US ride-hailing firm Lyft stormed onto the NASDAQ index on March 29, with shares opening 20 percent higher than pundits had expected.
Some market experts believe that Lyft’s IPO is the beginning of a new golden era for tech stocks
Lyft had originally priced its shares at $72, but it traded in a $78.02-$88.60 band before ending the day at $78.29, an 8.7 percent increase on the issue price. A total of 6.1m shares changed hands during the day’s trading.
The company’s much-anticipated debut values it at $24bn on a fully diluted basis, including restricted shares and employee options. It was the largest US tech IPO since Snap Inc, the parent company of image sharing app Snapchat, went public in 2017, valuing itself at $29bn.
Some market experts believe that Lyft’s IPO is the beginning of a new golden era for tech stocks, after 2018 proved to be a lacklustre year for mega Silicon Valley debuts. John Jagerson wrote in a post for Investopedia: “[Lyft’s] inflated opening price confirmed that traders were both excited about the company’s prospects and starved for new stocks to invest in.”
Traders are now unlikely to go hungry for the rest of 2019, with companies including Pinterest, Airbnb and Slack expected to follow in Lyft’s footsteps in a series of blockbuster IPOs in the coming months. These ‘unicorn’ firms, so called because they are valued at more than a billion dollars, have all avoided public markets since their inception, preferring to chase private funding.
Some, such as Airbnb, had announced IPOs several years ago, but had stalled due to unfavourable market conditions. Wall Street’s sudden fall into a bear market in 2018 spooked investors and flattened interest in high-value debuts, a trend that has now been reversed with Lyft’s IPO.
The ride-hailing firm, which controls around 40 percent of its market in the US, will soon have competition in the stock market, as its biggest rival Uber is also preparing to go public. Analysts have valued the company at $120bn, with some suggesting it could make its debut as soon as next month.
Lyft and Uber have been at loggerheads for several years now, but when Uber was wracked by a series of scandals in 2017, Lyft took the opportunity to build its market share. The company is still a long way into the red though, with losses mounting to $911m in 2018.
“Lyft is underestimated in terms of how quickly I think it will go profitable,” Ben Horowitz, co-founder of Andreessen Horowitz, said. His venture capital firm was one of Lyft’s earliest investors back in 2013.
Horowitz added that his firm had chosen to back Lyft rather than Uber “because we believed in the character and the culture of the founders, in a way we didn’t in Uber”.
Horowitz’s comments indicate that today’s venture capital firms are less concerned with profitability and more interested in the DNA of a potential investment. Overspending at a company level is a relatively easy issue to fix, with the help of some savvy financial advisors and a comprehensive cost-cutting strategy. An unsavoury public image, or a series of media scandals, is a much greater, and costly, problem to fix, and may require a significant staff overhaul, as was the case with Uber.
While Lyft doesn’t have a completely clean slate – its staff were accused of spying on passengers last year– it’s in a different league than Uber when it comes to public image. The latter will be under close scrutiny between now and its stock market debut; if it slips up, this could allow Lyft to build upon its already impressive market capitalisation and steal even more of Uber’s market share.