Honey, I shrunk the revenue multiple
With new leadership and a soon-to-be-thinned employee base, Lyft is going to look a heck of a lot different at the end of 2023 than it did at the start. After its co-founders said they’d relinquish their roles as CEO and president in March, the company last week said it intends to dramatically cut its staffing by as much as 30%.
The changes were probably necessary. Lyft, as it turns out, is not nearly as valuable a company as its founders and backers once expected. And that’s an odd thing to realize if your startup was able to raise billions while private and eventually price its public offering at $72 per share, raising more than $2 billion and commanding a fully-diluted market cap of around $24 billion.
Things have changed, though. Lyft’s shares ended last week at $10.44, up a solid 6% on the news of the impending layoffs. That helped it recoup some of its lost value, but the company is worth just $3.9 billion this morning.
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It’s somewhat strange to consider, but the ride-sharing company’s stock is trading near historic lows despite it reporting revenue of $1.18 billion in Q4 2022, its best single-quarter revenue result ever. The company lost around a third of its value after it forecast revenue for its first fiscal quarter below what analysts had estimated.
The lesson here is that quick revenue growth can make companies look like they’re excellent investments when capital is cheap, but it’s often hard for any firm to outrun the relative valuation range for its industry, even if it is tech-enabled.
Lyft is only the latest to join the group of public-market duds that have spent time as venture darlings. To pick only two examples: Allbirds has given up most of its historical value, and Warby Parker has shed around 80% of its peak valuation. The list is long and some of the most beat-up recent venture-backed IPOs share a quality today: Impressively low revenue multiples.
The squeeze
We talk a lot on The Exchange about revenue multiples, mostly discussing what the value of one dollar of recurring, hosted software revenue is worth. We use this perspective frequently because software is the most common startup product and software-as-a-service (hosted software, that is) is the most common business model.
