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Best tech/finance blogger on TipRanks. Alex Cho is ranked 7th among all financial bloggers, with a sector focus of technology stocks. The research he publishes captures the long-term growth potential of tech franchises, and market valuation. His research recommendations over the span of five-years has averaged into an annualized return of 19.3% across 392 ratings of which 66% were successful. Over his years of publishing, Alex Cho has been an indispensable source of information for an investment minded audience, which is why his lifetime viewership has exceeded ten million in total since 2012, across various media platforms. Furthermore, he’s frequently cited in various local business journals across the United States, and is frequently tagged with the “in-depth” designation on Google News for his public articles. The quality of his research is well known, and is well-respected which is why he’s frequently cited by other authors, journalists, bloggers and experts. Alex Cho was a former founding partner of Alexander & Cohen Capital Management, has worked as a consultant for mid-stage tech companies looking to raise capital or form an exit strategy, with the most recent consultation billed to a client that was generating revenue of $10 million+ in the web domain/registrar segment. Alex Cho is frequently invited to interview members of management at various Fortune 500 tech companies’ due to his outstanding media credentials, and credibility. Furthermore, he frequently attends various tech media events at the request of the event organizers. Alex Cho has a great relationship with Wall Street and Silicon Valley, as well. In the Venture Capital Space, he has sources that are inclusive of VC Partners, and independent research from PitchBook, Mercury Data, eMarketer, MergermarketGroup, and so forth. Anyone facing the public with investment related material needs quality sources, which should be inclusive of insights from Private Equity and various sell-side institutions and debt rating agencies as well (Standard & Poor’s, Fitch, & Moody’s). Alex Cho publishes with the support of Bank of America Merrill Lynch, Morgan Stanley Americas, Royal Bank of Canada Capital Markets, United Bank of Switzerland AG, Barclays Americas, Goldman Sachs, J.P. Morgan, Credit Suisse AG, PiperJaffray, Wedbush Securities, Oppenheimer & Co., Nomura Securities, BMO Capital Markets, Raymond James, Pacific Crest, SunTrust, Mizuho Securities, Deutsche Bank and Canaccord Genuity. Alex Cho attended ASU via the MAPP program with a 3.76 GPA in business-finance. The genius behind Cho has less to do with his academic accomplishments, but rather his ability to navigate, adapt, and improve the quality of his work through all the activities he has engaged. In the past year, Alex Cho has launched a new marketplace service referred to as Cho’s Investment Research. To learn more about this service, or to receive article notifications, be sure sure to subscribe. We provide frequent updates via our Blog Posts, which goes out to our subscribers.

A Significant Drop for Lyft Stock Could Signal Opportunity


Lyft (LYFT) went public as of March 29th, 2019 with much fanfare making it the first of the graduating unicorn class of 2019. The stock flew higher on the opening session closing the session up by nearly 9% with a closing price of $78.29. The company was able to price its shares at $68 and will raise appx. $2.2 billion from the IPO, which will recapitalize the balance sheet, diminishing the impact from cash burn.

On first impressions, Lyft’s market capitalization of $21.848B seems a bit generous, but given the company’s long-term growth runway, and the potential to improve total passenger figures, and the net revenue per passenger there’s actually a compelling growth thesis here. Lyft is nowhere near market saturation and despite indications that it’s growth rate is slowing, there’s still a reasonable likelihood that the firm can grow into its valuation.

Prior to the IPO, the company has burned a lot of cash to sustain its growth rate, which is (probably) why Lyft went public. If you can look past the insane financial losses of $682 million, $688 million and $911 million for FY’16, FY’17 and FY’18, the financial thesis hinges mostly on projected performance and profitability.

The company might not be profitable in the next couple fiscal years, but there’s certainly an indication that they can reduce financial losses over the next couple years and sustain its eye-popping growth figures. Furthermore, the duopoly-like structure between Uber and Lyft diminishes any meaningful prospect of competition as they continue to disrupt the yellow cab industry (which is well on its way to the grave).

Key business metrics you may have missed

The company’s growth narrative hinges on two things. The number of riders (passengers), and the amount they earn per active passenger. The amount they earn per passenger tends to increase over time, as usage of the ride sharing app tends to increase the more familiar the passenger becomes with the experience. Furthermore, even though car ownership trends remain mostly stable/constant in the United States, the use of Lyft even among pre-existing car owners has trended higher due to practical reasons, people leaving the bar (risk of DUI), or airline travel (upon leaving the airport you can either hail a cab or request a Lyft). Personally, I’d go with Lyft, and I tend to follow my own advice…

The alternative mode of transportation has increased in popularity over the years due to its competitive pricing, ease of use, and added functionality. It’s a better ridership experience, and so the growth in passenger ship will likely continue, as illustrated (below).

Source: Lyft S-1 filing

Active ridership has trended higher from 6.6 million at the end of FY’16 to 18.6 million riders at the end of FY’18. A tripling in total riders over the past 3-years, and this trend is likely to continue as more and more become familiar with the ride-hailing application.

The company’s growth in ridership will likely continue given the population demographics of the United States, and the prospect for further adoption in international markets. It’s not a very capital-intensive business model, and deployment into international markets depends on driver on-boarding, and app installs.

Source: Lyft S-1 filing

Revenue per user has trended higher in the three-year trailing period as well (doubled). So, not only are customers requesting more rides over time, the numbers of riders are set to increase exponentially. If anything, the RPR (revenue per rider) is trending much higher on a net-revenue basis (not factoring in the cost of compensating drivers) than many other per user models (including social networking and even video streaming), which is why the business is so attractive in comparison to various other internet-based models.

Source: Lyft S-1 filing

On average, passengers have increased the usage of the app by 266% over three-years (based on the 2015 base year), which implies that as the ridership ages, the number of times they request a ride will also correspondingly increase. This doesn’t even factor in the potential growth from charging passengers more money per ride, but that’s also another growth lever they can use to sustain revenue growth or improve profitability.

Lyft reported revenue of $2.156 billion in FY’18, which translates to a 10.12x sales multiple. Despite the high valuation, and the lack of profitability, it’s really the growth prospects of the business that makes the valuation tolerable.

Because non-profitable businesses are difficult to value, it’s likely to be more volatile like other tech companies following IPO, i.e. Amazon, Facebook, and etc. Despite the volatility, the ride-sharing business model is extremely attractive, because there’s a much higher ceiling to the amount that can be generated in terms of total revenue per active user, and it has enough wide-spread appeal to be adopted like social networking, or video streaming, for that matter.

On the downside, stocks tend to drop following IPO, and Lyft might not be any exception to this rule. However, on a significant drop, the stock is an extremely attractive buy. Heck, even without a drop, it’s still an attractive growth vehicle where investors could experience multi-bagger returns assuming these growth trends continue over the next five-years, and the company turns profitable.

 

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