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Lift Gets Hit With First "Sell" Rating – The Motley Fool



Ridesharing platform Lift (NASDAQ: LIFT) has only been trading on the public market for a couple of days, and it's been a bumpy ride. Shares fell below the IPO offering price of $ 72 yesterday, with many other Silicon Valley technology unicorns that are preparing to go public keeping a close eye on the action. Seaport shares just hit with their very first sell rating at Seaport Global Securities, which has a $ 42 price target after initiating coverage.

Here's what investors need to know

 Person walking up to a large black SUV with a lift [Source] [Source:19659006] Lofty valuation requires a "leap of faith" </h2>
<p> The biggest concern that Seaport analyst Michael Ward has is valuation. Ridesharing is still a relatively nascent market, with come from rideshare networks. While adoption continues to be higher, particularly in urban cities, it's less clear where the upper limit will be, as many consumers will ultimately prefer to own private vehicles, particularly in suburban and rural areas. </p>
<p> "Investors need to take a big leap of faith that the millennials and later generations will forgo ownership of a car and instead of reliance on a ridesharing service, "the analyst wrote. "Despite the optics of vehicles being underutilized asset, we believe people will continue to own their own vehicles as primary transportation and instead rely on ridesharing services as a convenient supplement." </p>
<div class= Lift app interface displayed on three smartphones

Image source: Lyft.

It's true that the average driver's car is underutilized – most people's vehicles are idle 95% of the time – and that we collectively allocate far too much real estate to parking. It's also true that people put a premium on the independence, convenience, and freedom of mobility that provides a car. Even as a lift is expected to grow active riders, which now total over 18.6 million and will help grow revenue, profitability will remain elusive for the foreseeable future.

Ward is modeling for Lyft to generate $ 3.4 billion in revenue in 2019, up from $ 2.2 billion in 2018. Sales should then climb to $ 5.5 billion by 2021, according to Ward's estimates. Lifting is targeting a 20% EBITDA margin, but doesn't really have any good ideas how to get there. For reference, here's Lyft's adjusted EBITDA margin from the past three years.

Metric

2016

2017

2018

Adjusted EBITDA

($ 665.5 million)

($ 696.1 million)

($ 943.5 million)

Adjusted EBITDA margin

(194%)

(66%)

(44%)

Data source: Prospectus

While valuation is often a comparative exercise of measuring a company against a peer, Lyft has no pure-play rivals that are publicly traded (yet). Still, no one would argue that If shares are cheap, then they trade for more than 10 times while the company's costs are already too high to turn out a profit. Intensifying competition will only make positive margins even harder to achieve, and Uber is notorious for its willingness to burn through investor capital in order to expand market share at the expense or rivals.


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