That's not an ideal scenario for a new stock, obviously, and the simplest explanation is that Lyft remains a money-losing proposition. It lost $911 million last year, which averages to almost $1.50 per ride. But Tesla loses a lot of money, too ($702 million in the first quarter of 2019), and faces an uncertain path to regular profit — but its glamour stock, though at a two-year low, is still riding relatively high.
Lyft's outlook is uncertain, and it may not have the Tesla — or Uber — stardust to turn investors into believers. It's Avis to Uber's Hertz, and still without Uber's global coverage (only the U.S. and Canada are served).
One challenge for Tesla is growing competition for the performance electric car market. Automakers, including Porsche and Mercedes, have entered the fray with credible alternatives, joining startups such as Rivian (which just got a $500 million pledge from Ford). It's similar to the problem for Lyft, which faces disruptors such as Alto and the economy ride-sharer Via. And it's actually a lot easier to launch a ride-hailing company than an automaker — as Tesla has learned.
Despite all this, the banks that worked on the IPO were generally bullish when, after a waiting period, they rated Lyft April 23. Half rated it as a "buy," and lead investor JPMorgan said $82 a share "is a fair price to pay for Lyft," given an expected 32 percent annual revenue gain through 2021. UBS hopes for "a long runway for secular growth," and also offered $82 a share. The most bullish bank was Credit Suisse, with a $95 target. But Piper Jaffray cautioned that "investors will need to be patient," and came in at $78.
These banks have skin in the game. The analysts Autoblog talked to weren't so enthusiastic. "Of course the banks are in a 'buy' position, since they were involved in the IPO," said Rebecca Lindland, former executive analyst at Kelley Blue Book and now the proprietor of RebeccaDrives.com. "The fact is that Lyft doesn't have the brand recognition, size or scope of Uber. It's like Burger King to McDonald's."
If Lyft has an advantage, it's as the anti-Uber, with a better reputation for honest dealings and treating its workers fairly. But do these considerations drive stock valuations?
Or maybe the whole category is a problem. "Personally, I think both Lyft and Uber are way over-valued given that both have only limited prospects of profitability," said Sam Abuelsamid, senior analyst at Navigant Research. "The ride-hailing business is fundamentally challenged by the lack of a network effect or lock-in for the consumers. There is zero switching cost to go from one service to another. That will tend to force prices down because the barrier to entry when you don't actually own any assets is low."
Ride-hailing could explode in an era of ACES — autonomous, connected, electric and shared automobiles. But Abuelsamid pointed out that both Uber and Lyft in their IPO prospectuses acknowledge that self-driving cars are at least five to 10 years away from a large on-the-road presence, "and even then it might not help the profit picture."
Mike Ramsey, senior research director for automotive and smart mobility at Gartner, agrees that profits are down the road. "Lyft's prospects for profit count on growth continuing swiftly, combined with better utilization rates, economies of scale that are tough to see and possibly higher prices," he said. "It's not that it is impossible, but how they get from where they are now to profitability isn't totally clear."
Still, Ramsey makes a parallel to Amazon, which shows that when market penetration is high enough, "the game tilts in your favor." Right now, ride-share users are a growing minority so, he said, "the runway for growth and efficiencies is pretty high. The downside is that I'm unsure how they can grow and get lower costs."
Is Lyft's bumpy ride a preview of what will happen to Uber when its own IPO launches? Maybe not. Uber has Tesla-level charisma. Though on Friday, Uber set a target price range of $44 to $50 per share for its IPO, far less than earlier estimates — plus Uber lost another $1 billion in its most recent quarter. Still, would you say you're going to Lyft to a destination? No, you're more likely to Uber there. And you can use that name as a verb in dozens of languages, because the ride-hailing giant is in more than 60 countries.