I finally got around to reading the prospectus for Lyft stock this morning.
The cover is a pretty pink slide that suggests that the company has a mission to improve people’s lives with better transportation.
The next few pretty in pink pages outline the number of rides and drives the company has and how big the market for ride-sharing services is and how much revenue the company produced in the last year.
The first section is a prospectus summary that is a letter from management to potential shareholders outlining their vision of the future.
Lyft leadership tells us that “We believe that the world is at the beginning of a shift away from car ownership to Transportation-as-a-Service or TaaS. Lyft is at the forefront of this massive societal change. Our ridesharing marketplace connects drivers with riders, and we estimate it is available to over 95% of the U.S. population, as well as in select cities in Canada. In 2018, almost half of our riders reported that they use their cars less because of Lyft, and 22% reported that owning a car has become less important. As this evolution continues, we believe there is a massive opportunity for us to improve the lives of our riders by connecting them to more affordable and convenient transportation options.”
Sounds pretty, doesn’t it?
That’s until you take a deeper look and see what financial troubles are hiding in plain sight behind those rose tinted glasses.
Follow The Dollar Signs, Not Some Magical Rainbow
To be as frank as I can ever be, I have one major problem with it all.
As I went through the document, my overriding thought was that the more I learned about the company, the less I would ever consider it as a long-term investment.
In short, it is pretty much a load of crap.
The company is simply not profitable.
In fact, on revenues of $2.2 billion, they managed to lose over $900 million.
Lest you think that the loss is from extensive R&D spending to grow the company from its current “Unicorn” status to the “Unicorn on a Magic Carpet” level, I will assure you that most of the loss is from existing operations.
R&D is an impressive $300 million, which leaves a loss from operations of more than $600 million.
There is a lot of talk about people giving up their cars and just using ride-sharing companies of their future transportation needs in the filing.
While that may be the case in dense urban areas, it severely underestimates the love of the average American for their car.
No one ever waited tables or bussed tables to save up for their first LYFT ride, but there are hundreds of thousands of teens asking if you want fries with that to put together enough scratch for their first ride as I type this.
I must confess that my wife and I use both Lyft and Uber.
I had never used it until I was out in Chicago to see the kids and go to the 2016 World Series.
When I was getting ready to call a cab to the airport, my son-in-law snatched the phone out of my hands and downloaded one of the apps.
Upon my return home, we discovered that when we were heading out to dinner using a ride-sharing service meant we didn’t have to flip a coin to see who could have a cocktail before dinner and who could drink away.
Using Lyft or Uber means we don’t have to worry about parking or traffic in the tourist areas where all the best dining spots can be found.
I tell you this to point out that I am not against the whole ride-sharing concept.
When we use them, we find that at times they are incredibly cost-effective and useful.
However, I am against owning companies that have negative stockholder equity, lose money, and have significant competition.
That’s what we have with Lyft.
It May Be a Bumpy Ride If You Get On This Bandwagon
They may have a lovely utopian view of the future of transportation, but they do not appear to have a path to sustained profitability anytime soon.
If you buy Lyft, you better share management’s passion for the future of ridesharing.
In fact, you better flat out love management because you are stuck with them.
They are issuing with one vote each. The founders themselves have super-voting B shares that have 20 votes each and guarantee that no matter what happens they control the company.
I have no idea what the stock will do post IPO.
Wall Street is a goofy place, where in the short run, the story often matters more than the numbers.
I do know that whatever success I have had in my investing career is the result of sticking rigidly to the process.
And the process is telling me that the numbers in this deal are horrible.
I am far more interested in valuation and cash flows than a grand vision.
If the vision actually becomes a reality, I have little doubt that I will have plenty of opportunities to buy shares in a profitable Lyft on attractive terms at some point in the future.
For the time being, I will pass on the stocks but will still use their services when heading out for the evening to dine and imbibe.
The best thing about the ride-sharing companies is not the convenience or cost, but the number of DUIs and tragedies they prevent each year.
Unfortunately, that’s not yet profitable enough for me to be a buyer.
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