Lyft expects to IPO at the end of this week. The ride-sharing transportation service is nowhere close to generating a profit. The stock appears poised to pop on
Lyft expects to IPO at the end of this week.
The ride-sharing transportation service is nowhere close to generating a profit.
The stock appears poised to pop on the IPO, setting up new investors for failure at a valuation near 10x forward sales.
Right now, Lyft (LYFT) is following the path of the IPOs that have eventually failed in the last few years such as Snap (SNAP). The IPO is reportedly oversubscribed suggesting an initial pop in the stock, though the company faces considerable challenges with turning into a profitable business model in an increasingly competitive environment similar to the social-messaging stock that plunged to $5 after the initial pop.
Already At Scale
The second largest on-demand, ride-sharing service plans to sell 30.77 million shares in an IPO this week. The company is offering an additional 4.62 million shares to underwriters for over-allotments. Assuming the midpoint price of $65, Lyft will raise $2.2 billion after fees, if the additional shares are exercised in full by the underwriters.
While Reuters suggests the deal is already oversubscribed, the company has substantial problems with profitability that hit stocks harder in the public markets than when private. On top of that issue, both Lyft and Uber (UBER) have reached a scale that should already offer a level of profitability that won't be greatly enhanced in a market where these ride-sharing giants have more cash to invest.
The issue with holding onto any IPO shares is the profit picture, so don't get off track by the nuance of the dual share classes. Any investor in a growth company actually wants the founding management team to control the company, otherwise why would you invest in a growth company where hedge funds can subvert the management team. If you don't like the management team or business model, investors don't have to invest.