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The Ratings Game: Is a Lyft acquisition in the cards? ‘It’s not so clear-cut,’ analyst says.

On paper, Lyft Inc. seems like a fairly logical acquisition target: Its shares have taken a serious beating, its founders have stepped back and it is dwarfed by Uber Technologies Inc. in its market.

And indeed, the prospect of a Lyft LYFT, +2.09% takeover seems top of mind on Wall Street these days, according to Bernstein analyst Nikhil Devnani. “Almost every investor conversation we have on [Lyft] these days lands on a discussion of whether the business could be acquired,” he wrote Thursday.

Lyft Chief Executive David Risher, who took over the top post in March, told Bloomberg News in May that the company would be open to deal offers but wasn’t actively in pursuit of them.

See also: New Lyft CEO’s ‘unusual’ pay structure is a ‘sign of the times’

“It’s not so clear-cut,” Devnani wrote of a possible acquisition. For starters, he’s not sure who would — or could — step in to buy the beleaguered ride-hailing player, which has seen its market capitalization decline to about $4 billion from about $20 billion two years ago.

Read: Lyft has a ‘challenging if not daunting’ road ahead as stock slides further

DoorDash Inc. DASH, +0.16% seems an “unlikely” suitor given its size and the fact that it “isn’t struggling for engagement and retention of users or driver acquisition,” he wrote. And Alphabet Inc. GOOGL, -0.41% GOOG, -0.34% and Amazon.com Inc. AMZN, +2.29% sound like decent options, “but regulators would be up in arms,” and Alphabet recently expanded its relationship with Uber. Lyft’s rates of cash burn, meanwhile, “will make the math hard” for prospective private-equity suitors.

“That leaves us with the auto manufacturers [who have autonomous-vehicle] ambitions, which could work,” Devnani wrote.

On one hand, “the cumulative [free-cash-flow] burn would tell you that it can be equally expensive to replicate [Lyft], with execution risk,” he noted, in which case “having a ride-share network could be strategically valuable in deploying autonomous vehicles down the road.”

However, “providers may want to partner with both ride-share platforms, rather than buy an exclusive (smaller) network.”

While a prospective buyer might see a long game in terms of autonomous-vehicle opportunities, the technology is still a ways away, and that acquirer would have to put up with steep losses in the near term. Lyft burned $3 billion of cumulative free cash flow over the past five years and, as Devnani noted, it is “still far off from GAAP profitability.”

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Devnani is also not sure what stakeholders might determine to be a fair price.

“There may be pushback to a deal at the ‘typical premium’ (which recent history tells us is roughly ~40% in tech) given the underperformance in the stock over the past year,” he wrote. “That said, with a market cap of $4 [billion], even an above-average premium could still be digestible.”

The prospect of a Lyft acquisition marks a “negative risk” for Uber UBER, +3.20%, in Devnani’s view, “but we’d expect most acquiring parties to want to run the marketplace profitably as well, which should be the constraint on irrational competition.”

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