Markets

Lyft gets its first Wall Street buy recommendation and it's not even public yet

Key Points
  • Lyft won't list on the Nasdaq until the end of March. But one Montana-based investment firm is already rating it a "buy."
  • D.A. Davidson initiated coverage with a $75 price target. The arch-rival to Uber is expected to price between $62 and $68 per share. 
  • Tom White, senior research analyst at D.A. Davidson cited the start-up's ability to chip away at Uber's dominance in recent years while "deftly maximizing the benefits by aggressively differentiating its brand/mission around socially-conscious values."
Ramin Talaie | Corbis News | Getty Images

One Wall Street firm is recommending its clients buy Lyft weeks before that's even possible.

The second-most popular ride-hailing app is gearing up to list on the Nasdaq at the end of March. According to its regulatory filing, Lyft expects to be valued at $20 billion.

Montana- based firm D.A. Davidson isn't waiting until shares, which will trade under the symbol "LYFT," are ticking away to recommend getting in. Tom White, senior research analyst at the firm initiated coverage with a "buy" rating and a $75 price target on company. The arch-rival to Uber is expected to price between $62 and $68 per share.

White cited the start-up's ability to chip away at Uber's dominance in recent years. Lyft has upped its market share from 22 percent of the market, to 39 percent over the past two years.

While it has benefited from a series of public relations and operational stumbles at its main competitor Uber, Lyft is "deftly maximizing the benefits by aggressively differentiating its brand/mission around socially-conscious values and corporate responsibility," White said.

White is also bullish on the total addressable market for personal transportation, which he said U.S. consumers are spending $1.2 trillion on annually. 

"On-demand services have already disrupted traditional ownership models in sectors like entertainment/computing," White wrote in a note to clients after the closing bell Tuesday. "The continued population migration to cities and the rising costs of personal car ownership will further drive adoption of "Transportation as a Service" (TaaS) models over the coming years."

Lyft released its long-awaited IPO prospectus in early March, showing that much like Uber, it's losing money. The San Francisco-based company lost $911 million on $2.1 billion in revenue last year, according to the filing. Lyft expects sales to grow faster than its losses.

Still, there's plenty of enthusiasm for the IPO across Wall Street. According to a Reuters report Tuesday, the public offering is already oversubscribed based on investors' commitments. This would make it likely the ride-hailing startup could exceed a $23 billion valuation, according to the report, which cited people familiar with the matter. The company's roadshow is already underway.

Meanwhile the biggest player in the market, Uber, is reportedly looking to kick off its own IPO offering next month in a deal valuing the San Francisco-based company at $120 billion. Other Bay-area tech firms Airbnb and Slack have have also signaled plans to go list in the U.S. this year.

There are risks though. White cited uncertainty around its long-term margins, risks associated with its positioning in autonomous driving technology, and the "fluid" regulatory legal landscape for the ride-sharing industry.

"We question Lyft's competitiveness when it comes to scaling its own autonomous driving system (primarily due to relative lack of scale and a late start,) but believe LYFT's "platform" play for other autonomous driving players can help afford LYFT some time to either perfect/scale its own technology or secure a long-term partner," White said.