Lyft losing $1b/year gets $24b (72 dollars per share) valuation from IPO, wishing to break even by 2021 - next up, Uber...

A quarter of the float, or some 6.1 million shares changed hands when the stock began trading on the Nasdaq in New York, opening at a price of $87.24 per share. This followed the company's initial public offering which raised $2.3 billion late on Thursday at a price of $72 a share, valuing the company at $24 billion.

https://www.zerohedge.com/news/2019-03-29/lyft-surges-20-ipo-price-market-debut-after-lightning-start

Over the past few quarters, I have become increasingly critical of the Profitless Prosperity Sector, known amongst my friends as the Ponzi Sector.Why Ponzi Sector? Because these companies have no profits yet continue to raise new capital by showing explosive revenue growth. Oddly, the more revenue they show, the more money they lose, because incremental revenue is at a negative gross margin. Many of these companies are in consumer facing sectors where the product is not particularly unique. Rather, they are using a tech interface to offer an existing product and effectively subsidizing the consumer to use more of the product. Nothing shows this better than the ridesharing duopoly of Uber and Lyft. Therefore, last week’s LYFT IPO was enlightening.

This then weighs on the question of the future of the whole Ponzi Sector. LYFT and UBER need constant equity infusions to fund their never-ending stream of subsidized rides. Looking at the Ponzi Sector as a whole, who will be putting up a few billion a year (per Unicorn)? At some point, you’re talking about a whole lot of money. You can keep funding Unicorns if you believe the IPO will be at a premium to the Series D round. It doesn’t work if you have to actually analyze the business and determine a fair valuation for a company where losses will grow ad infinitum. Even worse, if the IPO window closes, you have to then start worrying about dilution as you raise new capital from private investors to offset accelerating losses. Remember, in a universe where billions are needed per year, the next offering can also be down from the last one done—sometimes by a shockingly large number. Money losing companies need to make payroll or they die—sometimes they cannot choose their cost of capital.

Is the LYFT IPO the inflection point in the Ponzi Sector? The next few weeks will tell. I’m on red alert as I have a list of similar companies that I’d love to buy puts on.

Good stuff

Does anyone think that these VCs and startup CEOs and CFOs are smart people and know they could turn a profit but instead they lose profit and raise money to grow as fast as possible to take market share?

If these wildly popular and successful new services can get passengers from point A to point B fast and cheap, and give underemployed people a way to make a buck, AND cheat greedy investors who want money for nothing at the same time, then more power to them.

There was an article several years ago, that I wish I could find again, that analyzed the historical profit margins of taxi services. What I took away from it was that these type of businesses profit margin pretty much remained the same (and it wasn't a big profit margin, even at scale) and the main reason was that you had cars that always need to be maintained and drivers that always needed to be paid.

Their point was that as long as the Lyft and Ubers of the world had drivers and cars (well the cars aren't actually owned by these companies) this would mostly likely be their fate as well. If you go driverless then these companies would actually own the cars (and the liabilities that go with driverless cars). While the dispatch system for these new services are more efficient it will not make up for the traditional profit margin limiters of a traditional tax service.

And, once the real price of a Lyft/Uber is charged to customers will it be enough to make up for drop in ridership. Betting that these type of companies will be long term, wildly profitable seems to be a tricky bet at best.

Right on.

I never understood the business model of ueber and lyft. It's an app. They don't own the vehicles and are dependent on people who can't do math with cars.

Talking about driverless cars is kind of funny, because then you would own these vehicles plus you would have a huge liability.

Lyft and Uber's business model is very simple and well known. They are currently undercutting pricing for traditional taxi cabs in order to put them out of business. Once the taxi cabs are out of the way, Uber/Lyft will jack their rates up and up and up until they are more expensive than a traditional taxi while driving the earnings of their drivers down through deregulation that will allow any ex-con to be able to drive.

Henry Ford wrote:

Right on.

I never understood the business model of ueber and lyft. It's an app. They don't own the vehicles and are dependent on people who can't do math with cars.

Talking about driverless cars is kind of funny, because then you would own these vehicles plus you would have a huge liability.

There model is simply, under the guise of being a “ride share app” rather than a taxi company, they were able to avoid having to buy taxi licences (which could cost around a million bucks each in some cities before Uber). Because they don’t need to buy the taxi licence, they are able to charge less.

The only innovation of Uber is avoiding governmental regulations.

Ride share

Like the driver was already going to the same place that the passenger wants to go.

Precious Roy wrote:

Uber/Lyft will jack their rates up and up and up until they are more expensive than a traditional taxi while driving the earnings of their drivers down through deregulation that will allow any ex-con to be able to drive.

people think having stuff should mean they get more stuff, and now they want ex-cons to be unable to get jobs

really warped in the head, this country is.

Free_the_thigh wrote:

The only innovation of Uber is avoiding governmental regulations.

What? Back when I used Taxis in my town, I had to call and tell them what intersection I was on. The company said they would sent somebody within 15 minutes. Then I just had to wait there for 30 minutes until they showed up. The drivers drove like maniacs and often tried to trick customers into longer routes.

Now someone shows up within 5 minutes, I can see them arriving on the map, and the rating system prevents shitty drivers.

Yes they unfairly dodged government regulations. But that's because the regulations were stupid and restricted innovation.

Uber reported 2018 revenue of $11.27 billion.

The company posted net income of $997 million in 2018, but an adjusted EBITDA loss of $1.85 billion.

https://www.cnbc.com/2019/04/11/uber-releases-s-1-filing-for-ipo.html

"We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve profitability,"

"We anticipate that we will continue to incur losses in the near term as a result of expected substantial increases in our operating expenses, ..."

https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm