO to conclude and shares to float freely on the Nasdaq before they can buy into Lyft.