It is not surprising that young technology companies can not make a profit, but it worries analysts who need to assess their financial well-being.
Consider Lyft, which lost $ 911 million last year and launched an initial public offering of $ 24 billion last month, becoming the first publicly-hired carpooling company. Since the Lyft IPO, Wall Street analysts have sounded the alarm about the company's losses and questioned whether it will achieve profitability.
The last analyst to raise this concern – which Lyft and rival Uber are facing – was Shyam Patil, Susquehanna's internet analyst. He started coverage of Lyft coverage this week with a "neutral" rating and a $ 57 price target.
In its cautious report, Patil said Lyft, the second-largest car sales company in the United States, could achieve profitability within a seven-year time frame. He arrived at this projection after examining how much the company spent per trip and passenger in 2018.
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Analyzing the two metrics, Patil said that Lyft appears to have "positive unitary savings", which means that it generates value from the fundamental units that make up all of its operation: rides and passengers.
"As such, if the company is able to continue to acquire and retain customers with such characteristics, profitability must be achieved as the business is staggered," Patil wrote, adding that he still expects Lyft to operate at a loss on the short and medium term. term.
"We recognize that the company did not provide many of the inputs needed to accurately calculate the economy of the unit, but we see our analysis as illustrative and within the limit."
Patil considers two key factors in assessing whether Lyft will ever make a profit: if it can sustain growth with its current rate of marketing spending (various incentives and direct spending on advertising) and insurance costs.
He estimates that Lyft spent about $ 1.90 a run last year on marketing and $ 1 a run last year on insurance costs, the latter occupying 30% of Lyft's revenue per trip. Marketing spending, however, has fallen in recent years, which Patil found encouraging.
Last month, in an interview with Bloomberg, Lyft co-founders Logan Green and John Zimmer could not say whether the company would be profitable in the next five years.
"We can not talk about the future, but what we can say is that we prepare to offer long-term shareholder value," Zimmer said.
Shares of Lyft have tumbled 33 percent since the Nasdaq debut last month.
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