What’s up?

Lyft is about to go public. The US ridesharing company plans to sell 35.4 million shares at $62-$68 each. If the price is near the top of this range, Lyft will raise $2.4 billion and its valuation after the IPO will be about $23 billion. This would make it one of the largest IPOs of the decade.

The final price will be determined by the results of the roadshow on Thursday, March 28. Lyft will list its shares on the Nasdaq under the ticker “LYFT.” Trading will start on March 29.

Why is it important?

In general

IPO may be a good way to get aboard a thriving company. Other big technology companies which are preparing for offerings of their stocks in the foreseeable future — Uber, Pinterest, Slack, Airbnb — will watch with great interest how things turn out for Lyft. Lyft’s results will be especially important for Uber as the two firms are in a similar business.

For investors

Lyft is focused on providing short trips. The company is developing pretty fast: its share of the American ridesharing market increased to 39% from 22% in 2016. Much of this growth is a result of Lyft’s discounts ahead of the offering.

Lyft’s financials are mixed. On the one hand, the firm’s earnings more than doubled in 2018 to $2.16 billion. On the other hand, total costs and expenses went up by 77%. As a result, last year the company reported a loss of $911 million.

The main challenges lying ahead of the company include tough competition, regulation, and labor issues (Lyft’s drivers are not employees but independent contractors). Lyft is also investing in self-driving car technology. However, for these efforts to pay off, it has to win the race and become a pioneer at this market. In addition, the company declares that it aims to transform the idea of car ownership: it wants to make people replace their car with the subscription to Lyft. However, that is likely to work only in big cities, so the near-term growth potential looks limited.

For traders

All in all, the IPO will be a vote of confidence in the ride-sharing business. It might be difficult for investors to judge whether the price is OK for the risk they are taking. The market is untested and no one knows how it will perform during a downturn. In addition, some investors will get torn between Lyft and Uber trying to decide which company to choose.

Making a comparison, it’s necessary to point out that Uber is much larger than Lyft and aims for the $120-billion valuation. The former is global, while the latter operates only in the United States and Canada. Uber is more diversified and that could pose both a strength and a weakness. Its financial results are also quite contradictory. As a result, we can’t make a big argument about whether it’s necessary to choose Lyft over Uber or vice versa, so either there is demand for this industry or there isn’t. Once trading starts and we see how the market reacts, it will become clearer where the things stand.