Lyft, the ride-hailing startup which went public last week, saw its share price fall for the third trading day Tuesday (April 2).
After closing down Monday (April 1) below its IPO, the stock continued to decline in trading Tuesday, according to a report in CNBC. The sell-off was prompted by Seaport Global Securities, which began coverage of Lyft with a 12-month price target of $42 a share. In a research report covered by the news outlet, Seaport Global Securities said: “In order to justify its current market valuation, investors need to take a big leap of faith that the millennials and later generations will forego ownership of a car and opt instead for reliance on a ridesharing service.” He said the likely result is Lyft will continue to be used as a convenient supplement, not a replacement.
The decline in shares of Lyft may be spooking investors, but according to the report, based on the initial trading of other tech IPOs it is hard to extrapolate anything from how Lyft is trading. Facebook, for one example, declined 11 percent in the second day of trading as a public company after garnering a valuation of more than $100 billion. Today the company is valued at more than $481 billion, noted the report.
The report also noted that in the absence of any publicly traded rivals it’s hard to evaluate and value Lyft. Uber is slated to go public soon but it hasn’t released its financials, so it is difficult to ascertain how the two stack up. CNBC reported there’s another risk associated to Lyft’s stock, pertaining to the expiration of its lock-up period. Only 11 percent of Lyfts outstanding shares can be traded. If too many investors move to sell the stock, Lyft could face a situation in which there aren’t enough buyers for the supply.
Also weighing on the stock could be the fact that Lyft set a record in terms of the company having the most losses in the year leading up to its IPO. The company said in its IPO filing with the Securities and Exchange Commission (SEC) that it earned $2.16 billion in 2018, up from $1.06 billion in the prior 12-month period, but had a net loss of $911.3 million, up from the $688.3 million loss it logged in 2017.