Initial Review of Lyft’s IPO
By Allison Feng, Michigan PEVC Analyst
In a highly anticipated IPO, Lyft went public last Friday. It raised over $2 Billion, selling more shares than expected at a price at the top of its expected price range. With an initial IPO price of $72, the stock closed at $78.29, showing a relatively successful first day. However, by the end of Monday, the stock price had dropped to $69.01, dipping below the IPO price. Though it has only been two days, Lyft’s early performance could be worrying for other “unicorns” that are planning IPOs soon.
Part of what drove the hype around Lyft’s IPO could be that it is the first ride-sharing company to go public — many investors said they were more excited by the scarcity of the stock than by the business fundamentals. A survey conducted by Titan Invest of forty hedge funds found that many were skeptical of Lyft’s future performance, and that a common strategy was to buy at the IPO price, ride the short-term upside on day one, and sell at the end of the day. This indicates that many investors are not optimistic about the long-term of Lyft. It’s also a sign that Lyft may be overvalued, especially given that there is no similar public company to which to compare Lyft. Additionally, the company is losing over nine-hundred million dollars a year, and it can be hard to value a company that has warned that it may never become profitable.
In 2019, it is likely that we will see IPOs from unprofitable companies with huge valuations such as Uber, Pinterest, and Slack. Airbnb is profitable, which should attract positive attention. Lyft’s performance could be troubling for these companies, especially Uber, which is in the same industry. As a result, these companies may lean more conservative on their IPO pricings in order to prevent being seen as overvalued, especially since Lyft’s valuation nearly doubled from less than a year ago to a $30 Million dollar valuation at the end of Friday.
Of course, it has only been two days and it is hard to tell what will happen from here. Facebook’s IPO was underwhelming, and though it took months to recover, the stock is performing well now. On the other hand, Dropbox rallied early on, then fell after a few months. Personally, I am hoping that Lyft will not become the next Snap, but Lyft will first have to do something about the fact that it loses almost a $1 Billion dollars a year.
