Lyft’s initial public offering was expected to be the biggest tech offering in two years. A public offering is very much like an elevator and everyone getting on the elevator wants to go up. It’s worth noting as the doors open on the Lyft IPO elevator, General Motors is likely to be getting off – and they are not alone.
Why would anyone get off this elevator if the party is upstairs in the penthouse? Probably because Lyft is making the grab for cash long after most of the meatiest global markets have been sewn up. As if to emphasize the point, Uber made an 11th-hour bid for Careem to lock up the Middle East, one of the few remaining under-served and potentially lucrative markets.
There are a couple of reasons to raise cash with a public offering. The most important one is to stimulate growth. In Lyft’s case that can only come from international expansion – a prospect that promises to deepen the financial crater wherein Lyft already resides.
Didi, Yandex, Uber, Ola, Gett. These are the companies that have corralled the largest global ride hailing market opportunities. More importantly, these are the companies that have done battle with the regulators, worked out the licensing, fought off the taxi drivers and established their market presence.
This is no party for a fashionably late arrival. The low hanging fruit has been picked. The battles have been fought. The lessons have been learned.
While Uber has had a tough go of it here and there, conceding China to DiDi, for example, the company has crafted a survival strategy that is already altering market conditions and growth prospects globally. The key to Uber’s strategy – where it has been forced to innovate – has been sub-contracting with existing taxi drivers in markets ranging from the Middle East to Eastern Europe, Scandinavia and Japan.
This go along to get along approach is helping to keep Uber in business – i.e. customers can request an Uber even though it is a taxi that will provide the ride. It has helped keep Uber in play while changing the underlying path to profit.
At least Uber has a path forward. Lyft has nothing but market barriers and an endless vista of loss-producing opportunities. As if to further drive the point home, Uber has reduced driver per-mile compensation in some markets stirring up Uber resentment.
The tweak to compensation only emphasizes the reality that Uber can readily undercut Lyft at any time – especially given how many Lyft drivers are also driving for Uber. At the touch of a button, Uber can have Lyft on its knees in the U.S., while steadily inching its way to profitability overseas.
In spite of this, the Lyft IPO is poised for liftoff. No doubt the early investors, like GM, will cash out along with a mass of insiders. In the absence of a Google or Facebook-like upside these investors will clearly be counting on either an acquisition exit or an autonomous vehicle breakthrough. The prospects of either of these outcomes are slender.
I will happily continue to use Lyft, in the U.S., but I won’t be entering that elevator. Too many people will be getting off the elevator when markets open today. There is wisdom in that decision.
