3 unanswered questions from Lyft’s long-awaited IPO filing

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Lyft on Friday publicly filed its paperwork for an initial public offering.
The documents provided the first look at important details about Lyft’s business.
But Lyft didn’t offer answers to some of the most important questions that could affect its IPO and future.

The paperwork Lyft filed Friday for its initial public offering gave us important new details about the company.

But it also left unanswered some crucial questions.

The ride-hailing company beat arch-rival Uber to this initial stage of the IPO process, earning loads of press coverage. While many of us have used Lyft’s service for years, the company’s documents at long last let us peek behind the scenes at its business and corporate structure.

Among other things, we learned that:

Lyft generated $2.2 billion in revenue last year and lost $911 million.
It has to pay Amazon $8 million a month for web hosting until at least 2021.
The letter "y" in Lyft stands for "why" (seriously).

But, even after the filing, there are still many things we don’t know about the app-based taxi company. As Lyft moves closer to its expected market debut in early April, here are three big questions it still needs to answer:

1. What, exactly, is Lyft?

Is Lyft an automobile company, an internet company, or something else entirely?

The answer is important because it will determine who is evaluating the company and who owns it once it becomes publicly listed.

Ride-hailing — at least in the way Lyft and Uber offer it — involves a new kind of business model. There isn’t a ready -made group of Wall Street analysts who are already covering and familiar with the sector and the nuances of such businesses.

One possibility is that Lyft will be covered by the same analysts as Tesla, a motley crew that looks at everything from the automotive sector to the renewable energy industry.

Lyft will likely want to be grouped together with businesses that have high valuations, said Dan Niles, a founding partner at hedge fund AlphaOne Capital Partners. That means it won’t want to be put in the same category as the automobile companies, he said. Instead, it probably will want to be placed in the same group as internet and software-as-a-service companies, he said.

"Nobody wants the valuation that Ford has," Niles said. "You’re certainly going to want the highest multiples you can get."

Spencer Platt/Getty Images

2. Who’s just along for the ride?

Lyft has some impressive backers that have helped the company get where it is today, including General Motors and Google-parent company Alphabet.

Are those institutions going to stick around for the long haul or cash out at the IPO?

GM’s first investment in Lyft was in 2016 in a deal that valued the app-based taxi company at $5.5 billion. Alphabet, whose Waymo subsidiary is considered the leader in self-driving cars, invested in Lyft in 2017 at an $11 billion valuation.

If Lyft debuts on the public market at $20 billion to $25 billion — as some reports indicate it’s shooting for — that would be a nice return for both companies.

Alphabet has a seat on Lyft’s board. That could suggest it will have a longer-term commitment to the company than GM, which relinquished its board seat in June 2018 amid reports of tension between the automaker and Lyft.

But if those two companies are looking at Lyft purely as a financial play and not as a strategic partner, they could leave Lyft in a tough spot. Many experts expect the next phase of the ride-hailing industry to be built around self-driving cars. The race to design, build, and field such vehicles will likely be costly and intense. For Lyft, having established, deep-pocketed players like GM and Alphabet in its corner — rather than as competitors — could make a big difference.

3. How powerful will Lyft’s founders really be?

Lyft’s IPO paperwork revealed that its two cofounders, Logan Green and John Zimmer, have special shares that will give them 20 votes per share. That means the two will each have a much bigger say in the company than their financial stakes. Between the two of them, Green and Zimmer own less than 5% of Lyft.

Exactly how much say they’ll have, though, is not yet clear. Lyft’s IPO filing left blank the percentage of voting control the two founders will have after the IPO. It didn’t explicitly say their votes will represents a majority. Instead, it said their shares will let them exercise "significant influence" over the company.

Dual-class stock structures became all the rage in the era of rock-star tech founders like Facebook’s Mark Zuckerberg and Google’s Larry Page and Sergey Brin. But not every founder is a Zuckerberg. And even Zuck’s power at Facebook has come in for criticism following his social networking company’s numerous scandals over the last two years and the feeling among some shareholders and others that his superpowered shares have made him unaccountable.

In that context, investors may not be as eager to entrust Lyft’s founders with unchecked power. The difference between "majority control" and "significant influence" could be deeper than the words.

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Source: Business Insider – aoreskovic@businessinsider.com (Alexei Oreskovic)