NEW YORK/BOSTON (Reuters) – Union pension fund adviser CtW Investment Group said on Thursday, Lyft Inc “represents an almost insurmountable barrier” to profitability as a result of problems with the ride-hailing company’s pricing strategy and the new regulations drive costs higher.
The Lyft Driver Hub is seen in Los Angeles, California, USA, March 20, 2019. REUTERS/Lucy Nicholson
The comments come four days into the roadshow for Lyft the long-awaited initial public offering (IPO), which aims to raise around $2 billion on a valuation of $23 billion.
Investor demand has been strong until now, with the IPO book oversubscribing after just two days, making it more likely that Lyft will hit or even exceed the valuation target, Reuters reported Tuesday.
This is despite Lyft because they have not yet turned a profit, reporting a loss of € 911 million in 2018, wider than the $688 million loss in 2017.
In a letter to potential investors in the IPO, CtW argued Lyft can only be cost-effective by reducing the share of income received by the drivers. CtW said Lyft and larger rival Uber Technologies Inc this strategy.
“In the past three years, Lyft has imitated Uber’s pay compression strategy and IPO investors face the risk that the much smaller company is not able to maintain low wages for longer than the market leader,” CtW Research Director Richard Clayton wrote in the letter.
CtW said challenges for Lyft would also come from local politicians, including a move by New York City for the setting of a minimum wage for drivers.
CtW works with union pension funds affiliated with Change to Win and that says the joint managing $250 billion in assets.
Asked why CtW was his comment on Lyft ahead of the IPO, Clayton said in a statement via e-mail the group wants to ensure that the decision makers in the management of the employees retirement savings a careful look at Lyft before deciding whether to buy in the IPO. CtW also gives the driver ‘ s trade unions, which may be affected by the rise of ride-hailing services.
A spokesman for Lyft declined to comment.
In meetings with investors this week, Lyft executives said that the company would be profitable much earlier were it not for investment in areas such as the scooter business, Reuters reported. Lyft executives also said that they expect the cost of processing transactions to come down.
Lyft is scheduled to price its IPO on March 28, and begin trading on the Nasdaq the following day.
Reporting by Joshua Franklin in New York and Ross Kerber in Boston; Editing by Susan Thomas