The biggest technology float of recent years involves a smartphone app that only Americans and Canadians can use. Lyft, which owns the taxi-hailing service of the same name, is poised to make its debut on Nasdaq on Friday, paving the way for Uber, its larger rival, to do the same.
Lyft was founded in 2012 by Logan Green, an entrepreneur, and John Zimmer, a Wall Street banker. Lyft drivers adorned their taxis with pink moustaches, cultivating a cuddly image that was anathema to Uber’s high-testosterone aggression — a ploy that would reap rewards when Uber’s sexual harassment scandal erupted in 2017. Even so, Mr Green, 35, Lyft’s chief executive, has maligned Silicon Valley companies that are “scared to get their hands dirty”.
Uber’s might be dirtier, but it operates in sixty-five countries to Lyft’s two and its touted $120 billion valuation is five to six times that of Lyft’s. Lyft and Uber also deliver food, run city bike-sharing schemes and are testing self-driving taxis. For both companies, though, transporting human beings in cars remains the core business. For passengers able to choose between Lyft and Uber, the experience is essentially the same. The crux for investors is whether Lyft can succeed as Uber’s No 2.
Haters of technology floats and investors who like sturdy balance sheets should look away now. Lyft lost $911 million last year, more than any American start-up haemorrhaged in the year before its initial public offering, figures from S&P Global Market Intelligence show. The next biggest loss, $687 million, was by Groupon, the discount voucher retailer, before its 2011 float. Groupon shares were listed at $20, shot as high as $31.14 then closed at $26.11 on its first day of trading. By the end of 2012, they were worth less than $3.
Mind you, if it floats as expected, Uber’s pre-IPO loss will eclipse that of Lyft — $3.3 billion last year, when excluding one-time gains from sales of its overseas businesses.
Are these lashings of red ink part and parcel of today’s high-profile tech float? Not necessarily: Facebook and Google were profitable in the year before they listed.
For years, Uber and Lyft have subsidised bookings in the United States in the race for market share and these subsidies are unsustainable in the long run. Still, Lyft has managed to price its rides competitively with Uber throughout, suggesting that it will be able to cut subsidies in tandem with its rival.
Lyft hasn’t said when it expects a profit, has warned in its prospectus that profitability may never materialise and that it expects to spend more money to expand. But it did highlight the rapid growth of its revenue, which doubled to $2.2 billion last year.
Lyft has benefited markedly from Uber’s public relations woes, growing its US market share to 39 per cent last year from 22 per cent in the past two years, figures from Rakuten, a Japanese ecommerce company, show.
Lyft’s shares are due to be priced tomorrow and trading is scheduled to begin on Friday. The target range was raised last night to $70 to $72, from $62 to $68. At the top end of the new range, Lyft would be valued at $24.3 billion. At the midpoint of the range, the company would raise about $2.1 billion.
Had Uber not suffered its blow-up in 2017 and lost Travis Kalanick, its founder and chief executive, it would probably have been harder to recommend Lyft’s shares today. But Mr Kalanick is long gone and Uber still bears the scars of that episode. In the interim, Lyft gilded its reputation and grew its business, helping to cement its position as Uber’s only respectable challenger.
ADVICE Buy
WHY Lyft has shown that it can compete with Uber in North America, which bodes well for expanding abroad
Debenhams
Shares in Debenhams may have surged by more than 50 per cent at one point yesterday amid hopes that the troubled department stores chain will be bought by Mike Ashley’s Sports Direct, but investors should err on the side of caution (Ben Martin writes).
Tracing its roots back 241 years to a drapers shop in the West End of London, Debenhams is a fixture on high streets, with about 165 stores. Its status is under threat, however. The chain has struggled in recent years as more shoppers move online and it has issued a string of profit warnings. It is in talks with its lenders as it seeks a refinancing to meet its immediate £200 million funding requirements and it needs to tackle its £560 million debt.
Given that Debenhams’ prospects appear bleak, on the face of it the possible 5p-a-share cash bid from Sports Direct looks attractive. It was pitched at a 127 per cent premium to Debenhams’ closing share price on Tuesday, valuing the business at £61.4 million. The stock rose 27.4 per cent to a shade above 2¾p yesterday.
However, the proposal by Mr Ashley is highly conditional and, as a result, there is considerable uncertainty about whether a firm offer will be made, let alone succeed.
Sports Direct, which owns just under 30 per cent of Debenhams, says that its proposal is “pre-conditional” on Debenhams immediately appointing Mr Ashley, 54, as chief executive. It is also contingent on Debenhams abandoning its refinancing talks and pledging not to enter into other funding arrangements, an administration or any insolvency processes.
If Mr Ashley were to make a formal offer, he would need to draw up a plan to deal with the debts. Moreover, shareholders should be aware of what awaits them if Mr Ashley’s takeover does not materialise. Debenhams’ talks with its lenders are likely to result in a debt-for-equity swap, which could be catastrophic for stock market investors. The retailer warned last week that some of the options “would result in no equity value for the company’s current shareholders”. If that came to pass, investors would regret buying the shares in the hope of a takeover.
ADVICE Avoid
WHY The prospect of a bid is very uncertain and a possible debt-for-equity swap looms
