MKM: Not Much Pushback on Lyft Valuation

Investors aren't showing much concern about the $23-billion valuation for ride-hailing company Lyft Inc.’s initial public offering as the company continues on a roadshow leading up to the IPO, MKM Partners said this week.

The valuation — $21 billion to $23 billion, based on a filing range of $62 to $68 per share — doesn’t seem to be spooking potential investors, MKM analyst Rob Sanderson said in a note, while also pointing out the IPO is reportedly already oversubscribed.

Some press reports have compared the LYFT IPO to 2017’s offering by Snap Inc. SNAP on the basis of the interest it has generated. 

Still, “there does not seem to be much push-back to the valuation range, which implies an enterprise value around 6x sales on a likely 2019 outlook,” Sanderson said. “This is similar to publicly traded internet marketplace businesses.”

Unlike LYFT, however, many of those businesses are highly profitable, though they have much lower growth than the ride-hailing company has had.

Lyft, the second-largest rideshare company behind Uber, has never turned a profit, and lost $991 million last year, on $2.2 billion in revenue, according to its IPO prospectus. Lyft said it expects sales to grow faster than its losses.

Uber is also planning to go public this year at a valuation of around $190 billion.

"It seems that most investors believe this is a scale business and that Uber holds the advantage," the analyst said. "We think that growth deceleration at Uber and share gains at LYFT make this an interesting debate."

Sanderson also said Lyft executives disclosed their target for EBITDA margins, which is 20 percent, and made public their projections for long-term gross margins of 70 percent.

“This passes our initial sniff test,” he said.

Questions For Investors

Sanderson raised the following questions for investors: 

Will Lyft continue to expand its "take-rate," or the amount of each rideshare cost that the company takes?

What are some of the drivers of costs, including insurance and payment processing? MKM estimates that insurance was more than 60 percent of Lyft's cost of revenue last year and 36 percent of total revenue.

Will recent marketing efficiencies continue?

MKM isn’t initiating coverage or making any recommendations on LYFT.

Roadshow Continues

LYFT officials met with investors this week in New York, Boston and Baltimore, and have meetings planned next week in San Francisco, Los Angeles, Chicago, Minneapolis and Kansas City before an expected March 28 pricing.

Related Links:

Lyft's IPO Roadshow: What You Need To Know

Economist: Lyft Has Better Path To Profitability Than Uber, But Concerns Remain

Photo courtesy of Lyft.