Lyft Crashes Below IPO Price | Hacker News Reader

Lyft Crashes Below IPO Price

koyfin.com

60 pointsjcfrei76 comments

“Volatile hype stock has volatile hype stock-like trading activity during a classically volatile trading period.”

Thanks for the appropriate TL;DR

This mostly just means that Lyft did a good job in pricing their IPO to get the most money they could from it.

It is one of the few parts of equity trading that is pretty nearly exactly zero-sum. Insiders with knowledge of the over-priced IPO externalizing the impending price correction onto external investors who buy the hype.

Existing shareholders know there is no evidence from the existing business to indicate a future cash flow that could net-present-value justify the IPO price, so that “believers” in future Lyft growth are just factually wrong, pending some currently unknowable drastic change to operating practices to change profitability.

“Lyft rises after IPO” This means they did a good job! “Lyft falls after IPO” This means they did a good job!

I’m getting a destinct “this is good for bitcoin” feel about how people react to post IPO movements.

So going on from here, if they are above IPO is that good, or is it good if they are below IPO?

They're good for different people. Rising after IPO is good for the investors who bought the IPO shares, but bad for the company who could have sold the IPO shares for more. Falling after IPO is the other way around.

The banking syndicate takes on some risk in order to facilitate trading in a successful IPO. Usually to compensate for this risk the IPO price is (slightly) less than what they believe the stock will trade at. This way the IPO investors and the banks can make a bit of money for bearing this risk.

It's usually seen as unsuccessful and a bad-news story when a stock falls below its IPO price. Even though Lyft might have taken the max from investors, it will diminish its ability to raise further equity and its bankers will lose the trust of the IPO investors.

> it will diminish its ability to raise further equity and its bankers will lose the trust of the IPO investors

... and since Lyft is far from being cash-flow positive, it wouldn't surprise me much if they were looking for new money in 1 to 2 years.

So if this turns out to not just be the market being volatile, but a serious trend, this can hurt them quite a bit.

Honestly between $UBER and $LYFT I have no idea why you'd own $LYFT.

$LYFT has all their eggs in one basket. It's a pure bet on US rideshare, which has been plateauing for quite some time.

$UBER has a global presence, and although lost in Asia owns a substantial share of Didi (#1 in China) and Grab (#1 in South East Asia), and now bought Careem (#1 in Middle East), and is still dominant in South America. It also has Uber Eats, which has grown to a multi-billion co on it's own.

It's also much further along on proprietary self-driving tech than Lyft is.

get both. The main argument of the naysayers is they switch back and forth depending on price... its like people who complain the food sucks, while over eating it.

The bear argument is far simpler: most people consume rideshare services in a single locality. Barriers to entry are close to nil. So there is no moat anywhere and limited profitability.

You can make the argument either way. On one hand, Lyft has its eggs in one basket. On the other, Lyft is concentrating on one market and can focus on it a lot more clearly than Uber can.

I agree about Uber Eats, though. That feels like a genuine differentiator. But I'll bet that when Uber IPOs it'll command a price far higher than Lyft's, so it'll be factored in.

Lyft doesn't have just one basket. Their supposed growth area is bicycles and scooters, a money-losing industry in which they will be the Nth entrant for a large value of N. They also have a self-driving-car effort that is dead last.

Or lyft is focused, and uber is spreading itself too thin. (I am not invested with either)

Being "focused" on a plateauing market doesn't do much

Not necessarily.

Theres lots of plateaued markets that can still give smaller competitors room for massive growth.

Examples?

Most industries, certainly in the west. Possibly even most 'tech' ones. I doubt mobile (phone infrastructure) is expanding that much, neither probably are smart phones. Landline internet is well past its growth phase. Big iron computing, desktop PCs.

Industries can't keep expanding forever. Sooner or later they have to mature. A growth industry might be a nice sound bite for a marketing pitch, but I'd rather be in an already large market, than a might be big one day market.

Why would anyone invest in Uber? Their growth is skowing down, revenue per ride is dropping. And they’ve had a net loss of something like s billion a year for the past few years.

Uber (btw: did the all-caps and dollar sign add to the readability of your post?) is also much more expensive than Lyft is. At some point, you have to decide how much more you want to pay for a company to chase down inherently less-lucrative markets.

I think that Uber's self-driving technology is worth negative dollars.

