Why Lyft Had To Beat Uber To An IPO

Game of thrones. JL

Theodore Schleifer reports in Re/code:

We’re entering a new phase in what has been a financial war: As public companies, Lyft will have a chance to chip away at Uber’s valuation, which is five times greater than Lyft’s. Consumers who have only heard about Uber, especially outside of North America, now will be subject to months of buzz around (the) other ride-hailing company. Investors eager to get exposure to U.S. ride-hailing will have one option only: Lyft. By going public first, Lyft is defining its own category rather than ceding to Uber the relevant performance metrics analysts should consider.

It looks like Lyft is going to beat Uber to the public market — and that’s not just timing. It’s game theory.

As private companies, Lyft has long been the No. 2 player in the U.S. ride-hailing dogfight to Uber, the global behemoth with more diverse revenue streams and more market share. But now we’re entering a new phase in what has been a financial war: As public companies, Lyft will have a chance — over time — to slowly chip away at Uber’s last valuation, which is about five times greater than Lyft’s.

Lyft’s announcement that it had confidentially filed to go public puts it on pace for a listing in the first quarter of next year. Uber’s not likely to arrive on a stock exchange until the middle of next year at the earliest.

Here’s a few reasons why Lyft’s decision is the right one.

• Lyft will have first crack at public market investors who feel they can’t invest in both U.S. ride-hailing companies. If you’re an institutional investor who is eager — after years of watching two meteoric privately held startups amass value — to get exposure to U.S. ride-hailing, there will be a few months during which you will have one option and one option only: Lyft.

There very well could be some investors who decide to wait it out until they can invest in the gold medalist, but delaying until Uber is public means you’re making a conscious choice to forgo months of potential value creation.

That’s similar, in fact, to how the investor relations played out between the two as privately held startups: If you invested in a fundraising round at Lyft, were you forever forgoing an ultimately more lucrative fundraising round at Uber?

• IPOs aren’t as critical anymore for raising money (startups can do that easily thanks to venture capitalists). But they are critical moments for marketing — and Lyft now has that thunder.

“Lyft would get a lot of publicity and visibility if they upstage Uber with an IPO first,” said Steve London, an attorney at Pepper Hamilton. He’s right. There are consumers who have only heard about Uber — especially outside of North America, where Lyft is nowhere to be found — and they now will be subject to months of news coverage and buzz around some other ride-hailing company that is positioning itself as a mature, soon-to-be-public company.

This incentive obviously wouldn’t matter to Uber, given its size and public profile. But for Lyft, it’s a chance to get on level footing.

• Uber and Lyft’s closest “comps” — or comparable competitors that a startup is judged against in order to assess how much it will be worth on the public market — are really ... each other.

That can splice both ways strategically for Lyft. By going public first, Lyft is defining its own category on the stock market rather than ceding that turf to Uber, which would otherwise do so given its brand awareness and size. For instance: What is the revenue multiple for this sector? What are the relevant performance metrics that analysts should consider when evaluating U.S. ride-hailing? Those are questions that Lyft will answer for itself for now.

If Uber went first, it would also complicate the portrait given that Lyft’s business isn’t close to as complex as Uber’s. Lyft is solely domestic, while Uber has stakes in companies like East Asia’s Didi and Southeast Asia’s Grab. Uber has a fast-growing food-delivery business; Lyft is still scrapping for non-ride-hailing revenue streams.

The downside for Lyft? If Uber goes public at a valuation of $120 billion as pitched and then trades even higher, Lyft might want Uber to be their comp. Even if you’re the little brother with a much narrower business with slimmer revenues, you’re the little brother to one of Silicon Valley’s most valuable and once-in-a-generation companies. And that’s not a bad family to be a part of.