After Lyft's Opening IPO Surge, Investor Enthusiasm Cools a Bit

March 29, 2019

Lyft made its splashy debut as a publicly traded company today, but investors didn't embrace the stock quite as aggressively as many had expected.

The share price initially rose 20 percent after it was first listed on the Nasdaq Friday, jumping to $87.24 per share compared to an IPO price of $72. But the stock progressively gave up ground through the afternoon and ended the day at just over $78 a share, for an increase of 8.7 percent the IPO price.

The stock's close threw a bit of cool water on the investor fever over the highly anticipated IPO. The IPO price, set Thursday after the close, was far above the $62 to $68 range the ride-hailing company had initially set. Early trading gave the company a market cap as high as $29 billion.

Lyft’s ($LYFT) IPO has excited investors for months as the company is the first publicly traded ride sharing business.

While the IPO was greeted with much fanfare, clouds still hung over the company's debut as many investors questioned Lyft's path to profitability. In an interview on Friday with Cheddar, Richard Clayton, research director at the CtW Investment Group, said Lyft needed to develop ways of improving driver productivity.

"Ultimately they're going to need to figure out a way to translate the productivy of the platform into productivity for the drivers," he said. If the the drivers don't have ways of insuring a continuous stream of paying passengers, ride-hailing companies like Lyft will face high driver turnover and potentially strikes, that can undermine the company's profitability.

Founded in 2012, the San Francisco-based company became well known for the fuzzy pink mustaches fixed to the hoods and grills of its cars. Lyft was established three years after its key and much-larger competitor, Uber, which could go public as early as next month.

In its initial public offering, Lyft sold 32.5 million shares, an increase from the expected 30 million.

“Lyft really is the momentum play in U.S. ride sharing at the moment,” Tom White, senior research analyst at D.A. Davidson, told Cheddar on Friday. D.A. Davidson, a wealth and financial services firm, gave Lyft a “buy” rating even before its official debut.

In its seven years in operation, Lyft has completed over 1 billion rides and serves more than 30 million riders annually. The number of Lyft drivers rose to 1.9 million in 2018.

The company’s revenue has also been on the rise: $343.3 million in 2016, $1.1 billion in 2017, and $2.2 billion in 2018. However, Lyft reported a net loss last year of $911.3 million ー the highest loss of any pre-IPO business.

Lyft’s market debut is especially significant since the company straddles several sectors and can disturb multiple markets. Most notably, the auto industry as the Lyft continues to urge people to stop buying cars and start sharing them.

The part-technology, part-automotive, and part-services business said in its IPO filing that its growth strategy is based on growing its rider base, expanding transportation offerings, investing in technology, and pursuing strategic partnerships, among other things. Lyft, which now operates only in the U.S. and Canada, also plans to expand internationally.

“U.S. consumers spend over $1.2 trillion on transportation annually. We are in the very early phases of capturing this large opportunity,” Lyft wrote in the filing to federal Securities and Exchange Commission.

Lyft has already expanded its network of shared bikes and scooters in cities across the U.S. and has integrated public transit data into its app to provide a “robust view of transportation options.” The company’s investments in autonomous vehicles has also been watched closely by investors -- with its partners, Lyft has completed over 35,000 rides in autonomous vehicles with a safety driver since January 2018.

As a public company, Lyft's early investors and its co-founders, Logan Green and John Zimmer, can expect a windfall. The founders are expected to increase their net worth to $523 million and $346 million respectively.

Earlier this month, Lyft also offered cash bonuses and shares of the IPO to its longtime drivers.

“I think this sets a nice tone for some of the other companies that are likely to come out this year,” D.A. Davidson's White said.

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