By all means, rush. But there’s no need for a race.
Last week, Lyft Inc said it had filed the first draft of paperwork for its planned initial public offering. It has been clear for some time that Lyft — in contrast with its larger rival Uber Technologies Inc — was speeding to hit the stock market perhaps by early 2019.
But then it emerged that Uber had recently filed its own draft IPO document, which will remain confidential while the company solicits feedback from securities regulators. The duelling IPO filings officially start the clock on what is expected to be a flood of high-valuation offerings from members of the post-2008 technology start-up boom. There will be a lot of talk about whether Uber or Lyft goes public first, and what that will mean for investors’ interest in the on-demand transportation sector and for the performance of other elite start-ups. Uber and Lyft are absolutely right to get their IPO preparations squared away in case there’s a recession in the US or more stock market gyrations that could turn off IPO investors. But in the end, I don’t think there is much of an advantage for whichever hits the public market first. For one, Uber and Lyft have fairly distinct businesses, even though it’s natural to compare them. And second, US stock markets are now valuing young tech companies fairly rationally.
There might be an enthusiasm premium for being the first on-demand ride start-up to reach the stock market, but it’s unlikely to last very long.
I love parsing IPO strategy as much as anyone, but I would caution against overthinking the importance of IPO order.
Lyft and Uber have different tales to tell investors. Lyft is tightly focused on the business of finding North Americans a car ride at the tap of a smartphone app — although it’s also working on driverless car technology and moving people around by bicycle and other alternative modes of transport.
In theory, Lyft should become nicely profitable, although it isn’t now, but its potential market is also narrower than Uber’s. Uber, by contrast, will try to get investors to pay attention to everything but the business of moving Americans around by ersatz taxis. It will trumpet its global footprint, its work on autonomous and flying cars, its deliveries of restaurant meals and its desire to connect people to bikes and scooters.
Both Lyft and Uber will pitch their ability to grow, but investing in Uber is much more about what that company could become, while Lyft is a simpler appeal to love the company as it exists today. Yes, Lyft and Uber will appeal to many of the same stock buyers, but it’s not an either-or investment proposition. It reminds me a bit of the software firms Box Inc and Dropbox Inc, which were mentioned in the same breath for years.
The companies’ respective IPOs proved they were quite different from each other, and their share prices and valuations don’t appear to be trading in lockstep. Mostly, the IPO timing isn’t live-or-die for Lyft and Uber because US stock investors have grown rather commonsense about young tech companies.
After a relative tech IPO dry spell of 2015 and 2016, there’s less of a stock feeding frenzy around each new tech listing now. Snapchat’s valuation has moved from outlandish at its IPO to tame.
Most other tech companies that went public in the last couple of years also trade relatively in line with their older peers. That shows investors have grown more discriminating about when to pay a rich price for fast-growing companies. I think that temperance will carry over to IPOs for Lyft and Uber. To be sure, there are advantages for the on-demand transit start-up that courts investors first. It will be able to stress the financial metrics that present the company in the best light, and that will set a bar for the second ride company to IPO.
If the first one does poorly, there will be a downdraft for its US rival and for similar start-ups including Didi Chuxing Inc in China and India’s Ola. Ultimately, though, Uber and Lyft have more to worry about than IPO order. Uber in particular has yet to prove its basic business model makes sense after 10 years of history. Economic and market conditions are deteriorating. In the US, people are openly talking about the “R-Word” — recession.
Those are all good reasons to hurry and go public. But Uber and Lyft shouldn’t overthink the advantages of hitting the stock market first.