> did the all-caps and dollar sign add to the readability of your post?

This is a standard way to denote stock symbols.

Uber doesn't have one though, seeing as how they aren't publicly listed

> Honestly between $UBER and $LYFT I have no idea why you'd own $LYFT.

You use $UBER as if it is a publically listed stock - it isn't. $UBER doesn't exist.

Lyft is also in Canada.

Although no official plans to expand, Lyft can benefit from having Uber work out the kinks and then become a second provider.

I used to think that, but you really can go both ways. I think a lot of investors like Lyft because it's small relative to Uber and its primary footprint is America. Which means more opportunity to grow in a future international expansion, and you can make the argument that they're behaving like a smart franchise -- perfecting operations in America first before they do a worldwide expansion with even more variables.

That being said, Lyft is losing a lot of money and they can't really increase prices too much or customers will bail and go to Uber. And they're both giving away tons of discounts to riders in the run-up to the IPOs, which doesn't seem like a great sign to me, because they are already fairly discounted from a taxi which is usually a sustainable business model that is not dependent on external funding.

Two things I find interesting about the Lyft story:

1) In their prospectus they claim that 44% of all rides start/end in low-income areas. [a]

2) One of the key arguments they make in their fight against recent NYC regulations to raise the minimum pay for drivers is that raising prices directly leads to a fall in revenue (demand). [b]

So a large % of their users are price-sensitive, but raising prices cuts demand. A difficult path forward for reaching profitability indeed.

[a] https://www.sec.gov/Archives/edgar/data/1759509/000119312519...

[b] https://blog.lyft.com/posts/2019/3/16/tlc-rules-impact-on-ly...

If someone is bullish on the rideshare market then why not invest in both?

I would prefer Lyft purely because I consider Uber to be a deeply unethical company.

Is Lyft _actually_ any better other than paying a token more attention to PR? It's not like they actually employee their drivers.

I am not aware of Lyft intentionally breaking laws, spying on city officials responsible for enforcing those laws, and lying about and hiding their nefarious behavior. Uber has done all of those things.

No. No it’s not. They just rode Uber’s tailwind and let them take the punches.

It's absolutely a normal behavior for a stock to go down post IPOs. Can be so many things, from people selling stocks they had for a long time, people who just speculated on the opening and are cashing in, or just because today it's cold and I had fish last night and I'm not feeling well and yeah just short that Lyft stock.

Let's see how it does in the next months.

Well, the financials look shady to me: $900 loss and no plan in sight. Perhaps the IPO euphoria was that short-lived?

Regarding the post-ipo crash - yeah, FB did that. Yet they turned a good profit soon after and then rebounded.

My Lyft shares are locked up for 6 months :(

"Crashes" from IPO of $72 to $70.60 at the time of this writing. Okay.

10% move in one day, you don't think that's significant in any way?

It’s really not. Tech stocks are bought and sold on hype and often move +/- 5% on any normal day. 10% the day after an IPO is nothing.

I'll let my buddy working at $snap know everything is ok i guess.

Well it opened at $87 on Friday, so it's a 20% drop since opening.

It's still almost double the last private valuation. It was $10bn prior to IPO, now north of $20bn, peaking at almost $25bn.

For now...I mean it's been 2 days. Let's see after the first earnings report.

Remember employees are still in a lock-up period, so really no one who is holding right now really cares until 6 months from now.

It was valued at $14.5bn in their June 2018 round of fundraising.

Pre-IPO means nothing to public investors though.

I think "crashes" is a little bit sensationalist. They're down which is obviously not great but they're down by less than 10% at my time of writing. While it won't get as many upvotes this should probably be titled "Lyft IPO Poorly Received" or more literally, "Lyft Down 10% After IPO"*

Edit: This is actually their second business day.

Good for them for taking all the money off the table. There's nothing dumber than an IPO that pops.

IMO this means nothing. Facebook did the same thing.

Every large tech IPO in the last decade and a half has done the same thing.

Not Twilio, but generally you're probably right.

VMware did too.

Facebook was profitable or at least cashflow positive if I recall correctly.

Had to be profitable.

