Lyft had its first day as a public company, following its initial public offering, or IPO.
The ride-share company, which lets consumers use an app to hail rides in numerous towns and cities around the world, saw its stock price jump 20% as it began trading on Friday, March 29. 2019
Lyft had priced its shares at a range between $70 and $72, but the stock immediately climbed to $87.24.
The jump in share price gave the company a $30 billion valuation, about 25% higher than the target Lyft had set for itself, according to reports.
Lyft is the first of a slew of tech companies slated to go public this year. Rival Uber has plans to go public later this year at a valuation of $120 billion, and plans are in the works for lodging share site Airbnb, workplace communication platform Slack, and photo-based social network Pinterest.
Lyft had revenue of $2.2 billion in 2018, double its sales in 2017. However, the company lost nearly $1 billion in 2018, according to its stock prospectus, an increase of 32% compared to its losses for 2017.
It’s also uncertain that Lyft can maintain the pace of its current revenue growth, according to some financial experts, and its growing losses are potentially a big concern for investors. Additionally, Lyft may not earn a profit for a decade or more, according to reports.
Wait, what’s an IPO?
An IPO is the first time a company sells its shares to the public through a stock exchange such as the Nasdaq or the New York Stock Exchange (NYSE). Lyft will trade on the Nasdaq.
When a company wants to open new stores, build or acquire a factory, or expand in some other way, it may need additional resources to pay for it. Company executives may use an IPO to raise additional capital to invest in and grow their business.
Often a company does not yet have enough internally generated funds to finance such projects. Going public is one way to raise a relatively large sum of money in a relatively short period of time. It typically takes three to four months to complete an IPO.
It’s important to remember that all investing involves risk, and that it’s possible for stocks, bonds, and other securities to lose their value due to changing market conditions.
It’s also important to keep in mind that following an IPO, a newly issued stock can be subject to significant increases or decreases in market price. That’s known as volatility. Volatility for the stock can be especially high in the first few months following an IPO and so can the potential for short-term losses as a result. If you’re in this stock for the long haul though, this could be an opportunity for dollar cost averaging.
Oftentimes, fluctuations in price are due to the expiration of something called a lock-up period, where company insiders such as employees sign an agreement that prohibits them from selling shares for a specified period of time. (In Lyft’s case, the lock-up is 180 days.) When lock-up periods expire, all insiders tend to sell their stock in order to realize profit, depressing the stock price in the process. You can find out more about the lock-up period and other information about Lyft by looking at its prospectus, a publicly available document on the Securities and Exchange Commission’s website EDGAR.
Remember the Stash Way—invest for the long-term, invest regularly, and don’t put all of your eggs in one basket.
More background on Lyft
Logan Green and John Zimmer co-founded Lyft in 2007, initially as a company called Zimride, a ride-share company for long-distance rides. Their stakes in Lyft are currently worth about $700 million and $500 million respectively, according to Forbes.
Lyft listed two types of shares. It sells class A shares to the general public, and will maintain class B shares for the company founders and other company insiders. The class B shares have 20 times more voting rights than the class A shares, giving the company owners tight control of the company.