The long-awaited Lyft IPO is here. After years of rumors and speculation, the 7-year-old ride-sharing company will begin trading on the NASDAQ on March 28.
Here are four things to be aware of ahead of the IPO:
1) Valuation, Valuation, Valuation
Lyft ($LYFT) was most recently valued at $15.1 billion in June. But according to the company’s S-1 filing, Lyft plans to raise $2 billion during its IPO, which would bring its valuation to just under $22 billion. Those numbers would make it the largest U.S.-listed tech IPO since Tencent Music ($TME) last year. Shares are expected to price between $62-$68, though it’s likely they will open higher.
The question for everybody is going to come down to whether Lyft is worth that premium.
2) Don’t Expect Control
Lyft is going public with a dual-class share structure. While the company plans to issue about 30.7 million Class A shares, the company’s founders, Logan Green and John Zimmer, will control just under 50 percent of voting rights via Class B shares despite owning just 5 percent of the company.
3) Lyft Is Growing, And So Are Its Losses (Though Not as Much)
Lyft’s key metric is Active Riders, or riders who booked at least one ride during the previous quarter. The company reported 18.6 million AR’s for 4Q 2018, up from 12.6 million on a year-over-year basis. They also reported revenue of $2.16 billion for 2018, up from $1.06 billion in 2017 and $343.3 million in 2016.
But Lyft also reported a $911 million loss in 2018, up from $688 in 2017. Of course, being profitable today is hardly an indication of a company’s future profitability (Amazon was famously unprofitable for years). The prospectus did say that they “may not be able to achieve or maintain profitability in the future,” but this is relatively common language for IPOs.
The biggest questions facing Lyft’s business are whether they will expand beyond North America, how it will adopt autonomous driving, and whether the regulatory landscape will shift from under them.
4) Almost All IPOs Eventually Trade Lower
If you’ve decided you want to own Lyft regardless of the opening price, so be it. But if you’re looking to be as efficient with your capital as possible, know that nearly all IPOs will at some point trade lower.
According to Eve Boboch, portfolio manager at Roppell Capital Management and co-author of The Lifecycle Trade: How to Win at Trading IPOs and Super Growth Stocks, over 90 percent of IPOs will eventually trade below their opening day low. According to her research, the majority of IPOs will either undercut their opening day low within three weeks or trigger a 10 percent stop-loss within 10 weeks.
This is something to keep in mind, especially as we welcome other tech unicorn IPOs like Uber, Slack, and Pinterest.
It’s also worth noting that General Motors ($GM) and Alphabet ($GOOG, $GOOGL) own 7.8 and 5.3 percent of Lyft respectively. Based on the IPO pricing range, GM’s $500 million investment in 2016 would be worth more than twice that.
The author holds no positions in any of the stocks mentioned.
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