Lyft's IPO: Buyer Beware
We surveyed ~40 hedge funds, and most were not positive on Lyft's IPO. Long-term fundamentals were their main concern.
Lyft, the #2 player in what has been deemed to be a winner-take-all market, is opening to the stock market. We surveyed ~40 hedge fund investors in our first Titan Insider Pulse.
70% of hedge fund investors we surveyed were not positive on Lyft
The main reasons: intense competition (Uber), weak profits (e.g. lots of free Lyft rides), and lofty valuation
The 30% of funds that were positive said it was mostly for technical reasons like investor demand, not for fundamentals
We too are concerned about Lyft's long-term fundamentals
The market is clearly massive ($1.2T transportation market) and Lyft has built a strong network of drivers/riders and a top-notch culture
However, Lyft hasn't proven to us that it can sustainably grow without sacrificing profits on each ride via free rides and other promotions
That said, the stock could rip in near term due to temporary technical factors like scarcity ("only ride-sharing stock on the market")
Lyft, like Uber, has been subsidizing rides for quite some time, with help from the venture capital industry
With ride prices artificially low in our opinion, rider demand could weaken once prices normalize higher
Key question: can Lyft add more drivers and more riders without incentivizing both sides with promotions and free rides?
We're excited about Lyft's large addressable market. However, its unit economics are much less proven. Competition is intense, and valuation seems priced for perfection (no room for error as a business). Put them all together, and the long-term fundamentals seem mixed to us.