Investors who ignore private companies do so at their own peril. Private companies can do 1 of 3 things – stay private; go public; or be acquired. Two of the 3 have a direct impact on publicly owned companies.
A perfect example became news last week when The New York Times reported privately-owned transportation network company (TNC), Lyft has explored the possibility of acquisition with several companies.
Related: AUTOMAKERS MORPHING INTO RIDESHARERS
An Indication Of The State Of Ride Sharing
Lyft was already thought to be in negotiations with General Motors Co. (NYSE:GMC). Other companies mentioned last week included Apple Inc. (NASDAQ:AAPLB), Amazon.com Inc. (NASDAQ:AMZNC), Alphabet Inc. (NASDAQ:GOOGC) and privately held Chinese ride-share company, Didi Chuxing as well as archrival, Uber.
Since Lyft seems to have plenty of cash, the move doesn’t suggest the company is in trouble. Rather it suggests that the entire ride-hailing sector (not to mention tech in general) faces growing pressure to consolidate or show profit.
As the NYT suggested, the December shutdown of Sidecar and Uber’s sale of its China business to Didi provide further indication that the ride-share sector is under pressure.
In addition, Lyft has been spending huge amounts of revenue on marketing in order to grow market share. According to Bloomberg, the company has shelled out about 60.5% of revenue for the cause so far.
Finally, Lyft said it would be testing self-driving vehicles in partnership with GM – rather than alone. The need for a partnership underscores the company’s inability to grow independently.
Uber Weighs In
Following news that Apple, Amazon, Alphabet and Didi had declined to take Lyft up on its offer to be acquired, Bloomberg reported that Uber said it wouldn’t pay over $2 billion for Lyft. Lyft reportedly tried to price itself at $9 billion and talks with GM put the company’s value at $5.5 billion.
Uber did not make a formal offer for Lyft and as was noted by Bloomberg, as a rival, Uber has plenty of incentive to deflate Lyft’s value. At any rate, Lyft would not likely consider a $2 billion offer from Uber anyway since it reportedly rebuffed GM at $5.5 billion.
Uber CEO Travis Kalanick has reportedly nixed the idea of acquiring Lyft saying he doubts such a deal was pass regulatory muster.
Importance Of Tracking Private Companies
All this discussion about the role of private companies like Uber and Lyft in the ride-sharing sector makes it imperative that investors pay attention “outside the lines.” In other words, don’t confine your research to public companies and forget the influence private (non-public) entities have on the market.
Firms like Lyft and Uber (in the ride-sharing space) are well covered by the financial press. Note that coverage and learn as much as you can about related private companies when you track a stock.