This is the 2nd inwards a serial of 3 posts on the ride sharing business. In my first, published inwards both TechCrunch in addition to my blog, I valued Uber, trying to contain the tidings that has come upward out nearly the companionship in addition to its contest inwards the finally year. In this one, I starting fourth dimension plow to valuing Lyft, which is telling a narrower, to a greater extent than focused floor to investors than Uber in addition to also expression at how the pricing ladder inwards ride sharing companies has pushed upward prices across the board. In the finally post, due out on Wednesday, I volition expression at the ride sharing marketplace equally a business.
In my finally post, I valued Uber in addition to admitted that the companionship has made its means to my listing of obsessions. My focus on Uber, though, has meant that I bring non paid whatsoever attending to the other ride sharing companionship inwards the US, Lyft, in addition to I don’t retrieve I bring been lone inwards this process. An unscientific analysis of tidings stories on ride-sharing companies inwards the finally twosome of years suggests that Uber has dominated the coverage of this business. Rather than persuasion this equally a slight on Lyft, I would fighting that this is at to the lowest degree partially past times design, in addition to that it is purpose of both companies' strategies. Uber is viewed equally the hands-down winner of this battle correct now, but this is exactly 1 battle inwards a long state of war in addition to investors define winners differently from corporate strategists.
In my finally post, I valued Uber in addition to admitted that the companionship has made its means to my listing of obsessions. My focus on Uber, though, has meant that I bring non paid whatsoever attending to the other ride sharing companionship inwards the US, Lyft, in addition to I don’t retrieve I bring been lone inwards this process. An unscientific analysis of tidings stories on ride-sharing companies inwards the finally twosome of years suggests that Uber has dominated the coverage of this business. Rather than persuasion this equally a slight on Lyft, I would fighting that this is at to the lowest degree partially past times design, in addition to that it is purpose of both companies' strategies. Uber is viewed equally the hands-down winner of this battle correct now, but this is exactly 1 battle inwards a long state of war in addition to investors define winners differently from corporate strategists.
Valuing Lyft
The Narrative Contrast in addition to Valuation
To value Lyft, I volition employ the same template that I used for Uber, though the choices I volition brand inwards terms of total market, marketplace share, operating margins in addition to endangerment volition all live different, reflecting both Lyft’s smaller scale in addition to to a greater extent than express ambitions (for the moment).
The Leaked Numbers The house to start this assessment is past times comparing the ride sharing attain of Lyft amongst Uber in addition to that comparing is inwards the tabular array below:
The fundamental differences tin live summarized equally follows. First, Uber is clearly going later the global market, uninterested inwards forming alliances or partnerships amongst local ride sharing companies. Lyft has made explicit its intention to operate inwards the US, at to the lowest degree for the moment, in addition to that seems to bring been precursor to forming alliances (as evidenced past times this tidings story from 2 weeks ago) amongst large ride sharing companies inwards other markets. Within the US, Uber operates inwards to a greater extent than than twice equally many cities equally Lyft does. Second, both companies are growing, though Uber is growing at a faster charge per unit of measurement than Lyft, in addition to that is captured inwards both the issue of rides in addition to gross billings at the companies. Third, both companies are losing coin in addition to pregnant amounts at that, equally they driblet dead for higher revenues. Note that, for both companies, the mass of the information comes from leaked documents, in addition to should so considered amongst skepticism. In addition, in that location are about numbers that come upward from press reports (Lyft's loss inwards 2014) that are to a greater extent than guesses than estimates.
| Uber | Lyft | |
|---|---|---|
| Number of cities inwards US | 150 | 65 |
| Number of cities | >300 | 65 |
| Number of countries | 60 | 1 |
| Number of rides - 2014 | 140 | NA |
| Number of rides (in millions) - 2015E | NA | 90 |
| Number of rides (in millions) - 2016E | NA | 205 |
| Gross Billings (in millions $) - 2014 | $2,000 | $500 |
| Gross Billings (in millions $) - 2015E | $10,840 | $1,200 |
| Gross Billings (in millions $) - 2016 | $26,000 | $2,700 |
| Estimated Growth for 2015 | 442% | 140% |
| Estimated Growth for 2016 | 140% | 125% |
| Operating loss inwards 2014 (in millions $) | -$470 | -$50 |
The fundamental differences tin live summarized equally follows. First, Uber is clearly going later the global market, uninterested inwards forming alliances or partnerships amongst local ride sharing companies. Lyft has made explicit its intention to operate inwards the US, at to the lowest degree for the moment, in addition to that seems to bring been precursor to forming alliances (as evidenced past times this tidings story from 2 weeks ago) amongst large ride sharing companies inwards other markets. Within the US, Uber operates inwards to a greater extent than than twice equally many cities equally Lyft does. Second, both companies are growing, though Uber is growing at a faster charge per unit of measurement than Lyft, in addition to that is captured inwards both the issue of rides in addition to gross billings at the companies. Third, both companies are losing coin in addition to pregnant amounts at that, equally they driblet dead for higher revenues. Note that, for both companies, the mass of the information comes from leaked documents, in addition to should so considered amongst skepticism. In addition, in that location are about numbers that come upward from press reports (Lyft's loss inwards 2014) that are to a greater extent than guesses than estimates.
