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After Lyft's apparent failure, it is important to ask for the reasons behind it and what it means for its competition, Uber, which will soon start selling shares
In December 2018, Lyft, a transportation platform that started as a carpooling service that was founded three years before Uber, announced that in 2019 it would publicly sell its shares. After three months of the announcement, on Friday, March 29, Lyft debuted on the stock exchange with an IPO (public offer for sale) of US $ 72. As reported by the newspaper El País, during its first day in the stock market, Lyft's shares price reached a 21% increase (costing USD $ 87.24), but at the end of the day it closed with a rise of only 8.74% (costing USD $ 78.29).
Leer en español: El fracaso de Lyft en la bolsa no augura bien para Uber
Despite this downturn, the company achieved a capitalization of US $ 22,400 million after capturing $ 2,300 million, which is the best debut of a US technology company since Snap Inc. in 2016. However, the situation worsened during the following Monday when, after the close of the day, Lyft shares had fallen by 12%, costing US $ 69.03, a price worse than that of their IPO. According to Dan Ives, manager of Wedbush Securities, "falling below the price of your IPO is a big blow to investors and to Lyft. These few weeks of negotiations are essential for the future to measure Wall Street's demand for Lyft, as valuation and profitability continue to be the jokers for technology investors."
According to The Guardian, although stock prices of debtors in the stock market tend to experience sharp changes during their first days of negotiations, suggesting that the low experienced on Monday could be reversed in the coming days, it is clear that Lyft should be willing to follow the recommendations of stock market analysts to avoid large losses. It is worth noting that in its S-1 form, which must be filled by the companies whose shares will be listed on the stock exchange, Lyft reported losses of US $ 911 million.
Why is Lyft's performance during its first days in the stock market?
According to Michael Ward, an analyst at Seaport Global, the high price of Lyft's IPO meant a "great leap of faith" on the part of investors, one that many of them were not willing to do. Ward also said that the price of Lyft's IPO reflects a "too optimistic outlook regarding consumer behavior" in the United States, so he concluded that a realistic price for Lyft's shares would be close to USD $ 42,39 % below the price at which they closed on Monday.
For its part, Reuters notes that, although companies such as Lyft and Uber intend to offer an environmentally friendly service, many investors with environmental concerns have refrained from investing in Lyft when they have doubts about whether their service does not actually worsen the environmental situation on the planet. This position is exemplified in the words of Murray Rosenblith, portfolio manager of New Alternatives Fund, a mutual fund that aims to make socially responsible investments, who said "As far as I know, [companies like Uber and Lyft] are putting more cars in congested areas, and they are taking jobs away from transit systems."
Lyft's situation can be alarming for similar technology companies that will enter the stock market soon, particularly for its biggest competition: Uber. The giant transportation platform, valued at $ 120 billion according to CNBC, also announced the public sale of its shares in December 2018 and it is expected that its IPO will be made public in April 2019. As reported by Forbes, this IPO could be one of the highest in history, which, assuming that the share price does not suffer downturns like Lyft's one, would represent an improvement for Uber, because according to CNN the company reported losses of up to USD $ 1.8 billion in 2018.
LatinAmerican Post | Juan Diego Bogotá
Translated from "El fracaso de Lyft en la bolsa no augura bien para Uber"