Lyft the transport giant who recently launched their IPO is reminding investors, when it comes to investing into newly public companies to be cautious. Many people get involved with IPO’s without any research done on the company or the profitability of the investment. With so much hype coming from Wall Street when a company is set to be made public it can seem like a great idea until it actually comes into play. And in the case of Lyft, investors are set to see some early losses.
In Monday’s trading session, Lyft shares plummeted around 12% down to $68.01 following a large sell off going into the close of the IPO on Friday night. The ride hailing giant stocks first trade on the markets Friday was at $87.24. Red flags were raised on Friday nights close, when Lyft didn’t finish anywhere near the highs of the session, which is not usually a good sight for traders. It would appear though, that Wall Street has spent the weekend re looking at the fundamentals of the company, and they have come to the conclusion that Lyft as a whole is not necessarily a bad investment, however the road to profits is not clear and their business model is yet to be proven.
Guggenheim analyst Jake Fuller said in a recent note to investors “We understand the excitement around LYFT given a large total addressable market and low penetration, positioning along the front lines of a shift in how we think about transportation and, of course, strong top line growth. That said, we simply have to look too far out with too many big assumptions in order to make a case for the stock. Key issues include limited visibility on the path to profitability, sustainability of revenue growth, scale of investments in bikes, scooters and self-driving cars, and valuation.” Fuller started his coverage of Lyft with a neutral rating and did not specify a price target, which to investors is another warning sign.
Lyft needs a clear cut plan to profit
The key issue with Lyft is that it does not have a proven path to be profitable, what needs to happen before the company is seen as valuable, is they need to address investors and show them exactly how they plan on making profit. If Lyft does not do this, then what we could see is a repeat of Snapchats IPO, which was one of the most talked about launches prior the day, and then it became another dud investment.
The problem we are seeing is that although Lyft did see their sales grow over double in 2018 to $2.2 billion, it’s profit was in the negative at a staggering $911 Million USD, this is despite Lyft bookings increasing by a tremendous 76% year over year. In recent years Lyft has seen their losses become more and more substantial, with losses in 2017 only totaling $708 million which is a far cry from where the company should be to please investors.
It could very much be time for the transport giant to address investors and explain exactly how they aim to make a U-turn and turn their losses into profit, and show potential investors exactly how much the company is worth.
Benjamin Howe – Midway Management