Lyft Flies Too Close to the Sun: What Do You Think Happened?

1 | By Shah Gilani

Listen, I’m not the kind of guy to say, “I told you so,” but if I was, I’d sure be saying it now.

That’s because I told you a few weeks ago that the former unicorn known as Lyft Inc. (Nasdaq:LYFT) would crash and burn on its IPO.

And that’s exactly what it did.

Only, it’s worse than the press is making it out to be.

Here’s how Lyft, a distant cousin of Icarus, flew too close to the sun…

An IPO Worth Bragging About…

All the hype about the Lyft IPO was, predictable.

It’s show business, folks.

Lyft’s lead IPO bankers, JPMorgan Chase & Co. (NYSE:JPM) and Credit Suisse Group AG (NYSE:CS), did a great job of polishing their lead actors’ acting chops.

According to The Wall Street Journal, “Lyft executives spent considerable time practicing potential investor questions with its lead bankers.”

The Journal went on to say, “The preparation paid off. Investors who attended the roadshow said they entered wary that the ride-hailing company posted a big financial loss in 2018, but Lyft’s co-founders succeeded in assuaging those fears, emphasizing that part of the reason was that they are making focused investments-such as with bikes and scooters- that they believe will pay off in the long term.”

Which is one reason I said the IPO would face trouble. Investors want the company they’re investing in to have their core business down, meaning profitable down on the bottom line.

Lyft lost $911 million last year on their ride-sharing business, which proves they’re so good at managing transportation basics, they have to go headlong into bikes and scooters, because at least there are no labor hassles there – I mean no drivers to pay.

Speaking of drivers and profitability, and something called cash burn, which Lyft is genius at, while the IPO was making headlines, Lyft drivers were striking in Los Angeles, San Francisco, and San Diego because Lyft had cut their pay – to reduce its cash burn, of course.

Not to worry, Lyft raised a fast $2.34 billion from selling 32.5 million shares at the IPO price of $72, so they have plenty of fresh cash to burn.

And burn they did.

After shares were priced at $72 on Thursday, way above the expected range of $62 to $68 on the high end, the world watched breathlessly Friday morning for the first trade and whether there’d be champagne corks popping.

Of course, it helped that Lyft’s dog-and-pony show was so successful, especially with bountiful performances by Lyft’s founders and lead actors John Zimmer and Logan Green, that the deal was oversubscribed twenty times over.

Maybe that’s new math, but I don’t believe it was 20x oversubscribed. If you do, you probably believe pigs fly.

Which they do, or try to do, in Lyft’s case.

Hyped to heaven, or at least the sun, Lyft opened just before noon, taking a while to debut on account of lead bankers managing the price higher so when the first trade hit the tape the press would dutifully go bananas and spread the word, Lyft has wings!

It opened at $87.24!

That breaking-news-worthy print, which was also the high of the day, meant Lyft was instantly up 21.16% on its opening.

And pop went the corks.

[URGENT] Does Social Security Owe You $23,441?

… Or Not?

Until that is, the next trades. The stock, having burned its wax wings, immediately headed back to earth. By 12:42, 45 minutes after it opened, the stock was almost 8.5% off its highs.

It went sideways until about 2:00, when it tried to flap its wings again and got to around $82.

Alas, it was not meant to be, and heavy selling right into the close left Lyft down 10.25% from its highs of the day.

Not to worry, for the moment, closing at $78.29 it was up 8.73% from its $72 IPO price.

Maybe over dinner last night and some cocktails, Friday’s anxious buyers, or more likely the IPO boys and girls who paid $72 to get in to the hot, oversubscribed deal, read what the founders were able to do with their public company.

Which would be, pretty much whatever they want to do, since they managed to keep voting control of the “public” entity.

And to prove they were as good on defense as offence, the plan for control was explained as such, “To set up for long-term success, you need to provide certain defense mechanisms.” That’s according to Mr. Zimmer, who added in an interview, that members of his board of directors, whom he declined to name, thought it was the best course of action for the company.

Specifically, he said, “We have investors that were completely aligned and asked for us to have this type of structure,” he said, and didn’t even blink, never mind wink.

“We want them to be able to make decisions as they’ve made them thus far-for the long term,” Sean Aggarwal, the chairman of Lyft’s board and the company’s first investor, said in an interview.

My guess is that all those excited investors who owned Lyft at $72 got to thinking Friday night, “maybe this isn’t such a good idea.”

So, this morning, they put in their sell orders.

Maybe that’s why the stock fell a not-so-funny 13.41% on Monday, ending the day at $67.79.

That’s $19.24 or 22.2% off its highs, and $4.21 or 5.8% down from its IPO price.

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Like I said, I’m not the kind of guy to say, I told you so.

But I do tell it like it is.

And I’ll be telling it like it is at the Black Diamond Conference this weekend, April 4 to 6, in the sunny and beautiful Delray Beach, Florida.

And the entire, exclusive event will be livestreamed, so if you can’t make it, you won’t miss out on anything I’m going to share. It’s the type of stuff that can show you how you can become a millionaire… and help you avoid some very expensive mistakes that a lot of people make when it comes to the stock markets.

It’s going to be good. I hope you tune in.

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One Response to Lyft Flies Too Close to the Sun: What Do You Think Happened?

  1. ralph johnson says:

    there’s still room to make on an option or serious short…’s gonna fall to about $30 -36….watch and see….

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