Lyft, the second-largest ride-sharing service provider in the United States, is set for an initial public offering in late March. The company has gained share from leader Uber in an addressable market that we value at over $500 billion (based on gross revenue) by 2023, growing 24% per year over the next five years. In our view, Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with data on riders, rides, and mapping, which we think can drive the company to profitability and excess returns on invested capital.
Lyft has raised around $5 billion in capital, according to PitchBook. Its 11th and last round of funding in June 2018 was for $600 million, which implied a valuation of $15 billion. We believe the intrinsic value of Lyft is probably over $24 billion, as further growth remains in the ride-sharing market. We think Lyft’s top line can grow at a 36% compound annual growth rate through 2028 to more than $21 billion, driven mainly by increased adoption of ride-sharing globally. We assume that the company will become profitable in 2022. On the basis of PitchBook data on recent venture capital-backed software companies, we expect the IPO price to represent Lyft as an $18 billion-$30 billion company.