We are initiating coverage of Lyft (LYFT) with a narrow moat rating and a fair value estimate of $72 per share, or a $24 billion market capitalization based on our estimated share count. Lyft is becoming a public company as it will sell 30.8 million shares at an IPO price of $72 per share (which is at the high-end of the range that the firm was seeking) on March 29, 2019. The IPO price is in line with our fair value estimate and we would recommend a wider margin of safety before investing in this very high uncertainty name.
Founded in 2012, Lyft has emerged as the number two ride-sharing player in the U.S. market, a position we think the firm will keep for years ahead. Lyft has successfully gained market share going head to head against the market leader, Uber, in pursuing riders in an addressable market that we assume will be growing 24% per year over the next five years to over $500 billion (based on gross revenue) by 2023. 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 rider, rides, and mapping data, which we think can drive Lyft to profitability and excess returns on invested capital in the future.
We believe Lyft is well on its way to becoming a one-stop shop for on-demand transportation. It has tapped into the bike- and scooter-sharing markets, which we think are worth over $9 billion and growing 9% annually through 2028. Lyft also appears to be pursuing the autonomous vehicle route as it understands that self-driving cars may help the firm expand its margins. In contrast to Uber, Lyft is not focused on food transportation or logistics. We like Lyft's relatively narrower focus on consumer transportation but still note that Uber has an edge on Lyft in terms of an earlier start, higher market share, and a stronger network effect around its service.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.