The Lyft deal may launch late next week on the Nasdaq under the ticker symbol LYFT and the company is already on the roadshow (you can view the video here).
Yet Lyft has little choice but to act fast since rival Uber is not far behind. It’s all about not getting overshadowed. After all, Uber remains the dominant player in the ride-sharing market and its own IPO will likely suck up huge amounts of capital — perhaps over $20 billion.
As for the Lyft IPO, it will be much more modest in comparison. It appears that the deal will result in a rise of about $2 billion, which is based on the details of the latest S-1 filing.
So what are the prospects for the deal? Well, perhaps in the short-term, it will provide traders with opportunities for quick gains. There is quite a bit of pent-up demand for red-hot IPOs right now and Lyft fits the bill.
However, in the coming months, we’ll likely see more quality companies come to the markets — like Pinterest and Slack — and this could marginalize Lyft. Besides, it looks like the valuation will be at nose-bleed levels, at over 10 times last year’s revenues.
With all of that in mind, here’s why investors might consider GM and GOOGL stock over LYFT in the months ahead.
Reasons to Choose GOOGL Stock Over LYFT
Consider that GOOGL has a 4.7% stake in Lyft. In other words, if the IPO jumps on its debut — which seems likely — the equity position could be worth over $1 billion.
Although this may be too little to move the needle for GOOGL stock immediately, a successful Lyft IPO, as well as a solid Uber offering, could ultimately boost the fortunes of the company. The reason: Waymo. Founded in 2009, it is the self-driving unit of GOOGL and it has been a major priority. There have not only been strides with AI, such as with deep learning models, but also the creation of cost-effective sensors.
About a year ago, Waymo initiated a pilot program for a self-driving taxi service in Phoenix, Arizona. And in December, there was the launch of the commercial service called Waymo One.
Here’s how a blog from Alphabet describes it:
“We’ll start by giving riders access to our app. They can use it to call our self-driving vehicles 24 hours a day, 7 days a week. They can ride across several cities in the Metro Phoenix area, including Chandler, Tempe, Mesa, and Gilbert. Whether it’s for a fun night out or just to get a break from driving, our riders get the same clean vehicles every time and our Waymo driver with over 10 million miles of experience on public roads. Riders will see price estimates before they accept the trip based on factors like the time and distance to their destination.”
It’s still in the early phases. But Waymo could be disruptive for Lyft as human drivers are a significant cost. The company’s S-1 filing notes: “If we are unable to efficiently develop our own autonomous vehicle technologies or develop partnerships with other companies to offer autonomous vehicle technologies on our platform in a timely manner, our business, financial condition and results of operations could be adversely affected.”
But regarding GOOGL stock, there is much more than self-driving cars to drive growth. The company has a wide array of assets that have over 1 billion users, such as the main Google search engine, YouTube, Gmail, Maps, Chrome, Android and Play. The company is also pouring money into R&D for critical areas, such as artificial intelligence, augmented reality, virtual reality and the Internet-of-Things. What’s more, GOOGL stock is trading at a reasonable valuation, with a forward price-to-earnings multiple at 22X or so.
Reasons to Choose GM Stock Over LYFT
General Motors (NYSE:GM) has an even larger stake in Lyft, at nearly 7% (the initial investment was for $500 million). Given that the market cap is about $53 billion, the IPO may provide a boost to the GM stock price.
But the partnership between GM and Lyft has not gotten much traction. Perhaps the reason is that GM has been focused on creating its own autonomous vehicle business, through the $1 billion acquisition of Cruise in 2016. Since then, the company has gone on to snag hefty investments from Softbank (OTCMKTS:SFTBY) and Honda (NYSE:HMC) — for a valuation of $14.6 billion. Cruise currently has over 1,000 employees and it has been aggressively striking partnerships, such as an agreement with Doordash.
Who knows, maybe this until will eventually be an IPO too.
But in the meantime, the core business behind GM stock has been doing just fine, especially in North America. For the full-year, the company expects operating profits to increase by about 20%.
GM stock is certainly trading at a dirt-cheap valuation, as the forward price-to-earnings multiple is at 6X. The dividend is also at an attractive 4%.
Ultimately, these two companies offer solid alternatives to the LYFT IPO if you’re an investor that’s interested in taking advantage of the potential excitement surrounding its debut but want to play on the safer side of things.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.