with a new leadership And with a soon-to-be thinning employee base, Lyft will look a lot different at the end of 2023 than it did at the beginning. After its founders said they would step down from their roles as CEO and president in March, the company said last week that it intends to drastically cut its staff by up to 30%.
Changes may have been necessary. As it turns out, Lyft isn’t nearly as valuable as its founders and backers once anticipated. And that’s an odd thing to realize if your startup can raise billions while private and eventually price its IPO at $72 per share, raising over $2 billion and capturing a fully diluted market capitalization of about $24 billion.
But things have changed. Shares of Lyft closed last week at $10.44, up 6% on news of impending layoffs. That helped offset some of its lost value, but the company is only worth $3.9 billion this morning.
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Somewhat odd to think about, but shares of the ride-sharing company are trading near historic lows even though it reported $1.18 billion in revenue in the fourth quarter of 2022, its best quarterly revenue result ever. The company lost about a third of its value after it projected lower revenue for the first fiscal quarter than analysts expected.
The lesson here is that rapid revenue growth can make companies look like excellent investments when capital is cheap, but it’s often hard for a company to go beyond the valuation range relative to its industry, even if it’s backed by technology.
Lyft is just the latest to join the group of mass-market rednecks who have spent some time as adventure darlings. To pick just two examples: The Allbirds have given up most of their historical value, and Warby Parker has given up 80% of their peak value. The list is long and some of today’s most successful venture-backed IPOs share a quality: impressively low revenue multiples.
the pressure
We at The Exchange talk a lot about revenue multiples, and often discuss the value of one dollar of recurring hosted software revenue. We use this perspective frequently because software is the most popular startup product and Software as a Service (hosted software, that is) is the most popular business model.