Lyft's first Wall Street analyst to launch coverage of the stock gave it a buy rating. Here's why he says the company could be worth $25 billion

Reuters / Jason Redmond

• Lyft is racing towards an initial public offering (IPO) that could launch as soon as next week.
• Ahead of the IPO, the company nabbed its first buy rating from a Wall Street analyst.
• Tom White of D.A. Davidson gave the company a $75 price target, which translates to a valuation of more than $25 billion - its highest target yet.

More than a week before shares are set to trade on the Nasdaq stock exchange, Lyft has already nabbed its first buy rating from a Wall Street analyst.

Tom White, an internet analyst at Montana-based D.A. Davidson, launched coverage of the ride-hailing name on Tuesday, giving shares a roughly 15% premium to the $62-$68 range set out by the company ahead of its trading debut.

"Our BUY rating reflects LYFT's impressive recent U.S. market share gains and momentum, the continued growth/expansion of the broader Ridesharing market, and the stock's reasonable EV/Sales multiple," White said in a note to clients.

Read more: Lyft's $23 billion IPO is already oversubscribed

According to White, Lyft has boosted its market share in the US from 22% to 39% in the past two years. That's at least in part thanks to Uber's disastrous 2017, when the #deleteUber campaign helped Lyft nab some users from the competitor. It even acknowledged those gains in its public filing earlier in March.

Lyft's branding has helped too

The company has branded itself as a more socially conscious alternative to Uber, with initiatives like going carbon neutral, free rides, a commitment to public transit, and more.

"Differentiating its brand in this way has provided good "PR" for LYFT, but it's also been good for business (specifically in terms of customer acquisition efficiency)," White said.

But there are risks

Profitability is still a key question for ride-hailing investors. Both Uber and Lyft remain deeply in the red, and there doesn't appear to be much light at the end of the tunnel.

"It remains unclear whether Lyft can be profitable as the #2 player in U.S. ridesharing, while still paying its drivers," White said. Lyft did some damage to its driver-friendly reputation by suing New York City over a new minimum wage law for drivers. The company maintained that its beef with regulators was how the pay was calculated, and not with paying a fair wage.

A spokesperson said this week that the new rules caused average fares to increase 24% while driver earnings fell 15%.

"Lyft's ability to reduce incentives for drivers and riders (critical tools for creating balance in its ridesharing marketplace) will be a key lever to its near-term profitability outlook," said White.

Perhaps more interesting than White's analysis of Lyft's financials are the other companies in his coverage universe.

Investors are having a tough time deciding which companies to compare Lyft to. While internet-based, the company has little similarity to other digital stocks, like Amazon or Google, but there's also not any public ride-hailing companies to compare it to. Other analysts, like Santosh Rao of Manhattan Venture Partners, has compared it to other platform companies like Alibaba or Etsy.

Other stocks under White's coverage include Zillow, Expedia, TripAdvisor, and Yext. The comparisons will be top of mind as the company prepares for its IPO next week and other Wall Street analysts launch coverage.

"We believe the transportation market is in the midst of a global societal shift towards a model that features less personal car ownership over time in favor of Transportation-as-a-Service 'or TaaS' solutions," White said.

"Lyft is at the leading edge of this evolution today."