Lyft Shares Jump to $72 Ahead of Much-Hyped IPO: To Buy, or Not to Buy?
Shares in Lyft Inc rose to $72 on Thursday ahead the ride-hailing company’s much anticipated listing on the Nasdaq Global Select Market.
Demand for shares in the Uber-competitor saw prices rise sharply, while the IPO was oversubscribed just two days into its marketing pitch, according to Bloomberg.
Lyft has now beaten its more well-known competitor, Uber, to the stock market – but the road ahead is not necessarily clear. Pioneers often end up with arrows in their back, and LYFT’s success or lack thereof may act as a bellwether for other startups eyeing a launch on the stock exchange.
Lyft IPO Hits Peak Hype… Buy Buy Buy?
An IPO specialist, and partner at Deloitte, Barret Daniels, said Lyft had done everything right so far, but that the ultimate test would come when trading actually commences. He said:
“So far so good. Now it just has two more hurdles to clear to end up with a very nicely crafted IPO: It needs to open at or above $72 and it needs to have a decent pop.’’
That rise to $72 a share places Lyft at a full diluted value of $24 billion, and is a clear indication of demand, or at least, a willingness to take a risk on this eager-beaver startup.
Some expect the price to jump immediately upon commencement of trading, like Wedbush financial analysts Dan Ives. Ives told Barrons:
“Technology investors are salivating to get into the transformation market. Ride-share is a generational opportunity—there is urbanization, changing consumer habits. Growth investors have to be in the space.”
Ives himself has placed an $80 prediction on the value of LYFT stock by the end of the year, but his analysts at Wedbush also see a few potential bumps in the road.
Reasons Not to Buy the Lyft IPO?
First off, it’s extremely difficult to place an accurate value on a company which recorded $911 million in losses in 2018 – a year in which revenue hit $2.2 billion.
Another concern is the internal economics of how much Lyft pays its drivers. According to data from Barron’s, the average cost of a Lyft service rose from $11.75 to $13 between 2016 and 2018. Yet at the same time the cut which went to their drivers remained the same (around $9.50).
But none of this seems to have registered in the minds of Lyft investors, as evidenced by the price hike and increased number of shares sold. The point made by Dan Ives about ‘urbanization’ and ‘changing consumer habits’ may be the real telling points here.
Future of Automobiles
An investment in firms like Lyft, and potentially Uber, is really an investment in a very particular future. A future not only of increased urbanization, but also perhaps one of fuel charges and car taxes, as western society continues to flirt with green initiatives.
Some say the future of the ride-hailing business will depend on the success of driverless cars. According to Ives, that’s a sector that Lyft has invested less in than major competitor Uber.
“The path to profitability will be a big question for Lyft investors. Lyft made a strategic decision to not invest as much in autonomous driving technology as Waymo and Uber.”
Barron’s Andrew Bary went further and advised investors to steer clear of the IPO when it launches Friday. This is probably the smartest choice for an IPO which is the first of its kind in more ways than one.
What’s more, Lyft’s performance will equip investors with a solid precedent when Uber’s own IPO eventually gets underway.