You’ve got to feel for those poor investors who hailed a ride on the Lyft bandwagon…

… just as the price peaked on the day of its IPO.

Say they got in at the top, at $88.30, as new issue euphoria reached maximum.

They’d have been pleased to be in on the hottest new stock on the market.

But not for long – because lots of other people were already cashing in and selling their shares…

Unrealistic Expectations

Yesterday’s low point for Lyft shares was $54.95.

So, those bandwagon jumpers had seen their investment lose 37% of its value.

That’s a mighty efficient way to lose money over a period of 20 days!

And by the same token, someone’s been making a lot of money on the other side of that trade… by ‘shorting’ Lyft stock.

Bloomberg reports:

“According to financial analytics firm S3 Partners LLC, there has been active short selling in Lyft shares, with a staggering 75 percent of the free float held short.

“In a report published on April 12, S3’s managing director of predictive analytics Ihor Dusaniwsky said Lyft short sellers have fared better than post-IPO long shareholders. Shorts were up $43 million in mark-to-market profits on Friday, bringing their post-IPO profits to $202.4 million, Dusaniwsky wrote.”

That was a few days ago.

The stock has been a lot lower since then. The shorts have been cleaning up.

What have they got against Lyft? Why are they so confident that the stock is heading lower?

Simply that they think the valuation the market put on Lyft at the IPO was out of whack with what it’s worth.

Which is a fair point.

Lyft tells investors: “We may never make money”

Remember, this is a company the market valued at $25 billion when it went public.

And yet as a business it lost almost a billion dollars last year, despite making revenues of $2.2 billion.

Clearly the market – or Lyft bulls – expect it to make a lot of money down the road.

Meanwhile, the ultra-bears are betting it’s going to take a long time for Lyft to make a profit… if it ever does at all.

And let’s face it, the company itself raised that miserable prospect as a risk in its IPO documents.

Not only could it see expenses soar, without growing the business:

“Our expenses will likely increase in the future as we develop and launch new offerings and platform features, expand in existing and new markets, increase our sales and marketing efforts and continue to invest in our platform. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business.”

But, as Lyft admits in its IPO filing, it may never make money:

We have a history of net losses and we may not be able to achieve or maintain profitability in the future.


So that’s why investors were piling in at the IPO!

They’re after all those future earnings… and all that lovely profit!

Nice idea, but terrible timing

I have to say, I don’t get it.

OK, the business idea makes sense.

There is plenty of evidence to show that there is a massive shift in consumer behaviour going on when it comes to car ownership and getting from A to B.

Lyft and Uber and other ride-hailing companies are disrupting the personal mobility and car industries.

And according to Uber in its recent IPO prospectus, reports Business Insider, “transportation is a $3 trillion market opportunity”.

That’s a HUGE market. And if these disruptors play it right, they should become huge companies one day.

Perhaps in 10 years’ time, the kids of today won’t own cars at all. They’ll call a Lyft car or an Uber.

And perhaps that car will be driving itself.

So, in years to come, perhaps Lyft will turn out to be a ‘must-own’ stock.

But what I don’t get is why buy the stock now.

Or rather, why on the day of the IPO…

When investors were all over it, the Wall Street PR machine was hyping it up and it was front page news?

Far better to wait a while, let the excitement subside and see where the share price settles.

It’s usually the case that you can buy shares for far less than they’re selling for at the peak of the IPO frenzy.

Lyft investors are realising that right now, as the shares trade at 17% below the IPO price… and some 33% below the peak (after bouncing from yesterday’s low).

And the Wall Street moneymen have taken note…

Uber’s valuation slashed

There’s another big IPO in the pipeline, sometime next month, supposedly: Lyft’s arch rival, Uber.

They’re chasing the same customers.

And in years to come, these two will probably fight to the death, with one survivor.

But for now, Uber needs to go public.

Because, just as with Lyft, the venture capitalists and other early investors want their money back (before the recession hits or the market crashes… or both!)

And the bankers managing its IPO have watched how Lyft’s launch went.

Big bang… then fizzle!

