Lyft Lifts IPO Target, Will Be Third Highest Pricing Public Offering Since 2001
The US equity market’s inexorable march higher has seemingly stalled out as the S&P 500 has struggled to stay above the 2,800 line of resistance, and the IPO calendar so far this year has been littered with last-minute pullouts citing
“unfavorable market conditions” a shortage of willing buyers, but apparently, when it comes to unprofitable ride-sharing startups, investors are willing to make an exception.
In a twist that has surprised even the company’s underwriters, demand for Lyft Inc.’s shares has been so robust that the company on Wednesday raised the price range to between $70 and $72 a share, cementing Lyft’s status as the most hotly anticipated IPO of the year, despite warnings in the financial press advising retail traders to stay away.
The Lyft offering, expected to be the largest US IPO since Alibaba, was already heavily oversubscribed just two days into its roadshow. Previously, it had been expected to price between $62 and $68. If it prices near the higher end of its new range ($72), Lyft would be the third biggest IPO since 2001. With a market cap just under $20.5 billion, it would be slightly more valuable than Snapchat was at its 2017 IPO.
But readers who have been paying close attention to the market conditions so far this year may notice that something seems out of place here, particularly with an economic slowdown, deteriorating corporate credit conditions and the ever-present trade war risk menacing markets.
As we’ve noted (and recent price action appears to confirm), during much of the torrid rally that has left Q1 on track to be the best start of the year for equities since 2012, institutions, hedge funds and retail investors have been conspicuously absent, choosing to stay on the sidelines, according to BAML’s fund flows report.
Today, the only reliable buyers are corporations – and they are only interested in buying back their own shares (buybacks in 2019 are expected to smash last year’s record announced spend of more than $1 trillion). Well, corporations, and shorts being forced to cover.
Last year, Lyft pulled in $2.16 billion, double the previous year’s revenue, and far higher than $343 million in 2016. However, it posted a loss of $911 million, even larger than the $688 million it lost in 2017, according to Reuters.
But that doesn’t change the fact that Lyft is a shiny Silicon Valley unicorn. And if the past is any guide, investors are often willing to overlook flaws like a lack of clarity surrounding the company’s path to profitability for the chance to get in early. What’s more, Lyft is at the vanguard of a wave of unicorn IPOs, which is expected to include its much-larger (and more valuable) rival Uber next month, followed later on by Pintrest, Airbnb and even mattress company Casper.
Still, if the offering is a flop, expect these others to rethink their plans, and possibly even shelve their own offerings until a time when “market conditions” have improved.