It’s two in the morning in London after a late night out.
The tube stations are shut.
Night buses are packed with belligerent drunks.
And you’re in no mood to walk the eight miles home through unlit streets.
So, what are your choices for getting to bed?
How to get home
You might find a hotel willing to take you in off the streets, but unlikely at that time.
And it’s a bit extravagant for a Tuesday night out with your mates.
So, it comes down to paying someone to drive you home.
And there’s always a choice in London.
Ten years ago, you’d have a couple of go-to options.
The ubiquitous, but expensive London black cab.
Or unlicensed minicabs. Always good for a chat on the way home…
But a minicab driver wouldn’t have The Knowledge and the experience of shortcuts of a black cabbie driver…
So, the journey would take longer, with a good chance of getting lost… and the possibility of a fare far larger than they said at the start.
Things are a lot easier these days…
For the past seven years there’s been a new default get-me-home option for late night revellers:
Created in 2011, Uber was the brainchild of a Canadian Silicon Valley whiz kid called Garrett Camp.
Camp had already made a fortune by selling his StumbleUpon web-discovery platform to eBay in 2007 for $75m.
As wealthy as he was, he was annoyed at having to shell-out $800 for a private hire car after a New Year’s Eve party.
So, he set out to find a way to reduce the cost of lift services and in 2009 UberCab was born.
It’s lumped in with the concept of the ‘collaborative’ or ‘sharing economy’. The idea that you can reduce costs by sharing assets or services with a wide network of users.
And the beauty of it is twofold: lower costs and ease of use.
No standing around trying to hail a cab. Tap a few keys on your phone and you’re in.
It caters perfectly for our hunger for convenience… and cost savings.
No wonder it has been a global hit.
By 2012, Uber had spread from San Francisco and was available in most cities around the world.
And these days, if I want to get anywhere in London quickly, I’ll go straight to the Uber app on my phone and I’ll have a car pick me within minutes.
It’s a great service with a huge market of people eager to find a cheaper ride around town.
Investor frenzy for tomorrow’s ride-hailing IPO
And it’s not the only one.
Uber has competitors in the ‘ride-hailing’ sector, catering for people who don’t want to own a car… and want to save money on travel.
The best known of these is a company called Lyft, which is in the
news this week.
We don’t have Lyft here in the UK.
It’s primarily in the USA but expanded into Canada in 2017. And it’s looking to move into Europe, too.
To do all that, it needs cash. And lots of it.
So, the next step in its expansion plans as a business happens
That’s when the currently privately held company gets a stock market listing on the tech-heavy Nasdaq.
It’s a way to get new much needed cash into the business.
And by all accounts, investors are crazy about getting hold of shares.
So much so that the company is hiking the IPO price by 16%.
That’s the price you can buy shares at when they’re first issued on Friday.
If you know there is demand, you put your prices up.
And there has been huge demand from the institutional investors Lyft and its bankers have been pitching to.
TechCrunch has the story:
“Lyft, expected to hit public markets in a landmark initial public offering Friday, has increased its share price range. In a new filing published Wednesday afternoon, the company outlined plans to charge between $70 and $72 per share.
In an amended IPO prospectus filed last week, the company said it would sell 30.7 million shares at between $62 and $68 a piece.
Following high demand from Wall Street — its IPO was said to be oversubscribed on the second day of its roadshow — Lyft has opted to ask for more from its public market investors.”
Will the excitement last?
The question is… will this excitement continue when the shares start trading freely in the secondary market, the Nasdaq?
Oh, I’ve no doubt there will be plenty of action on the first day’s trading perhaps for a few days or weeks.
But after that, will Lyft continue to be a hot stock to own? Will it be a great investment that will create wealth for its shareholders?
We’ll have to wait and see. But it might not.
At the top of that $72 IPO range, Lyft would be valued at $24.7 billion, reports Bloomberg.
How much profit do you think Lyft made last year?
In fact, it lost $911 million, so close to a billion dollars.
And the probability is that as Lyft continues to spend hundreds of millions of dollars on marketing to gain market share, those profits will remain elusive.
But investors don’t mind. They want in on what they hope will be the next IPO dream-maker following in the footsteps of Google and Facebook.
The coming tech IPO rush
And it’s not the only loss-making company lining up to suck in money from investors hungry to own the latest hot stock to hit Wall Street.
Lyft’s no.1 enemy, Uber, is planning to list in the weeks ahead.
And according to the Wall Street Journal, it’s haemorrhaging money even faster:
“Lyft posted last year a loss of $911 million, more than any other U.S. startup lost in the 12 months preceding its IPO, according to S&P Global Market Intelligence. Lyft’s loss, in the sixth year since the company’s founding, could soon be eclipsed by 10-year-old Uber Technologies Inc., which has been losing more than $800 million a quarter. Uber plans to go public later this year.”
And other cash-burning, loss-making companies planning to list in the months ahead include Slack, Pinterest, WeWork and Airbnb.
It’s this scramble for venture capital backed start-ups to offload shares to the public that’s concerning.
It smacks of panic – a desire to cash out before the end of the business cycle.
“Since it was founded in 2012,” writes the Wall Street Journal, “Lyft has raised $5.1 billion to date, compared with more than $16 billion for nine-year-old Uber.”
Investors who put those billions of dollars into these businesses in the early days want their payday. As do the founders.
There’s going to be a lot of excitement in the coming months about these listings. It will be tempting to try to get a slice of the action.
And I’ve no doubt that a lot of early investors, the founders and employees of these companies will become rich.
Pity the latecomers
It’s the latecomers to the party who pile in when the stock has already jumped on the initial IPO flurry that could get burned.
This from CNBC:
“A re-energized, euphoric IPO market is not necessarily a bullish sign, according to some industry experts. It could indicate private investors in these companies want to cash in their chips.
“This month’s excitement traces back to the end of last year. A lot of these companies could have listed in the second half of 2018 but put it off. Then came December, the worst month for stocks since the Great Depression.
“Larry McDonald, managing director of ACG Analytics, said Silicon Valley clients he has spoken with behind the scenes regretted not listing before the December dip.”
Of course, since that December dip, good old Jerome Powell, Chairman of the Federal Reserve, has stepped in to calm the markets.
Further rate hikes are off the table… and there’s even talk of cutting rates – anything to save Donald Trump’s stock market fairy story.
Markets are heading higher once more… and as CNBC puts it, that
provides “a solid backdrop for these companies to now go public…”
Larry McDonald at ACG Analytics says many private equity and venture capital investors are now “panicked to just get out.”
Of course, these companies are providing services that are in demand.
The “collaborative consumption” scene they’re part of is a major investment theme.
Perhaps the people that are queuing up to buy shares when Lyft goes public tomorrow… and when Uber floats next month… and Airbnb… will make money one day.
But I suspect they will have stomach-cramping periods of volatility and huge drawdowns on their investments along the way.
And they may well find out they can pick up their Lyft shares a lot cheaper than $72 a pop if they wait a while.
According to Matthew Kennedy, senior IPO market strategist at Renaissance Capital, “Investors should be doubly cautious when excessive valuations are paired with excessive losses.
“The IPO market is not for the faint of heart.”
Meantime, will this flurry of IPO activity mark the top of this market?
We’ll have to wait and see.
But it’s another potential warning light to be aware of, that’s for sure.