The story of Lyft’s rise to glory is quite a tale.

The ride-hailing service filed to go public on Friday with a potential valuation of $20 billion to $25 billion, with a familiar prospectus which shows rising revenue which could one day turn into immense future profits as well as overall losses which could send the company under without a cash injection.

The path to success was hard fought for Lyft, and many market analysts have warned prospective investors to exercise caution and think carefully before investing in the company’s stock, citing major issues in the business model and voting structure.

From Humble Beginnings

Lyft was founded in 2007 under the name “Zimride”, a company allowing users to organize carpools to save money on trips. The company floundered for years before pivoting in 2012, inspired by Uber Black, to design a mobile app that allowed users to hail cars identified by a fuzzy mustache on the grill as a form of viral marketing.

Lyft and Uber would struggle against each other for years in territorial disputes, with New York city becoming the epicenter of the startup turf war. Local taxi unions also got involved, going on strike in protest of reduced earnings as a result of the unregulated ride-hailing services. The strikes resulted in a defeat for both Uber and Lyft, with new legislation limiting the amount of ride-hailing cars permitted in the city last year.

Uber currently has over 5 times the market share that Lyft does, but the company has still become a household name generating billions in revenue. However, as is often the case, revenue does not necessarily equal profits, and it could be that the IPO is a risky move which won’t save the company from running at a loss.

Lyft Warns Company May Never Turn A Profit

3/ #lyft 🚗 #IPO

Large portion of American users still don't use #rideshare. Oppty for growth. Last mile rides (bikes, scooters) represent better growth and potentially better unit economics. Ride-sharing could potentially improve driver utilization. pic.twitter.com/um6NMSK9C2 — Chood (@chintu30) March 2, 2019

Lyft’s revenue has doubled annually, reaching a sizeable $2.2 billion last year while also recording increasingly large net losses which amounted to $911 million last year.

The company has gone so far as to say that it may never turn a profit, forced to face facts in the IPO prospectus which requires the firm to state plainly the risks and possibilities involved for potential investors.

We have a history of net losses and we may not be able to achieve or maintain profitability in the future.

In that simple sentence, the company admits that despite being a well-known ride-hailing behemoth with billions in revenue, it has never actually made any money, and may never successfully turn a profit at all. The net loss of the past three years was $2.3 billion.

That said, other major companies like Twitter, DropBox, and Shopify went public under similar conditions and ended up turning a profit over time.

Business Model

Unlike its main rival, Uber, Lyft is staying out of the food delivery business and staying focused on app-based North American ride-hailing services. Users download an app which geolocates them and allows them to hail a ride, typically within minutes, from a driver with a visible profile featuring reviews.

The company is also investing heavily in self-driving car technology which may eventually replace Lyft drives altogether and has acquired a UK-based augmented reality company to help build maps for the company. The company’s greatest expense is currently research and development, closely followed by administrative costs.

Can Lyft Survive Another Year?

It’s unclear if Lyft can survive the next 12 months without raising capital, and the company prospectus makes it clear that profitability is not attainable in the near future.

Our expenses will likely increase in the future as we develop and launch new offerings and platform features, expand in existing and new markets, increase our sales and marketing efforts and continue to invest in our platform. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business.

The company saw $1.1 billion in cash and cash equivalents in late 2017 shrink to about half that ove a 12 month period, with $518 million by December 31 2018. At that rate, the company looks to run dry by the end of year, although the prospectus states that the company can keep things running until 2020.

We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditures needs over at least the next 12 months.

Experts Discuss IPO

With a significant market share and massive brand awareness, there’s no doubt that the company may have long-term potential. However, experts have advised caution when it comes to the Lyft IPO, stating that investors should know what they’re getting into.

David Karp, a financial advisor and co-founder of wealth specialist firm PagnatoKarp, said that investors should decide for themselves whether Lyft is a tech stock, a transport stock, or a platform, and consider the potential value of each option.

It may be a combination of all three of them, and then you have to decide what kind of valuation it should command

Karp acknowledged that ride-sharing companies like Lyft would continue to grow, but stated that whether they can do so profitably is, as of yet, uncertain.

People fall in love with a service or a product or a platform. We’ve seen throughout history that great services, great products don’t necessarily make great businesses.

Others criticized the proposed voting power that would be given to co-founders Logan Green and John Zimmer, who hold the positions of CEO and President respectively. The current IPO prospectus includes the condition that Green and Zimmer be allocated 20 votes each when it comes to board decisions, a dual-class structure which some say gives the founders too much control over decisions which impact investors.