The line concern models of the 2 companies, at to the lowest degree when it comes to ride sharing, are really similar. Neither owns the cars that are driven nether their names and both claim that the drivers are independent contractors. Both companies utilization the 80:20 separate for ride receipts, amongst 80% staying amongst the driver in addition to 20% going to the company, but that surface understanding hides the cutting pharynx contest nether the surface for both drivers in addition to riders. Both companies offering incentives (think of them equally sign-up bonuses) for drivers to start driving for them or, ameliorate still, to switch from the other company. They also offering riders discounts, gratuitous rides or other incentives to seek them or, ameliorate still, to switch from the other ride sharing company. At times, both companies bring been defendant of stepping over the line inwards trying to teach ahead inwards this game, in addition to Uber’s higher profile in addition to reputation for ruthlessness has made it the to a greater extent than ordinarily named culprit.
The other large operating departure is that dissimilar Uber, which is attempting to expand its sharing model into the delivery in addition to moving markets, Lyft, at to the lowest degree for the moment, has stayed much to a greater extent than focused on the ride sharing business, in addition to inside that business, it has also been less ambitious inwards expanding its offerings to novel cities in addition to novel types of automobile services than Uber.
The Narrative Contrast in addition to Valuation
In my valuation of Lyft, I volition seek to contain the differences that I encounter (from Uber) into my narrative:
| Lyft | Uber | |
|---|---|---|
| Potential Market | US-centric, ride-sharing company. | Global, logistics company |
| Growth Effect | Double ride-sharing marketplace inwards U.S. inwards side past times side 10 years | Double logistics marketplace globally inwards side past times side 10 years |
| Market Share | Weak national networking benefits | Weak global networking benefits |
| Competitive Advantage | Semi-strong competitive advantages | Semi-strong competitive advantages |
| Expense Profile | Drivers equally partial employee | Drivers equally partial employees |
| Capital Intensity | Low uppercase intensity | Low uppercase intensity, amongst potential for shift to to a greater extent than uppercase intense model |
| Management Culture | Aggressive inside ride sharing business, Milder amongst regulators in addition to media. | Aggressive amongst all players (competitors, regulators, media) |
In short, the Lyft narrative is narrower in addition to to a greater extent than focused (on ride sharing in addition to inwards the US) than the Uber narrative. That puts them at a disadvantage, at to the lowest degree at this phase inwards the ride sharing market, inwards terms of both value in addition to pricing, but it could run inwards their favor equally the game unfolds.
The adjustments to the Lyft valuation, relative to my Uber valuation, are primarily inwards the total marketplace numbers, but I exercise brand tiddler adjustments to the other inputs equally well.
- Smaller total market: Rather than utilization the total global market, equally I did for Uber, I focus on exactly the U.S. portion of these markets. That reduces the total marketplace size substantially. In addition, I assume that, given Lyft’s focus on ride sharing, that its marketplace is constrained to live the U.S. automobile service market. Notwithstanding these changes inwards my assumption, the potential marketplace nevertheless remains a large one, amongst my guess nearly $150 billion inwards 2025.
- National networking benefits: Within the U.S. market, I assume that the increased cost of entry into the line concern that I referenced inwards my finally post service on Uber volition restrain novel competitors in addition to that Lyft volition relish networking benefits across the country, enabling it to claim a 25% marketplace part of the U.S. market.
- Drivers driblet dead partial employees: My assumptions on drivers becoming partial employees in addition to contest driving downwards the ride sharing companionship piece of revenues volition parallel the ones that I made for Uber, resulting inwards lower operating margins (25% inwards steady state) in addition to a smaller piece of revenues (15%).
