Ride-hailing app Lyft has always lived in the shadows of the unarguably more popular Uber, and now it looks like the company is looking for buyers, albeit unsuccessfully. Reportedly, Lyft approached Apple, Google’s parent company Alphabet, Amazon, and Microsoft, sources told The New York Times on conditions of anonymity because buyout discussions are generally a private matter. Another source told The New York Times that it was the companies that actually approached Lyft, not the other way round. Furthermore, a source told Recode that Lyft is asking for as much as $9 billion and as a result failing to secure any serious interest from potential buyers.
— BoomerBeat Views (@boomerleighty) August 20, 2016
Despite the lukewarm interest in buying Lyft, the company is in no danger of closing down. It will continue to compete with Uber until it finds a buyer, primarily because it has a cash cushion of $1.4 billion. There is an inherent challenge in selling a ride-hailing app like Lyft.
“One of the challenges for these companies is to figure out how to grow and sustain that latent demand for these businesses, but also to eventually become profitable. Part of the challenge in evolving those services is just balancing out those factors. And that’s not an easy task,” Susan Shaheen, co-director of the Transportation Sustainability Research Center at the University of California, Berkeley, told The New York Times.
“There isn’t a single company that has all of this expertise — software, manufacturing, ride-sharing — under one roof. That’s where acquisition comes in,” she adds.
General Motors (GM), an investor in Lyft, was actually the first company to show any interest in buying the ride-hailing startup. Post GM showing interest in buying Lyft, the company hired investment bank Qatalyst to find other potential buyers. Lyft is valued at $5.5 billion, and GM paid $500 million for a nine percent stake at the start of this year.
Interestingly, the buyout news comes close on the heels of the news that Lyft had a record month in July, according to a letter that the company sent to its investors, which was leaked to Recode. In July, Lyft made 13.9 million rides, which is 1.5 million more rides, or 12 percent more than the company performed in June 2016.
The document reads, “Lyft attracted the largest number of new passengers and drivers in a single month, as well as the highest number of active passengers and drivers since inception.” However, in comparison, Uber did 62 million rides in July, which is evidently far more than Lyft.
The Recode article analyzed why Lyft is planning for a buyout.
“While it’s not out of the realm of possibility that these companies could make a bid for the company at a later time, it’s become clear that at present Lyft has few options outside of selling to GM. For one, Uber isn’t slowing down. The company’s move to pull out of China may have been a signal that the company was accepting defeat in its largest market, but it also was a sign that Uber CEO Travis Kalanick is preparing to take the company public — several sources expect the company will do so in 2017. To attain a better IPO position, sources say it’s in Uber’s best interest to either drive its only U.S. competitor out of the market or at least significantly handicap it. With its recent $1 billion infusion from Didi, Uber has the resources to do so through subsidies and promotions.”
Now, a subsidy war with Lyft might prove to be more expensive for Uber primarily because it has more ride volume than its competitor. Sources told Recode that Lyft may not be able to sustain a subsidy war, especially since Lyft snubbed General Motors’ buyout offer.
Another interesting point to consider is that Uber selling its Chinese subsidiary to Didi — the biggest ride-hailing app in China — indicates that it put brakes in the plans of a global alliance that Lyft had struck with Didi and others to fight Uber’s monopoly. It is unclear if Lyft will continue to work with Didi.
After all is said and done, Lyft might have to wait a while before it can find a buyer willing to pay the amount the company has quoted.
[Photo by Mike Coppola/Getty Images]