Credit Mike Coppola/Getty Images for Lyft
Ride-hailing companies increasingly face a brutal set of competitive conditions. Lyft, the second-biggest ride-hailing company in the United States behind Uber, has acknowledged how tough the industry has become â but has found that its options are limited.
The company, which is based in San Francisco, has in recent months held talks or made approaches to sell itself to companies including General Motors, Apple, Google, Amazon, Uber and Didi Chuxing, according to a dozen people who spoke on the condition of anonymity because the discussions were private.
Lyftâs discussions were most serious with G.M., which is one of the ride-hailing companyâs largest investors. Still, G.M. never made a written offer to buy Lyft, said the people, and in the end, Lyft did not find a buyer.
Lyft is not in danger of closing down and has a cash cushion of $ 1.4 billion, these people added, so the company will continue as an independent entity.
Still, the talks underline how difficult it has become to operate in the ride-hailing market, where people can book rides from drivers through a smartphone app. While ride-hailing companies do not own their own fleets of cars and instead rely on drivers who have their own vehicles, the business is highly capital intensive, requiring deep pockets for expansion into new markets, marketing and recruitment of new drivers. Venture capitalists and other investors have poured billions of dollars into the companies.
Tensions have escalated in the industry in recent months as some ride-hailing companies have grappled with their most expensive operations. This month, for example, Uber, which has raised far more money than Lyft, agreed to sell its Chinese subsidiary to Didi Chuxing, the biggest ride-hailing company in China. The deal freed Uber from a cash-sucking battle for dominance in the China market.
But the move also disrupted a global alliance that Lyft had struck with Didi and others to fight Uber. Lyft has not stated whether it will continue working with Didi, but the dissolution of a partnership could stymie Lyftâs growth prospects.
Representatives from Lyft, Google, Amazon, Apple, G.M. and Uber declined to comment on talks. The Information earlier reported on talks between G.M. and Lyft.
The effort to sell Lyft was aided by bankers at Qatalyst Partners, the boutique investment bank founded by the veteran Silicon Valley banker Frank Quattrone, said the people with knowledge of the talks. Qatalyst declined to comment.
Lyft failed to find a buyer partly because of cost, the people said. Lyft was valued at $ 5.5 billion after an investment round by G.M. and others in January, making it one of the more pre-eminent unicorn companies in Silicon Valley. Any sale would most likely have to fetch a premium at more than Lyftâs last valuation.
Lyft also struggled to find a buyer because of the challenging economics of the ride-hailing business. Companies like Lyft and Uber typically take 20 percent to 25 percent of the cost of each ride. With Lyft drivers expected to pick up an estimated $ 2 billion or so in fares this year, that meant Lyftâs annual revenue would be about $ 400 million, according to a person familiar with the companyâs financials.
That $ 400 million shrinks after marketing costs are factored in. To win loyalty from drivers who can also work for Uber, Lyft also sometimes lets drivers keep that 20 percent to 25 percent of some rides, so the company effectively earns no revenue in those situations. And in some cases, Lyft provides drivers with additional cash incentives simply to get out on the road, adding to its costs.
Lyft is not profitable, said a person briefed on the companyâs finances. Yet it has a $ 1.4 billion cash hoard, the person added, and the company thinks that will shield it as it works toward achieving profitability.