A fool and his money were lucky to get together in the first place. This version of the “greater fool” theory is being put into practice again March 29, as Lyft (NASDAQ:LYFT) makes its public debut at $87.24.
You don’t have to read the company’s S-1 filing, which defines the terms of its sale and the company’s financial condition, to know this.
But it helps.
Lyft offers three years of financial statements in its S-1, and they’re a horror show. In 2018, for instance, the company lost $43.04 per share. It brought in $2.156 billion in revenue and lost over $911 million. By the end of the year, it was down to $517 million in cash.
Lyft’s launch will give it a valuation of $20-25 billion but it needs this money to keep going.
The Taxi Roll-Up
Lyft is like a joke from the 1970s, the psychological era of “I’m OK, You’re OK.” The joke is “I’m OK, you’re a taxi.” Lyft automates the process of catching and delivering a taxi ride. It makes everyone a taxi who wants to be one. It means my neighbor who spent his life driving a hack retired at just the right time. But how big is that business?
The Lyft S-1 estimates it had 18.6 million “active riders” at the end of last year, each of whom brought in $36.04 in revenue. Bookings came to $8.1 billion in 2018. Lyft’s share of those takings came to 26.8%, and that’s been rising. That’s still a tiny percentage of the total ride-hailing industry, which was $2.78 trillion in 2018.
Lyft and its arch-rival Uber, which is also due to go public soon, are taking an increasing share of that pie. Taxi medallions are becoming worthless, and car rental fleets are being downsized.
The problem is that this can’t go on. Ride-sharing has been growing because it’s unregulated and subsidized by investors. With U.S. unemployment below 4%, it’s getting harder to find drivers. Prices must rise because both Lyft and its drivers need raises.
The Autonomous Car
The sizzle on this overcooked steak is the autonomous car, an idea Lyft loves to hype. The idea is that it has the account control to make self-driving cars a reality, and that autonomous vehicles, unlike those with human drivers, can be profitable. Lyft has a Ford Fusion with electronics on top of it and what it calls a “Level 5” vision. This means it thinks it can get these cars safely down crowded city streets.
Late last year, Lyft bought Blue Vision Labs, which had only recently come out of stealth mode. It wanted Blue Vision’s “collaborative AR technology” that crowdsources street maps, and travel patterns, allowing it to move with “centimeter-level accuracy.”
This is “truly amazing tech,” wrote Blue Vision CEO Luc Vincent, now Lyft’s vice president of autonomous technology. For now, however, this is very expensive vaporware, even at Alphabet’s (NASDAQ:GOOGL) Waymo unit. It exists more in code and on paper than in the marketplace.
The Bottom Line
If the venture capitalist and private equity sharpies backing Lyft thought all this was going to work tomorrow and generate big profits, I guarantee they wouldn’t be offering you a taste.
Lyft’s S-1 had to admit this truth: “We have a history of net losses and we may not be able to achieve or maintain profitability in the future,” the document reads.
It’s true that Twitter (NASDAQ:TWTR), Twilio (NASDAQ:TWLO), Square (NASDAQ:SQ) and Roku (NASDAQ:ROKU) weren’t profitable when they went public. But this was also true for Blue Apron (NASDAQ:APRN) and Snap (NASDAQ:SNAP).
Had Lyft gone public in 2016 or 2017, when the idea of ride-sharing was new, I might have taken a different view. But it waited until it had tapped out its private equity partners and really needed the money. Now it’s coming to you with its hand out.
You’re much better handing any money you might have put into Lyft into my favorite charity. You’d be helping young people and get a good feeling from it, rather than bailing out some overstretched billionaires who’ll just be looking for more money by Christmas.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write to him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.