Lyft IPO Summary

It's been a long time since I have seen a financial statement like the one I am going to discuss in this post.  

It was Groupon (GRPN), which closed at $20 on its first day as a public company on October 1, 2011 and now trades around $3.  Over the past five years, Groupon has lost money every year except 2017 when it earned a whopping $16 million.  I wrote a post about Groupon just prior to the IPO in 2011, noting the huge losses.  I compared this to the kind of companies that you would see around the year 2000, just before the Dot.Com bust hit these companies and many of them went out of business, weighted down by huge losses, negative cash flow and a collapsing stock market that shut off the source of new funds (more investor money).  

Now there's a series of new money-losing IPO's coming out.  It's like deja-vu all over again.

Here's a summary of Lyft's financials:

Lyft - Consolidated Statement of Operations Data

  Year Ended
December 31,  201620172018  (in thousands, except for pershare amounts)Revenue  $343,298$1,059,881$2,156,616  





Costs and expenses(1)  Cost of revenue  279,011659,5331,243,400Operations and support  97,880183,513338,402Research and development  64,704136,646300,836Sales and marketing  434,344567,015803,751General and administrative  159,962221,446447,938  





Total costs and expenses  1,035,9011,768,1533,134,327  





Loss from operations  (692,603) (708,272) (977,711) Interest income, net  6,96420,24366,462Other income, net  3,246284652  





Loss before income taxes  (682,393) (687,745) (910,597) Provision for income taxes  401556738  





Net loss   $(682,794) $(688,301) $(911,335)   





Net loss per share attributable to common stockholders, basic and diluted(2)  $(37.08) $(35.53) $(43.04) 

While Lyft is showing impressive revenue growth, expenses are very high and are driving huge losses.  In 2018, the company spent 21% of its revenue on General and Administrative expenses, which is a red flag for me as is the 37% of revenue spent on Sales and Marketing.  
The risk factors in the registration statement include most notably competition, including the much larger Uber as well as a host of other startups.  The development of autonomous driving technology and how Lyft is able to leverage that in their business is also a fairly significant risk.  They also face risks associated with insurance of their drivers' vehicles.  This is an interesting read.  My concern here is that reinsurance is a complicated business and is not really core to a ride sharing platform.  

From the time a driver becomes available to accept rides in the Lyft Driver app until the rider is dropped off at their destination, we, through our wholly-owned insurance subsidiary and deductibles, bear substantially all of the financial risk with respect to auto-related incidents, including bodily injury, property damage and uninsured and underinsured motorist liability. To comply with certain state insurance regulatory requirements for auto-related risks, we procure a number of third-party insurance policies which provide the required coverage in such states. Our insurance subsidiary reinsures the auto-related risk from such third-party insurance providers. In connection with our reinsurance and deductible arrangements, we deposit funds into trust accounts with a third-party financial institution from which such third-party insurance providers are reimbursed for claims payments. Our restricted reinsurance trust investments as of December 31, 2016, 2017 and 2018 were $118.3 million, $360.9 million and $863.7 million, respectively.

The Company also has two classes of stock and the founders will continue to control the majority of the voting through the shares they own (not being sold in the IPO).  This raises corporate governance issues in my mind.

Lyft may indeed some day be a very successful company or it could end up like Groupon.  Either way, it's best to proceed with caution and if you do decide to buy shares in the IPO, keep it small.

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