Lyft shares have plunged
Things were looking pretty good for Lyft a little over a month ago.
The ride-hailing company priced its initial public offering at $72 a share in late March, giving it a valuation of about $24 billion.
That pricing was at the upper-end of Lyft’s projected range, and Reuters reported the IPO was oversubscribed.
But shares took a turn for the worse, and have yet to recapture their opening-trade high.
After opening at $87.24, shares slid throughout the session on their opening day, and closed at $77.75. Lyft then fell below its IPO price during its second day of trading.
The stock has now fallen 20% from its $72 pricing, and a whopping 35% from where shares began trading. Shares hit a new low of $54.35 on Friday, but finished the day higher.
Wall Street is overwhelmingly bullish
Wall Street is uber bullish on Lyft. It wasn’t always that way.
Of analysts polled by Bloomberg, 14 rate the stock a “buy,” eight say “hold,” and just one recommends “sell.”
The largely positive ratings came after major Wall Street firms like JPMorgan and Credit Suisse, some of Lyft’s lead underwriters, were permitted to comment on the stock earlier this week after the post-IPO “quiet period” ended.
Prior to that, Wall Street was more neutral, citing increasing competition and the company’s unclear path to profitability.
“Our bull thesis is driven by the company’s significant market opportunity, its history of innovation, and its path to profitability as the business scales,” JPMorgan analysts led by Doug Anmuth, who have an $82 price target, wrote in a research note earlier this week.
Uber’s public debut is an imminent threat
Uber -the biggest threat analysts see to Lyft’s competitive position in the ride-hailing market – keeps tripping up its smaller rival.
Lyft shares slumped to a fresh post-IPO low on Friday, at $54.35 a share, after rival Uber updated its S-1 filing with the Securities and Exchange Commission. That’s the second time this month that Uber’s IPO filing has punished Lyft shares. Earlier in April, when Uber filed to go public, Lyft fell to its lowest level up until that point as analysts expressed concerns about competition.
By sheer size and market share around the world, Uber is much larger than Lyft. Uber is shooting for a valuation as high as $90 billion, while Lyft debuted near $24 billion.
“While Lyft is purely a domestic vendor within the US, there remains some wild cards around the path of the company’s autonomous vehicle ambitions, international expansion,” as well as further market-share gains, Wedbush analyst Dan Ives wrote in a March note to clients.
Short-sellers are targeting the stock
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Short-sellers have ratcheted up their bets against Lyft.
While the first tally for borrowed shares came in at 9.4 million in early April, that amount has increased by 7.5 million to 16.9 million, according to an IHS Markit analysis.
Earlier this month, Lyft quickly became the most expensive US-listed stock to short, according to Markit’s analysis of borrowing activity and associated fees. Borrowing costs have come down significantly, however, so that’s no longer the case.
To be sure, newly public companies are often a boon for short-sellers looking to make money on waning enthusiasm after the IPO hype dies down.
“This is typical for IPOs, what was really notable about LYFT was how high the fee was for the first day, however over first few days it declined dramatically,” Sam Pierson, the director of securities finance at IHS Markit, said in an email on Friday.
Valuing Lyft and other ride-hailing apps is hard
Ride-hailing companies are new to the public markets, and analysts accustomed to comparing newly public companies to existing peers have expressed difficulty with the task.
And there are so many uncertain elements to consider. Lyft lost $911 million last year, and while that’s not uncommon for startups seeking to accelerate growth, its track record makes it difficult to assess future profitability and gauge what the company is actually worth.
Uber, meanwhile, estimated that it lost at least $1 billion in the first quarter of this year alone.
“In our view, valuation is the toughest task with LYFT,” said Michael Ward, a Seaport Global analyst, who has the sole “sell” rating on Wall Street.
“Most investors are familiar with the brand name and the service. In order to justify its current market valuation, investors need to take a big leap of faith that the millennials and later generations will forego ownership of a car and opt instead for reliance on a ridesharing service.”
At the same time, analysts are trying to navigate what kind of impact they think Uber will have when it finally begins trading.
“While our analysis of unit economics suggests profitability is possible (which we model to occur within seven years), the extremely competitive nature of the space and going up against an aggressive #1 player in Uber makes it tough to predict future customer acquisition costs as well as rider and driver retention,” Susquehanna analyst Shyam Patil wrote in a note to clients last week.