Lyft, the ridesharing company set to hit public markets Friday, will be a good stock to buy in the short term but it has challenges in the long run, CNBC's Jim Cramer said Friday.
"I think Lyft is exactly the kind of stock that can work in this slower growth environment, but you need to be careful with these fresh-faced IPOs," the "Mad Money" host said. "Short term, I'm betting this turns out to be a good trade, but as a longer-term investment I'm more skeptical."
In evaluating the tech company, Cramer highlighted pros and cons about Lyft as it looks to continue taking market share in the growing transportation-as-a-service business. He predicted the company will be worth $21.5 billion and the stock could sell between 3.8 to 4.8 times next year's sales.
"I think the stock can go to $75 before it starts getting expensive relative to its peers, but for all we know it will go to $75 immediately after it starts trading. After that, I think you need to get more cautious."
Lyft is a great growth story, the host said. After launching in San Francisco in 2012, it has expanded to more than 300 markets across the country and Canada. With 18.6 million active users as of December, 1.1 million drivers, and 39 percent market share, it practically has a duopoly with Uber, he said.
The company has a good balance sheet because it has no problem raising money, but it spent $1 billion in 2018 and plans to top that figure in 2019, Cramer noted. Although its gross margins improved from 18 percent in 2016 to 42.3 percent last year, Lyft has a ways to go before it is profitable because it is spending to expand and take market share, he added.
"The biggest concern here is that Lyft lost nearly a billion dollars last year and we have no idea when it will become profitable," Cramer said. "Yesterday the company held a major investor meeting where they indicated that 2019 will be a peak year for investing in the business ... The problem here is that if anything starts to go off the rails, there's nothing propping up the stock."
Lyft's bookings growth has also slowed from 140 percent in 2017 to 75 percent in 2018, Cramer said. The good news is its revenue as a percentage of bookings has continued increasing 18 to 27 percent in the past two years, meaning the company is making more money per ride. But the company could miss user expectations as bookings ease, similarly to the active users on Snapchat, the picture and video app owned by Snap Inc., Cramer said.
Additionally, the transportation sector is highly regulated, especially at the local and state levels where disruptive tech companies don't get much love from politicians, Cramer said. He also criticized its dual-class ownership structure, which gives nearly half of the voting power to its founders: CEO Logan Green and Vice Chairman John Zimmer.
"When shareholders don't have the ability to remove management, you can end up with some perverse incentives," the host said. "This is something else Lyft has in common with Snap, and it's pretty suboptimal."
WATCH: Cramer explains why Lyft may run into trouble in the long run
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