Investors in ride-hailing app Lyft are suing the company over claims that it overhyped its market share ahead of its much-anticipated initial public offering (IPO).
Since its IPO in March, Lyft’s share price has slid
Bloomberg reported that two class-action complaints had been filed against Lyft, its officers and directors, and underwriters in San Francisco on April 17. Lyft claimed in its prospectus that the company held 39 percent of the market at the end of 2018, but investors allege the company overstated this figure.
At the time of publishing, Lyft had not responded to a request for comment.
Since its IPO in March, Lyft’s share price has slid from an offering price of $72 a share to around $59 when markets closed on April 17. One major concern of analysts is the threat posed by rival Uber, which has officially filed for its own IPO.
According to Markets Insider, Susquehanna analyst Shyam Patil said that while Lyft works in a “very large and growing market”, the dynamic of being the second best in a sector that’s all about scale is worrying. “[The] extremely competitive nature of the space and going up against an aggressive #1 player in Ubermakes it tough to predict future customer acquisition costs as well as rider and driver retention,” Patil said, giving Lyft’s share price a target of $57.
The lawsuits against Lyft also mention the company’s failure to tell investors that it would soon be forced to recall thousand of bikes over braking issues. Bike-share operator Motivate, which is owned by Lyft, pulled its electric bikes from New York City, San Francisco and Washington, DC, after a “small number” of riders reported a braking problem that caused the front wheel to lock up.
Lyft was the first of a stampede of tech unicorns to list on the public markets this year, but it may soon be overshadowed by other long-awaited IPOs, such as digital scrapbook Pinterest and cloud videoconferencing service Zoom, which will both make their market debuts on April 18. Following Lyft’s decline, their performance will likely determine whether investors remain optimistic about new tech IPOs.