- Lyft is riskier than Uber: Finally, I volition assume that Lyft is riskier than Uber, given its smaller size in addition to lower cash reserves, in addition to laid upward its cost of uppercase at 12%, inwards the 90th percentile of U.S. companies, in addition to allow for 10% adventure that the companionship volition non brand it.
 |
| Spreadsheet amongst Lyft Valuation (September 2015) |
The value that I teach for Lyft is $3.1 billion, less than 1 7th of the value that I estimated for Uber ($23.4 billion) inwards my finally post.
The biggest danger that I encounter for investors inwards Lyft is that the companionship has to move the close future, where the pressure level from Uber in addition to the nature of the ride sharing line concern volition create hundreds of millions of dollars to a greater extent than inwards losses. If the uppercase market, which has been accommodating in addition to so far, dries up, Lyft faces the existent danger of non making it to ride sharing nirvana. It is a concern amplified past times Mark Shurtleff at Green Wheels Mobility Solutions, a long-time proficient in addition to consultant inwards the ride sharing in addition to mobility business, who points to Lyft's concentration inwards a few cities in addition to cash give the axe equally potential danger signs.
Pricing The Ride Sharing Companies
While none of the ride sharing companies are publicly traded in addition to in that location are so no prices (yet) for me to compare these valuations to, in that location bring been investments inwards these companies that tin live extrapolated at about endangerment to guess what these investors are pricing these companies at. In keeping amongst my subject that toll in addition to value come upward from different processes, recognize that these are prices, non values.
The VC Pricing
I took at expression the most recent VC investments inwards ride sharing companies in addition to what prices they interpret into.
| Company | Last VC circular investment amount (in US$ millions) | Date | Lead Investors | Imputed Pricing for the companionship (in U.S. $ millions) |
|---|---|---|---|---|
| Lyft | $530.00 | 15-May | Rakuten, Didi Kuaidi, Carl Icahn | $2,500.00 |
| Uber | $1,000.00 | 15-Jul | Microsoft | $51,000.00 |
| Didi Kuaidi | $2,000.00 | 15-Jul | China Investment Fund | $15,000.00 |
| Ola | $310.00 | 15-Mar | DST Global | $2,300.00 |
| GrabTaxi | $200.00 | 15-Jul | Coatue Management & others | $1,500.00 |
* Sources: Public News Reports, Mark Shurtleff
The danger inwards extrapolating VC investments to overall value, which is what the press stories that study the overall prices do, is that the solely fourth dimension that a VC investment tin live scaled upward direct to overall value is if it comes amongst no strings attached. Adding protections (ratchets) or sweeteners tin really speedily alter the relationship, equally I noted TechCrunch in addition to in this post service on unicorns.
The danger inwards extrapolating VC investments to overall value, which is what the press stories that study the overall prices do, is that the solely fourth dimension that a VC investment tin live scaled upward direct to overall value is if it comes amongst no strings attached. Adding protections (ratchets) or sweeteners tin really speedily alter the relationship, equally I noted TechCrunch in addition to in this post service on unicorns.
Notwithstanding that concern, is in that location a logic to this pricing? In other words, what makes Uber to a greater extent than than 3 times to a greater extent than valuable than Didi Kuaidi in addition to Didi Kuaidi half dozen times to a greater extent than valuable than Lyft? To answer these questions, I pulled upward the statistics that I could notice for each of these companies:
* The revenues are estimated using the revenue piece that these companies report, but amongst client give aways in addition to other marketing costs, the actual revenues were in all probability lower.
Note that almost all of these numbers come upward from leaks, guesses or judgment calls, in addition to that in that location are many items where the information is exactly non available. For instance, spell nosotros know that Ola, GrabTaxi in addition to BlaBlaCar are all losing money, nosotros exercise non know how much. At the endangerment of pushing my information to breaking point, I computed every possible pricing multiple that I could for these companies:
| Company | Estimated Value (Price) | Gross Billing inwards $ millions (2015) | Revenues (2015)* | Operating Profit or Loss (2015) | Cities served (2015) | # rides | Potential Market (in $ millions) | # Drivers |
|---|---|---|---|---|---|---|---|---|
| Lyft | $2,500 | $1,200 | $300 | -$100 | 65 | 156 | $55,000 | 100000 |
| Uber | $51,000 | $10,840 | $2,000 | -$470 | 300 | 1460 | $205,000 | 800000 |
| Didi Kuaidi | $15,000 | $12,000 | $450 | -$1,400 | 137 | 2190 | $50,000 | 2600000 |
| Ola | $2,500 | $1,200 | $150 | NA | 85 | 100 | $13,000 | 250000 |
| GrabTaxi | $1,500 | $1,000 | $50 | NA | 26 | 300 | $6,000 | 75000 |
| BlaBlaCar | $1,600 | $600 | $72 | NA | 100 | NA | $20,000 | NA |
* The revenues are estimated using the revenue piece that these companies report, but amongst client give aways in addition to other marketing costs, the actual revenues were in all probability lower.
