The initial public offering (IPO) of Lyft, the ride sharing app has created a lot of hype on the market. Investors and traders eagerly waited to invest in the ride sharing app after they launched on the NASDAQ on Wall Street under the symbol LYFT at $87 a share and with a $24 billion valuation.
Prior to IPO, Lyft priced their shares at the top of its range of $72. Lyft are looking to raise over $2.2 billion by selling 30.77 million class A shares that has a valuation of about $24 billion.
Ahead of the listing, Lyft gave discounts of 50% off for 10 rides to patrons in an effort to gain market share. Already, the ride hailing taxi companies are cheaper than the traditional taxi service. This aggressive move by Lyft could very likely plunge them into a price war with their arch rival Uber.
What’s the real story?
Rumors in the market that Lyft arch rival Uber Technologies were going to go public last year, were dashed after many sexual harassment charges and scandals against their drivers and there shares in the company took a beating. This resulted in many Uber patrons flocking to Lyft.
Now Lyft is the first ride sharing company to go public on the New York Stock exchange that created a lot of ‘buzz’ amongst market participants.
As it happened ahead of the IPO
- Logan Green and John Zimmer, both the co-founders will now own 49% of shares in Class B stock with Green owning 29.3% and Zimmer 19.5%. (It is important to note that Class B shares have 20 votes and are convertible to class A shares. While Class A share have only one vote). This will give them the voting power.
- Lyft have 271.37 million class A shares outstanding and 12.78 million Class B shares outstanding.
- 61% of voting rights is allocated to the corporate board members and executives in the dual-class share system
- Other early investors and stakeholders who will all own at least 5% of the pre-IPO shares are:
- Venture capital firm Andreessen Horowitz
- Rakuten Inc
- General Motors
- Fidelity and Alphabet
- Also eligible to get Lyft stock are long time drivers that have at least 10,000 rides under their belt.
- Investors do not seem discouraged by the Dual-class structures of shares, however it has drawn criticism as it denies them the possibility of questioning any of the shareholders decisions.
What investors need to know about Lyft’s IPO
Some analysts believe that this eagerly awaited IPO may not live up to its hype and that it could do a U-turn when trading starts.
- Lyft started three years ago to reduce their driver’s benefits, while Uber re-balanced the share of revenue with their drivers. New York City drivers are likely in the future to move to a minimum wage, because of regulatory pressures. So, this could disrupt cost plans for Lyft in the future.
- In 2018, their revenue doubled at $2.16bn and after cash burn up a third of their revenue it fell to $911m.
- They face lack of profitability and challenges in its scooter business.
- Lyft’s new range of between $70 and $72 per share gives a market capitalization of $20.25bn. In 2018 after a private fund raising, it was valued at $15 billion.
- 2 days after an investor roadshow, their share supply fell short of demand. Lyft is now oversubscribed.
- Lyft recently announced that they had passed the 1 billion ride mark which suggests that their growth rates are healthy.
That’s not all…
Look: Even though Lyft reported $2.2 billion in revenue in 2018 they also suffered losses of $911 million. As Lyft’s revenue grow, the company losses gets steeper as we can see from the following: They had a net loss of $911 million in 2018, a net loss of $687 in 2017 and in 2016 a net loss of $683.
D.A. Davisdon analyst, Tom White doubts that Lyft will be profitable with the US being probably the large and most competitive ride-sharing market in the world. Lyft having to offer incentives in order to keep their drivers would make it difficult for them in the near term to remain competitive and this together with the yearly losses (that get steeper every year) to show any profits.
However, there is good news according to data analyst at Sageworks, Brian Hamilton who said, that investors will overlook the steep losses, if the US stock market is strong. He went on to say that people look beyond things and don’t see problems as much in a good market.
The best part?
The initial public offering is important for a variety of reasons.
By going first and more narrowly focused, smaller and less well known than its competitor Uber, it removes pricing uncertainty and could encourage private companies valued at upward of $10 billion who are expected to go public during this year.
Lyft has also introduced scooter and bike sharing services to their hail riding services.
How can you use this to your advantage?
Given the hype that Lyft has generated, which has been met with enthusiasm by market participants, you can start trading Lyft on Plus500’s platform and get in early while the share prices are relatively low.
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