Lyft (LYFT) CEO David Risher recently said that the rideshare company is “open” to selling itself, but there’s a kicker — there’s no obvious acquirer.
Lyft, long considered second-fiddle to Uber (UBER), has struggled to get its margins under control and retain market share over the last few years. Risher, who took the helm at Lyft in April, has already been aggressive in his efforts to set the company right financially, going so far as cutting 26% of the workforce less than two weeks after starting as CEO. Lyft’s C-suite shakeup also didn’t come in a vacuum – the company’s stock has plunged 76% in the last year and its market cap sits at about $3.07 billion, a stark contrast to Uber’s $80.3 billion.
So, Lyft has a long way to go, and a sale, at least for Lyft, is certainly worth considering, said Wedbush Senior Equity Research Analyst Dan Ives. The question is: Who would actually buy it?
“Lyft has been a disaster name, and execution challenges are just building up, forcing some serious strategic decisions from the board,” Ives told Yahoo Finance. “The company is burning cash at a 1980s’ rockstar pace, and a sale could be an option, although potential buyers and price is a head-scratcher for the Street.”
Drilling down on why Lyft is so hard to fit into a M&A mold gets pretty existential fast. The first question, to that end, is: What kind of asset even is Lyft? There’s no easy answer there, a tech-focused banking source told Yahoo Finance.
“It’s media, tech, and infrastructure,” the source, who works at a leading investment bank, said. “It doesn’t fit really neatly in anything or anywhere.”
Lyft doesn’t fit anywhere neatly, so there isn’t a similarly nicely-fitting acquirer. Still, there are possibilities. A tech company with an existing interest in rideshare could be drawn to Lyft, the source said, pointing to Apple’s (AAPL) previous and ill-fated investment in Chinese ride-hailing company Didi as an indication of the iPhone-maker’s interest in rideshare. (Lyft also had a tumultuous partnership with Didi of its own.) Additionally, a tech giant like Alphabet (GOOG, GOOGL) or Amazon (AMZN) with an ecosystem in which they could plug Lyft in and scale it up is also theoretically on the table, but also seems unlikely.
Outside of tech, who would even have a reason to give Lyft a second look? From here, it gets weird. A media company could possibly look at Lyft, but it would have to be a media company with a “deep balance sheet and isn’t in a mess right now,” leaving few possibilities.
An automaker might be feasible, but would need to come in with an angle. There is some backlog of automakers or even oil companies making deals linked to how they see the future of vehicles. For example, in March, Shell finalized its acquisition of EV charging network Volta for $169 million.
The last – and most obvious – possible buyer is Uber itself. However, it’s hard to imagine there wouldn’t be regulatory concerns, the sort that would only be waived in a truly dire financial situation for Lyft, the source added.
Square peg, round holes
A noteworthy nuance: Risher said that he’s “open” to offers, but that Lyft isn’t actively pursuing a sale. It’s a sentiment that Lyft repeated when approached by Yahoo Finance for comment.
“Just like any other public company, we have a fiduciary responsibility to consider what’s in the best interest for stakeholders, but importantly, this is not our focus,” a spokesperson said. “Our focus is on creating a great business built around what riders and drivers want.”
That said, here’s the thing – CEOs don’t go around saying they’re “open” to offers if they’re not, on some level, hoping there’s one out there worth considering, likely sooner rather than later. But for Risher and Lyft, it’s far more likely that there just isn’t an offer anytime in the foreseeable future – there just isn’t a wide enough world of buyers.
“Some strategics could be interested, but likely a financial buyer would make sense if Lyft decides to go down that path,” said Ives.
However – not to take the wind out of absolutely every possibility – even private equity might not want Lyft. The deal would, after all, require a lot of leverage in a high-interest rate environment, so a private equity buyer would have to be exceedingly confident that Lyft could generate massive returns. At this current juncture, that just doesn’t seem likely. Consider the company’s cash burn, depicted below.
A couple points of reference, Lyft’s Q1 revenue was about $1 billion, with a net loss of $187.6 million. Translation: They can’t afford this cash burn anymore.
A private equity firm would ultimately have to do far more than get this cash burn in order – it would have to find growth in a company that’s famously struggled to retain and build market share as compared to Uber.
“For now, it seems like they’re trying to turn this cargo ship around in a small canal,” said Ives.
It appears, for the foreseeable future, Lyft is on its own.
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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