Note that almost all of these numbers come upward from leaks, guesses or judgment calls, in addition to that in that location are many items where the information is exactly non available. For instance, spell nosotros know that Ola, GrabTaxi in addition to BlaBlaCar are all losing money, nosotros exercise non know how much. At the endangerment of pushing my information to breaking point, I computed every possible pricing multiple that I could for these companies:
| Company | Value/Gross Billing | Value/Revenues | Value/City | Value/Ride | Value/Potential Market |
|---|---|---|---|---|---|
| Lyft | 2.08 | 8.33 | $38.46 | $16.03 | 0.0455 |
| Uber | 4.70 | 25.50 | $170.00 | $34.93 | 0.2488 |
| Didi Kuaidi | 1.25 | 33.33 | $109.49 | $6.85 | 0.3000 |
| Ola | 2.08 | 16.67 | $29.41 | $25.00 | 0.1923 |
| GrabTaxi | 1.50 | 30.00 | $57.69 | $5.00 | 0.2500 |
| BlaBlaCar | 2.67 | 22.22 | $16.00 | NA | 0.0800 |
| Average | 2.38 | 20.54 | 70.18 | $17.56 | 0.1861 |
| Median | 2.08 | 22.22 | 48.08 | $16.03 | 0.2205 |
| Aggregate | 2.76 | 22.98 | 103.93 | $17.24 | 0.2123 |
On a pure pricing basis, Lyft looks inexpensive on every pricing multiple, in addition to Uber looks expensive on each one, mayhap providing about perspective on why Carl Icahn found Lyft to live a bargain, relative to Uber. Didi Kuaidi looks expensive on whatsoever stair out other than gross billing in addition to GrabTaxi looks inexpensive on about measures in addition to expensive on others. It is worth noting that these companies bring different revenue models, amongst Lyft in addition to Uber hewing to the 20% piece model, established inwards the U.S. in addition to Ola (which has to a greater extent than of a taxi aggregating model), at to the lowest degree according to the reports I read, follows the same policy. BlaBla is by in addition to large long-distance rides in addition to gets nearly 10-12% of the gross billing equally revenue, GrabTaxi gets solely 5-10% of gross billings, Didi Kuaidi, which had its origins inwards a taxi hailing app, gets no part of a large chunk of its revenues in addition to BlaBlaCar derives its revenues to a greater extent than from long distance city-to-city traffic than from inside urban amount automobile service. Given how modest the sample is in addition to how few transactions bring truly occurred, I volition non endeavour to over analyze these numbers, other than wondering, based on my post service on corporate names, how much to a greater extent than an umlaut would bring added to Über's hefty price.
With all of these companies, the prices paid bring risen dramatically inwards the finally twelvemonth in addition to a one-half in addition to I believe that this pricing ladder is driven past times Uber's success at raising capital. In fact, equally Uber's estimated toll has risen from $10 billion early on inwards 2014 to $17 billion finally June to $40 billion at the start of 2015 to $51 billion this summer, it has ratcheted upward the values for all of the other companies inwards this space. That should non live surprising, since the pricing game almost e'er is played out this way, amongst investors watching each other rather than the numbers. As amongst all pricing games, the danger is that a driblet inwards Uber's pricing volition ratchet downwards the ladder, causing a grade downwards inwards everyone's prices.
Big versus Small Narratives With all of these companies, the prices paid bring risen dramatically inwards the finally twelvemonth in addition to a one-half in addition to I believe that this pricing ladder is driven past times Uber's success at raising capital. In fact, equally Uber's estimated toll has risen from $10 billion early on inwards 2014 to $17 billion finally June to $40 billion at the start of 2015 to $51 billion this summer, it has ratcheted upward the values for all of the other companies inwards this space. That should non live surprising, since the pricing game almost e'er is played out this way, amongst investors watching each other rather than the numbers. As amongst all pricing games, the danger is that a driblet inwards Uber's pricing volition ratchet downwards the ladder, causing a grade downwards inwards everyone's prices.
