IPOs GALORE- Latest Scoop on Recent IPO Lyft
On March 29th 2019, transportation network service, Lyft, took their business into the public market. The opening IPO (initial public offering) price was $78.29. At the close of market on April 15th, the stock had dropped almost 30% to $56.11. The stock value has declined so sharply because of competitors and overvaluation of the company, among other reasons. (Feiner).
Uber’s Effect on Lyft
Many believe the main reason for the decline was the announcement of Uber’s interest in taking their company public. Uber, holding a 2018 revenue of $11.3 billion as opposed to Lyft’s $2.2 billion, has proven to control the transportation network market. The fact that Uber will be going public has caused investors to shy away from the smaller fish. Based on market size caps and previous Uber valuations, analysts believe Uber is worth seven times as much as Lyft. The one thing that looks promising for Lyft is that its revenue totals doubled in 2018 as opposed to Uber’s 42% increase in sales.
Uber has established itself in many different businesses with its Uber Eats and Uber Freight lines. Right now, this is one of the major separators between the two companies. Statistics show that the average Uber customer that uses Uber Eats totals 11.5 rides per month compared to 4.9 rides for users that don’t use the food delivery service. Lyft has noted that it plans to get into a similar business structure as Uber Eats (Munariz). If Lyft can establish a plan to incorporate the food delivery service, based on Uber’s numbers, it can promote growth within its company.
Short Sell Effect
Another reason for this massive drop in prices is that many investors are shorting the stock early. Shorting a stock essentially means that an investor will purchase a set of stocks and immediately dump them in an attempt to buy them at a lower price in the future. Many investors believe that Lyft has been overvalued and, therefore, they do not believe it is the proper time to hold on the stock. S3 Partners Managing Director, Ihor Dusaniwsky, announced that approximately 41% of Lyft’s shares were being shorted (Dey). If the dumping of the Lyft shares continues, this will continue to send the stock value down in price. It will be interesting to see the value at which these stock shorters will choose to buy the Lyft shares back.
Lyft’s Latest Move
On March 29th, Samantha Josephson, a University of South Carolina student, was killed by a driver that she thought was the Uber driver that she requested. This latest tragedy has sparked many of these ride sharing apps to reassure the security of their platforms. Lyft has prompted the same response. Lyft has announced continuous background checks of its drivers to ensure the safety of its clients. Lyft also announced that it will now combine the image that appears on the driver’s license with a separate photograph to verify that the driver is not using fraudulent identification (Levinson). These latest actions by Lyft should show positive dividends when it comes to the trust of its users. Any time you can assure the consumer that the company is doing its best to keep them safe, the reaction is likely to be positive.
What’s Next for Lyft?
In order for Lyft to retain the consumer/investor confidence in its brand, it must continue to exceed its quarterly expectations and show that its company is growing. For Lyft to put up solid earnings, it must provide a clear definition of the direction it is steering the future. Lyft will be looking to get into the food delivery business, and it should also look to get into other types of business in order to provide versatility. Advertising will end up being huge for the growth of this company. New York City-based Via, offers free rides to new customers in an effort to get more clients on board. I feel that Lyft should offer a similar incentive to prospective clients. In a 2018 report, it was said that Uber planned to spend $500 million in advertising for the following year (Grothaus). This demonstrates the importance placed on advertising in this market. Lyft must figure out new ways to establish a niche in the industry and to advertise it to produce the perception of a premiere option. If it is successful in this, then it will see the results in its earnings, and in turn, drive up the confidence of investors and improve the stock value.
Dey, Esha. “Lyft Shares Continue to Slide as Short Bets Keep Piling Up.” Bloomberg.com, Bloomberg, 2019, www.bloomberg.com/news/articles/2019-04-15/lyft-shares-continue-to-slide-as-short-bets-keep-piling-up.
Feiner, Lauren. “Lyft's Stock Falls Another 6% after Its Dismal Week.” CNBC, CNBC, 15 Apr. 2019, www.cnbc.com/2019/04/15/lyfts-stock-continues-to-dive-after-its-dismal-week.html.
Grothaus, Michael. “Uber Will Spend Half a Billion Dollars on Ad Campaigns This Year.” Fast Company, Fast Company, 11 June 2018, www.fastcompany.com/40583434/uber-will-spend-half-a-billion-dollars-on-ad-campaigns-this-year.
Levinson, James. “Amid Growing Concern over Ride-Share Safety, Lyft Announces New Security Features.” ABC News, ABC News Network, 2019, abcnews.go.com/Politics/amid-growing-concern-ride-share-safety-lyft-announces/story?id=62407529.
Munarriz, Rick. “Uber's IPO Offers Hope for Lyft Stock to Bounce Back.” The Motley Fool, The Motley Fool, 15 Apr. 2019, www.fool.com/investing/2019/04/15/ubers-ipo-offers-hope-for-lyft-stock-to-bounce-bac.aspx.