As you may recall, Lyft’s advisers jacked up the IPO price by some 16% the week before it went live…

In its pre-IPO roadshow there had been so much institutional demand, they thought they’d squeeze a bit more out of the public listing.

The demand was there OK… but not for long.

In response, Uber’s people will be wanting to make damn sure that their offering is a success.

So, there’s talk about Uber’s IPO price being reduced.

Euromoney reports:

“Some ECM (equity capital market) bankers had been talking, not for attribution of course, about a valuation of over $100 billion, perhaps as much as $120 billion. Following Lyft’s share price crash, those expectations are being reined in. The lowest guess Euromoney hears now is $70 billion, back roughly where Uber was valued last August when Toyota made a private investment of $500 million.”

As that quote says, this is guesswork. But if it’s anywhere near accurate, it implies a 41% reduction in IPO value from initial expectations.

Which smacks of panic… or at least concern about making the offer attractive.

And who can blame them when Uber sounds so downbeat it its official IPO prospectus (just as Lyft was in it’s a few weeks earlier)?

Says Uber: “We have incurred significant losses since inception, including in the United States and other major markets. We expect our operating expenses to increase significantly in the foreseeable future and we may not achieve profitability.”

OK, sign me up!

Let me have some shares!

But not until after the IPO price spike, when they’re in freefall! ?

Investors still on edge

OK, let’s just see what happens.

The bankers are reining in their expectations.

They know they need to make the IPO price high enough to keep the VC people happy… but low enough to get new investors excited.

Let’s see how investors in the secondary market react when the shares go live.

My bet is that even though the stock market keeps on chugging higher (it’s within 3% of its all-time high from last October), a lot of investors are still on edge…

They don’t necessarily believe that the whole US/China trade situation has been resolved (it hasn’t, not yet).

So, they’re not fully committing to the market.

They’re also concerned that the International Monetary Fund keeps sounding warning bells about economic growth.

The IMF cut global growth forecasts last week to 3.3% from 3.5% as recently as January. That would represent the slowest growth in a decade.

And they don’t quite believe that everything’s as rosy as it first appears with the US economy and with corporate health.

It’s first quarter earnings season for US stocks right now.

And some of the major banks like JP Morgan and Bank of America this week delivered lacklustre figures for the quarter.

They weren’t bad as some people had expected.

But the market certainly didn’t get too excited about them. Shares went up a bit… but not much.

Investors aren’t confident in what lies ahead.

And earnings are just getting going.

A lot of companies are reporting tomorrow, whilst markets are closed for Good Friday.

Let’s see how they look… and how markets react to them… when they reopen on Monday.

Perhaps we’ll start seeing some real earnings growth and analysts’ expectations being beaten.

That could send the market screaming towards all-time highs.

But if we start seeing poor numbers coming through and signs that profit margins are under pressure, investors could take fright…

And when this happens right as the market nudges up to all-time highs – and potential huge technical resistance on the charts – something BIG might happen.

The markets could be about to get exciting again… and that could bring volatility back in a big way.

Let’s see.

And before all that, let’s watch this afternoon as the next big tech IPO hits the market.

This time it’s the turn of Pinterest – where people put pictures of walls they’ve painted and photos of their favourite film stars.

Is it worth the $12.7bn valuation the IPO is putting on it?

Let the market decide!

Look out for your invitation…

By the way, did you get the email from Canonbury MD, Nick Laight, earlier today?

It’s about a great opportunity for you to join a live trading room and follow professional traders as they trade…

These guys have been averaging 347 profits points a month since it launched.

So, if you’d copied their trades at just £3 per point, you could have banked a nice £1,041 a month on average!

Not bad, especially given they’re doing the ‘hard work’ of identifying the trades for you…

This has been closed to new members for a while now. But for a couple of days over the Easter break, the doors are opening.

And Nick’s inviting you to look inside and see the trades these guys are making and follow them if you like.

I don’t have full details here – but look out for your email from Nick later. He’ll explain it all.

And if you fancy it, move quickly to get your place.