Fidelity's Lyft Investment: Strategic Move Or Risky Bet?

In June 2018, Lyft raised $600 million in a Series I funding round led by Fidelity Management & Research Co. This investment increased the company's value to $15.1 billion, with Fidelity pouring over $800 million into the ride-hailing company, making it one of Lyft's largest investors. This funding round was part of Lyft's efforts to expand aggressively into new U.S. cities and Canada, as well as pursue its autonomous vehicle ambitions. The investment also helped Lyft gain market share in the highly competitive ride-hailing space, where it competes with rivals like Uber.

Lyft's growing market share

Lyft has been growing its market share since its launch in 2012. In 2018, the company revealed its market share figures for the first time, showing it had 35% of the US ridesharing market and a majority share in multiple markets across the country. In February 2019, Reuters reported that Lyft's market share had increased to around 40%.

Lyft's market share has continued to grow, and as of March 2024, the company accounted for 24% of the US market share, with Uber holding the remaining 76%. This growth is impressive, considering Uber is a global company, whereas Lyft only operates in North America.

Lyft's success can be attributed to its focus on cultivating a feel-good brand and providing a great ride-hailing service. The company has also been rolling out innovative features, such as Women+ Connect, which matches women and non-binary riders and drivers. Additionally, Lyft has identified interesting opportunities and executed plans to take advantage of them. For example, the company recently partnered with DoorDash to offer exclusive benefits to DoorDash customers who book rides.

Lyft's revenue has also been increasing. In the third quarter of 2024, the company generated over $4 billion in gross booking volume on about 217 million rides, both of which were up 16% compared to the same period in 2023. As of the same quarter, Lyft had 24.4 million active riders on its platform, a 19% increase from the previous year.

Despite Lyft's success in growing its market share, the company has faced some challenges. Lyft stock has plunged nearly 90% since it went public in 2019, and the company's management has been criticised for its handling of earnings reports. Additionally, Lyft's decision to not diversify its business beyond ride-hailing hurt the company during the pandemic when fewer customers were travelling. To cut costs, Lyft announced it would cut 13% of its staff in 2022.

However, Lyft's new CEO, Amazon veteran David Risher, is expected to bring a turnaround for the company. Analysts believe that Risher's experience at Amazon will help Lyft broaden its strategic aperture and create novel ways to generate value.

The company's expansion into Canada

Lyft's expansion into Canada was part of its broader push in 2017 to expand into new cities and gain market share from its main competitor, Uber. This move marked the company's first expansion outside of the United States, with Toronto being the first international city it operated in.

Lyft's entry into the Canadian market was significant as it indicated a shift in the company's strategy. Previously, Lyft had focused solely on the US market while Uber expanded globally. However, in 2017, Lyft expanded its operations in the US by more than 50% and began its international expansion with Toronto.

Lyft's Toronto launch included standard Lyft services, as well as Lyft Plus, Lyft Premier, Lyft Lux, and Lyft Lux SUV rides. The company also offered a 25% bonus to the first 3,000 drivers who completed 200 rides per week during its first three months in the city.

This expansion provided several advantages for Lyft. It allowed the company to tap into a growing market, as 70% of global ride-hailing spending until 2025 was expected to occur in North America. Additionally, Uber, the dominant ride-hailing company in Canada, did not operate in some of the country's largest cities, such as Quebec and Vancouver, giving Lyft an opportunity to gain a foothold in those markets.

Furthermore, Toronto's status as a hub for research and development in artificial intelligence (AI) for automotive settings was also beneficial for Lyft's self-driving car program. The presence in Toronto could help the company tap into the city's engineering talent and boost its autonomous vehicle efforts.

However, Lyft also faced challenges in the Canadian market. Uber dominated the Canadian ride-hailing market due to a lack of competition, and Lyft would need to compete with not only Uber but also local taxi services and smaller startup services. Additionally, cab drivers in Canada had pushed back against ride-hailing services, arguing that they weren't held to the same rules as the taxi industry.

Despite these challenges, Lyft's expansion into Canada was a critical step as the company prepared for its initial public offering (IPO). Diversifying geographically was essential to attract investors and demonstrate its viability as a business.

Lyft's autonomous vehicle ambitions

Lyft has been pursuing its autonomous vehicle ambitions by spending the past 18 months aggressively expanding into new US cities and Canada. The company has raised $2.9 billion in primary capital since April 2017, with a total of $5.1 billion raised since its inception.

Lyft has grown into one of the largest transportation networks in North America since its launch in 2012. The company believes that the world will eventually move away from vehicle ownership and towards transportation-as-a-service (TaaS) platforms.

Lyft is in the early stages of developing a fleet of autonomous vehicles (Lyft Autonomous). In the third quarter of 2024, the company produced more than $4 billion in gross booking volume on about 217 million rides, with 24.4 million active riders on its platform.

Lyft's strategy has recently pivoted towards identifying interesting opportunities and executing plans to take advantage of them. For example, the company recently partnered with DoorDash to offer exclusive benefits to DoorDash customers who book rides.

Lyft has also rolled out innovative features such as Women+ Connect, which matches women and non-binary riders and drivers. The company has also figured out ways to better monetize its network of riders, such as incorporating third-party targeted advertising into its app.

The role of Uber's missteps

While Uber and Lyft are both ride-hailing giants, Uber has been involved in several controversies, which may have helped Lyft gain market share. Uber has received negative press for everything from sexual harassment lawsuits to its use of software to track Lyft drivers. In 2017, Uber settled a class-action lawsuit by former and current employees of colour and female workers, citing events of discrimination and harassment. The company also faced an FBI probe in the same year over its use of software to track Lyft drivers.

Uber's missteps have also been in the public eye, with a #deleteUber social media movement, which likely helped Lyft gain some business. Uber's IPO was also anticlimactic, with shares opening at $42 and closing at $41.57, while Lyft's IPO raised an estimated $2.2 billion.

Uber's controversies and missteps have been in areas such as workplace culture, employee treatment, and the use of unethical software. These issues have likely played a role in Lyft gaining a stronger foothold in the market and attracting investors like Fidelity.

The cost of scaling up

Scaling up is a costly affair. Lyft has been seeking investor money, raising $2.9 billion in primary capital since April 2017. In total, the company has raised $5.1 billion since its inception. Lyft has spent the past 18 months aggressively expanding into new U.S. cities and Canada, as well as pursuing autonomous vehicle ambitions.

Lyft's expansion plans have helped the company increase its market share. In January 2017, Lyft had a 22% market share in the United States, which increased to 35% in 2018. The company's value has more than doubled in the past 14 months, reaching a post-money valuation of $15.1 billion after a $600 million funding round in June 2018.

Fidelity Management & Research Company led this funding round, investing more than $800 million in Lyft and becoming one of its largest investors. Other investors include Senator Investment Group LP, AllianceBernstein, Baillie Gifford, KKR, Janus CapitalG, Rakuten, and Ontario Teachers' Pension Plan.

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