One week ago, on Friday, March 29th, ridesharing giant Lyft was introduced to the stock market and began its life as a publicly traded company, with their Initial Public Offering (IPO).
Lyft (NASDAQ:LYFT) was the first of several major companies, many of which in the technology sector, who were expected to produce an IPO in 2019. Among notable others, this is including Lyft’s main competitor, Uber, who Lyft has apparently beaten in the supposed race to go public in 2019, a race which Uber CEO Dara Khosrowshahi did not appear to recognize, stating in January that the company would “do it when we’re ready” in response to IPO talks. Despite this, Uber is expected to begin trading publicly sometime in this coming month.
The San Francisco based Lyft was previously valued at $15.1 billion having raised nearly $5 billion in funding, with investments le by Fidelity. In their IPO filings in early March, Lyft set a price range capped at $68 per share, but a week before release day, their listed share price was pushed to $72. Shares opened just before midday at $87.24 per share, well above the list price of $72 but later in the day, the stock lost value and hit $81 by 1:00 pm.
Since release day, the stock has declined a fair amount, amounting from some some investors c choosing to be bearish on the company but throughout this past week, its rise has been steady. At no point has the stock traded below its original higher-end list price of $68 and currently is trading well above $72.
Initial public offerings, especially among stocks in the tech sector, with Snap, Inc. being a notable example, are typically quite volatile, with differing opinions on valuation tremendously affecting share price on opening day. Double digit fluctuations in IPO share price are not uncommon, but this can quickly lead to overvaluation or undervaluation. Finding the balanced share price is difficult and made more difficult by issues arising from the IPO process. The demand of stocks accounts for the demand of short term holders, many of whom seek to “flip” IPOs for a quick return, as well as long term buy-and-hold traders, who represent the true demand, and therefore the true valuation. With IPOs, the high amount of short term traders attempting to flip the stock create an artificial, perceived demand that drives up the price of the stock, leading to issues with overvaluation. Striking the true, intrinsic stock value may never be achieved, but more time will allow the market valuation to settle.
Lyft’s largest, and significantly larger competitor, Uber, is set to go public this month. Uber’s latest valuation gives them a market cap of over $100 billion, compared to Lyft’s new market value of about $21 billion. The upcoming release of Uber’s IPO may affect the share prices of Lyft in the days following it. This may be an extra cause of short term trades, with short term investors making bets on Lyft’s competition with Uber based on Uber’s performance, adding to the issues surrounding “flipping” and the accuracy of Lyft’s current market value.
Only time can truly tell the early performance of Lyft’s stock as a multitude of factors over the coming weeks will further affect its later attributes.