And it still dropped more than 50% in the first year

on IPO day, the IPO's bankers will buy up shares, "providing support" for the stock at a given price. it looked like management's preferred price point was $80 for most of the day, so the underwriters were buying at that price point. the greenshoe agreement helps the bankers buy at that point without actual economic exposure to the IPO (worth reading the wikipedia article if you're interested here). one explanation might be that the bankers bought up their entire allocation by the end of the day, which allowed price to drop to 78 in closing minutes.

after day 1, who cares, the bankers already got paid.

Is today the first day you can short Lyft? Or could you do so on Friday already. I'm not sure of the mechanics of stock borrow right after an IPO.

As I understand it, you can short an IPO on day 1, but it probably won't work out very well for you, because the underwriting banks have agreed to buy shares at a specific price if the price falls. So if you try and short it you are getting into a game of 'who has more money' with a bunch of investment banks, which you will rarely win.

Market participants can sell anything short by picking up the phone. Retail accounts still can’t sell Lyft short because there are no shares available to borrow. Also there is still not yet an options market available to all, but again if you’re a trader and you can get someone to write you an option there you go.

'crashes' seems to be an overly dramatic and popular word this year, people who oppose the UK leaving the EU love to use it too...

I thought a lot of tech stocks did this immediately after IPO as the pre-IPO shareholders sold off their shares?

That's not really common. Pre-IPO shareholders who are not locked up sell into the IPO, not right after it. That said, you aren't wrong about volatility right after an IPO. Look at ESTC: debuted at $70 and traded as low as $58 a few days later ... then as high was $100 recently.

Most pre-IPO shareholders are in the lockup period.

Company which lights a billion dollars on fire each year is not a sound investment? No shit....

As a regular user of Lyft i still have 0% loyalty. I can get 3 or 4 different services in my city and you can be sure i'm picking the cheapest one every time. As soon as VCs stop subsiding my travel expenses ill move right on to the next service.

I'm guessing some of you are locked in for 6 months and my post made you sad =(

which city has 4 different rideshare companies in operation?

Austin at least 4... Uber, Lyft, Wingz, RideAustin

This is the reason I can't figure out how Uber or Lyft is worth billions of dollars. It doesn't seem like the barriers to entry are very significant. How long before there's an app that queries the different services and hails a ride from the service that can get there the fastest or provide the cheapest ride?

There's nothing stopping you from writing a Facebook clone. But it won't succeed. Why not?

Network effects. If I use HackerNewsBook, I can't interact with my friends on Facebook.

Neither Uber nor Lyft have any exclusive rights to dropping people off at the airport.

Except ride-sharing doesn't have a network effect. I don't care if all my friends use Uber; it makes no difference and we all will use the next company if they're even a dollar less / ride and the service quality is on par.

Today, VC money subsidizing rides is the advantage Uber and Lyft have.

Drivers care that lots of people use Uber and you care that lots of drivers use Uber. So there's definitely a network effect. It's just a lot weaker than something like Facebook because I don't care how many Uber drivers there are in Memphis if I'm in Salt Lake City. It's even weaker than that because the geographic area is more like "within 10 minutes of me". You can see a competitor relatively easily getting a toe hold by starting service at a specific time for a specific area. For example, the popular bar street on Friday/Saturday nights.

The problem comes with your "a dollar less" caveat. You star EpicEng's ride share and undercut Uber/Lyft by a dollar. They respond by matching your price and giving drivers more incentives so they don't switch. Now what do you do?

I can assure you that I do not personally care that people use Uber, but that's neither here nor there. What you describe is not a network effect; it's true of _any_ business you want to see stay in business. If I liked shopping at e.g. Walmart, yes, I would implicitely want others to shop there as I don't want to see them go out of business. That doesn't mean I'd have a second thought about switching to a competitor if they provided a similar service at a lower price.

FB is successful because no one I interact with is on a different platform. They same is true for them, so we all stay. Network effect.

It's not network effects so much as the strength of the two-sided market they've created. Installing an app and registering is a lot of friction. On either side you'll probably bother doing so for no more than one or two services, which in most situations will cover most of whatever market exists.

But in general the answer is either having a disruptive strategy or else a huge amount of money to woo existing market participants. Most of us don't have either. That's the barrier to entry.

NYC comes to mind, probably others as well.

new york

Lyft, Uber, Yellow Cab, Local Shitty Cab.

Is "LSC" a side-venture of Mediocre Laboratories?

Probably more than you think: https://ride.guru/cities/new-york-new-york-united-states-of-...

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