Lyft IPO Presents Better Multiples And Growth Potential Than Uber

  • Uber's local American competitor, Lyft, recently raised $680M, valuing the company at $2.5B.
  • Lyft is currently available only in parts of the U.S., which creates a huge growth potential for the company inside and outside of the U.S.
  • A leaked document suggested impressive YoY revenue growth that reflects an attractive P/S ratio.
Lyft IPO at attractive valuations

Ride-on-demand service Lyft has received a lot of attention lately after investment giants Icahn Enterprises (NASDAQ:IEP) and Rakuten invested hundreds of millions in the company, in March and May of 2015, at an impressive $2.5B valuation. Investors recently poured a lot of money into the ride-hailing market which started with Lyft’s $680M, continued with Didi Kuaidi’s $2B round, and ended with Uber’s $1B funding round from investors including Microsoft (NASDAQ:MSFT). The incredible amounts investors including Google (NASDAQ:GOOGL) and Baidu (NASDAQ:BIDU) have put into the main players is to support the market's growth potential and the global expansion of the different competitors.

Unlike Uber, its’s bigger American rival, Lyft, is a much smaller company, covering only 60 cities in the U.S alone while Uber covers more than 300 cities worldwide. These differences between Uber and Lyft are also reflected in the companies’ headcounts, revenues, and public awareness. Uber is now a worldwide known brand of disruptive transportation service while Lyft (and also China’s Didi Kuaidi) is a known brand among Americans that live within the company’s operational area.

While Uber struggles with global regulation, local taxi organizations in each home country are fighting back. In the U.S, Lyft is focused on growing its business locally and increasing its geographic spread from the current 60 cities, before it attempts to penetrate markets abroad. In a sense, Lyft is currently where Uber was a few years ago--struggling to expand locally in the U.S--before it became the behemoth it is today. This is not by mistake: Lyft, as we know it today, was only founded in 2012; before that, the company focused on intercity ridesharing, relying heavily on the Facebook Connect app to connect drivers and passengers.

The fact that Lyft is operationally a few years behind Uber is attractive for investors who are looking to invest in the ride-hailing market because of its enormous growth potential, and some may believe that Uber is too pricey, its valuation is too high, or simply, it has a lower growth potential than the smaller players. These reasons drove Carl Icahn’s firm to invest $100M in Lyft saying, “There’s room for two in this area. There is a secular change going on with the way people are getting around, and with urbanization, it means more people living in urban areas. Lyft reached out to us, and I found the opportunity very compelling."

As described in an earlier article about Uber Valuation, the company’s valuation surged 14.5x from its series C valuation of $3.5B in August 2013 to $51B in series F in July 2015. Assuming Lyft will present even 50% of that growth in the next few years, Mr. Icahn and Lyft’s investors will have a very impressive return on their investment.

In a leaked document of Lyft’s financials published on TechCrunch, the ride-on-demand service is expected to generate $300M revenue in 2015 and $700M in 2016. The 2.3x growth YoY is driven by an increase in the number of rides and passengers as well as the new Lyft Line service that enables ridesharing and is expected to drive $140M in net sales.

As shown in Chart 1 below, Lyft raised more than $1B in seven equity funding rounds since 2010. The company’s valuation surged 2.5x from $1B in series B to $2.5B in series C, reflecting an 8.3 P/S ratio for Lyft, which is substantially lower than Uber’s 23 P/S.

Lyft_chart 1_090715

As described in an Uber document that was leaked to Reuters, the company plans to go public in 2017, which could stimulate Lyft to go public before Uber and grab early money from investors in the public markets that are eager to get into the ride-hailing market. Even without looking at Uber, Lyft is a great investment on its own. The company raised a significant amount of funds to expand across the U.S at a reasonable valuation that reflects a relatively low revenue multiple of 8.3. Moreover, Lyft expects to grow revenue by 2.3x YoY in 2016 and has an incredible growth potential expanding globally. For many investors, this might seem like a better investment than Uber.

Conclusion

Ride-on-demand service Lyft recently raised $100M from Carl Icahn, completing a $680M funding round that valued the company at $2.5B. The small ride-hailing player is currently focused on the U.S market and striving to expand its spread to cover more areas of the country before going global. A leaked document presents an impressive revenue estimate for Lyft that reflects an attractive 8.3 P/S ratio for the company. Lyft’s incredible growth potential, relatively low valuation coupled with a reasonable P/S ratio makes Lyft an attractive investment opportunity. I believe the company will go public before Uber either in 2016 or early 2017. Any future development around Lyft’s IPO or significant updates about the company’s financials will be analyzed and published on Amigobulls.

Disclosure: The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.

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Comments on this article and IEP stock

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ftlphl
bullish
Hi Lior. What's your thoughts on Lyft's executive saying it's on track to hit $1 bn in annual revenue in 2016?
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Do share this awesome post