If narrative drives numbers in addition to value, which is the declaration that I bring made inwards valuing Uber in addition to Lyft inwards these finally 2 posts, the contrast betwixt the 2 is also inwards their narratives. Uber is a large narrative company, presenting itself equally a sharing companionship that tin succeed inwards different markets in addition to across countries. Giving credit where it is due, Travis Kalanick, Uber’s CEO, has been disciplined inwards staying truthful to this narrative, in addition to acting consistently. Lyft, on the other hand, seems to bring consciously chosen a smaller, to a greater extent than focused narrative, staying amongst the floor that it is a automobile service companionship in addition to farther narrowing its react, past times restricting itself the US.
The payoff of a large narrative is that, if yous tin convince investors that it is viable in addition to reachable, it volition deliver a higher value for the company, equally is evidenced past times the $23.4 billion value that I estimated for Uber. It is fifty-fifty to a greater extent than of import inwards the pricing game, peculiarly when investors bring really few concrete metrics to attach to the price. Thus, it is the 2 biggest marketplace companies, Uber in addition to Didi Kuaidi, which ascendancy the highest prices. Big narratives exercise come upward amongst costs, in addition to it those costs that may dissuade companies from going for them.
- It tin distract: Big narratives volition require companies to deliver on multiple measures in addition to that may distract management from to a greater extent than immediate needs.
- It tin live costly: Having to grow faster in addition to inwards multiple markets (different businesses in addition to different geographies) at the same fourth dimension volition live to a greater extent than costly than focusing on a smaller marketplace in addition to having to a greater extent than measured ambitions.
- It tin create disappointments: The flip side of convincing investors that yous tin attain for the heights is that if yous don’t brand it, yous volition disappoint them, no thing how goodness your numbers may be.
With Uber, yous encounter the pluses in addition to minuses of a large narrative. It is possible that Uber Eats (Uber’s nutrient delivery service), UberCargo (moving) in addition to UberRush (delivery) are all investments that Uber had to brand now, to driblet dead on its narrative going, but it is also possible that these are distractions at a minute when the ride sharing market, which remains Uber’s pump in addition to soul, is heating up. It is undoubtedly truthful that Uber, spell growing at exponential rates, is also spending coin at those same rates to driblet dead on its large growth going in addition to it is non solely likely, but a certainty, that Uber volition disappoint their investors at about time, only because expectations bring been laid upward in addition to so high.
It is mayhap to avoid these risks that Lyft has consciously pushed a smaller narrative to investors, focused on 1 line concern (ride sharing) in addition to 1 marketplace (the US). It is avoiding the distractions, the costs in addition to the disappointments of the large narrative companies, but at a cost. Not solely volition it cede the limelight in addition to excitement to Uber, but that may atomic number 82 it to live both valued in addition to priced less than Uber. Uber has used its large value in addition to access to uppercase equally a bludgeon to driblet dead later Lyft, inwards its strongest markets.
As an investor, in that location is nil inherently goodness or bad nearly either large or modest narratives, in addition to a companionship cannot driblet dead a goodness investment exactly because of its narrative choice. Thus, Uber, equally a large narrative company, commands a higher valuation ($23.4 billion) but it is priced fifty-fifty to a greater extent than highly ($51 billion). Lyft, equally a modest narrative company, has a much lower value ($3.1 billion) but is priced at a lower issue ($2.5 billion). At these prices, equally I encounter it, Lyft is a ameliorate investment than Uber.
Block in addition to Draft
It is clear that Uber in addition to Lyft bring really different corporate personas in addition to visions for the futurity in addition to that about of the departure is for exterior consumption. It serves Uber well, inwards its disruptive role, to live viewed equally a flake of a great who volition non walk away from a fight, exactly equally it is Lyft’s best interests to portray itself equally the gentler, to a greater extent than humane human face upward of ride sharing. Some of the difference, though, is management culture, amongst Uber drawing from a really different puddle of decision-makers than Lyft does. If this were a bicycle race, Uber reminds me of the aggressive atomic number 82 rider, intent on blocking the balance of the pack in addition to getting to the complete line first, in addition to Lyft is the lower profile racer who rides exactly behind the leader, using the draft to relieve liberate energy for the finally push. This is going to live a long race, in addition to I bring a feeling that its contours volition alter equally the complete line approaches, but whatever happens, it is going to live fun to watch!
YouTube Version
YouTube Version
Ride Sharing Series (September 2015)
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