By Emily Bary
Lyft Inc. has beat rival Uber Technologies Inc. to an initial public offering, and that’s important for a number of reasons.
The first is that Lyft /zigman2/quotes/208999293/composite LYFT -0.44% is getting to set the narrative heading into the IPO process, which is crucial given that the company is smaller, more narrowly focused, and less well-known than Uber. Lyft removes an element of pricing uncertainty around the listing by going first, experts say. The company could kick off a roster of decacorns, or companies privately valued at upward of $10 billion, that are expected to go public in the year ahead.
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The company’s prospectus shows that Lyft plans to report revenue on a net basis, excluding the money paid to drivers. Uber — which previously detailed a similar approach to MarketWatch — will be hard-pressed to break the mold and report gross revenue, given that the businesses are the same and share PricewaterhouseCoopers as an external auditor, something unusual for fierce competitors.
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Lyft shares have been approved to list on the Nasdaq under the ticker “LYFT,” and are expected to do so Friday morning. Thursday afternoon, Lyft priced at $72 a share, at the top of its range, which it had raised Wednesday evening to a range of $70 to $72 a share after previously projecting a price between $62 and $68 a share. Lyft plans to sell 30.77 million class A shares, which would raise more than $2.2 billion at the top of the revised range with an initial valuation around $24 billion. That total could increase if underwriters exercise all the options to buy an additional 4.62 million shares.
Here’s what you need to know about the company ahead of its IPO.
The revenue is nothing but net
The company recognizes revenue on a net basis, meaning that the company’s top-line number is significantly less than the sum total of what all riders paid over the course of a given period. Lyft is able to report revenue on a net basis, rather than a gross basis, because it considers itself an “agent” in the process of connecting drivers and riders. The company argues that it merely helps third parties provide transportation services to riders and that both riders and drivers have the ability to reject a transaction price.
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Uber is expected to make a similar choice as far as how it reports revenue, which has drawn criticism from accounting experts who argue that ride-hailing companies would be doing a disservice to investors by not reporting a fuller metric and giving investors a sense of what they pay their drivers. Both companies could also choose to report that metric under another name, as Lyft did with its bookings offering.
Slowing revenue growth, widening losses
Lyft doubled its net revenue in 2018, but that was a decelerating growth rate from a year earlier. The ride-hailing company posted revenue of $2.2 billion last year, up from $1.1 billion in 2017 and $343 million in 2016. The company’s losses are getting steeper as revenue grows: Lyft generated a net loss of $911 million in 2018, compared with losses of $687 million and $683 million in 2017 and 2016, respectively.
The company’s bookings, which represent the total dollar value of transportation spending through Lyft services, climbed to $8.1 billion from $4.6 billion in 2017 and $1.9 billion in 2016. Lyft’s net revenue represented 27% of the company’s bookings in the latest period. The company gives the example of a $24 ride-hailing charge, which includes a $4 tip and a $3 airport fee: Bookings would be $17 in this example, Lyft said. Revenue would presumably be $4 or $5 in that example based on the disclosure about what percentage of bookings go to revenue, though Lyft did not provide that figure in the example.
Lyft is mainly focused on the U.S. market, though it launched a Canadian business in 2017. The company provides scooter-sharing and bike-sharing services as well.