Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Private Capital Markets

<div class="content-highlight"><p><strong>Upside to its latest post-funding valuation makes this U.S. ride-sharing leader an interesting name to watch.</strong></p></div><hr><h2>
<a href="https://www.smartkarma.com/entities/24423" target="_blank" data-smartkarma-citation="entities:24423:1">Lyft Inc (0812823D US)</a> Set to Take a Ride in the Fast-Growing Ride-Sharing Market</h2><p>Lyft, the second largest ride-sharing service provider in the U.S., is set to become a public company as its initial public offering likely will take place in late March. The firm has successfully gained market share going head to head against the market leader, <a href="https://www.smartkarma.com/entities/430" target="_blank" data-smartkarma-citation="entities:430:1">Uber Technologies (0084207D US)</a>, in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $500 billion (based on gross revenue) by 2023, growing 24% per year over the next five years. In our view, Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with rider, rides, and mapping data, which we think can drive Lyft to profitability and excess returns on invested capital in the future.</p><p>Lyft has raised around $5 billion in capital according to PitchBook. Its eleventh and last round of funding in June 2018 was for $600 million, which implied a valuation of $15 billion. We believe the intrinsic value of Lyft is likely much higher, over $24 billion, as further growth remains in the ride-sharing market. We think Lyft's top line can grow at a 36% CAGR through 2028 to more than $21 billion driven mainly by increased adoption of ride-sharing globally. We have assumed that the firm will become profitable in 2022. In terms of the initial public offering price, based on PitchBook data on recent venture capital backed software companies, we expect the price to represent Lyft as an $18 billion-$30 billion company.</p><p>From a strategic standpoint, Lyft is well on its way to becoming a one-stop shop for on-demand transportation. It has tapped into the bike- and scooter-sharing markets, which we think are worth over $9 billion and growing 9% annually through 2028. Lyft also appears to be aggressively pursuing the autonomous vehicle route as it understands that self-driving cars may help the firm expand its margins because without drivers it could recognize a bigger chunk of the fare as its net revenue. In contrast to Uber, Lyft is not focused on food transportation or logistics. We like Lyft's relatively narrower focus on consumer transportation but still note that Uber has an edge on Lyft in terms of an earlier start, higher market share, and a stronger network effect around its service.</p><p>We note that within the rapidly growing ride-sharing space, many risks remain around legal and regulatory matters. Lyft’s regulatory issues today involve how the company runs its everyday business, from employee type recognition to a minimum pay requirement. Various other requirements such as background checks and driver classification are also being enforced. In our view, pressure brought forth by such legal matters will persist.</p>

Upside to its latest post-funding valuation makes this U.S. ride-sharing leader an interesting name to watch.
Lyft Inc (0812823D US) Set to Take a Ride in the Fast-Growing Ride-Sharing MarketLyft, the second largest ride-sharing service provider in the U.S., is set to become a public company as its initial public offering likely will take place in late March. The firm has successfully gained market share going head to head against the market leader, Uber Technologies (0084207D US), in pursuing riders in an addressable market (including taxis, ride-sharing, bikes, and scooters) that we value at over $500 billion (based on gross revenue) by 2023, growing 24% per year over the next five years. In our view, Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with rider, rides, and mapping data, which we think can drive Lyft to profitability and excess returns on invested capital in the future.Lyft has raised around $5 billion in capital according to PitchBook. Its eleventh and last round of funding in June 2018 was for $600 million, which implied a valuation of $15 billion. We believe the intrinsic value of Lyft is likely much higher, over $24 billion, as further growth remains in the ride-sharing market. We think Lyft's top line can grow at a 36% CAGR through 2028 to more than $21 billion driven mainly by increased adoption of ride-sharing globally. We have assumed that the firm will become profitable in 2022. In terms of the initial public offering price, based on PitchBook data on recent venture capital backed software companies, we expect the price to represent Lyft as an $18 billion-$30 billion company.From a strategic standpoint, Lyft is well on its way to becoming a one-stop shop for on-demand transportation. It has tapped into the bike- and scooter-sharing markets, which we think are worth over $9 billion and growing 9% annually through 2028. Lyft also appears to be aggressively pursuing the autonomous vehicle route as it understands that self-driving cars may help the firm expand its margins because without drivers it could recognize a bigger chunk of the fare as its net revenue. In contrast to Uber, Lyft is not focused on food transportation or logistics. We like Lyft's relatively narrower focus on consumer transportation but still note that Uber has an edge on Lyft in terms of an earlier start, higher market share, and a stronger network effect around its service.We note that within the rapidly growing ride-sharing space, many risks remain around legal and regulatory matters. Lyft’s regulatory issues today involve how the company runs its everyday business, from employee type recognition to a minimum pay requirement. Various other requirements such as background checks and driver classification are also being enforced. In our view, pressure brought forth by such legal matters will persist.

We Foresee a Ride-Sharing Lyft-Off Toward a Narrow Moat Rating