
Lyft pops 21% on its first day of trading - nerdkid93
https://techcrunch.com/2019/03/29/lyft-nasdaq/
======
chollida1
Notes about the IPO I've been collecting....

\- Opens at $87.24, IPO at $72.00

\- raised about $2.34 Billion in cash

\- unlike hte SNAP IPO, this one has some buy ratings

\- lock up date of Sept 2nd

\- company valued at $25Billion, though note the financial engineering of a
relatively small float that helps push up the stock price.

\- upsized offer from 30.8M shares to 32.5M( around 11% of float, this is a
relatively small float)

Groupon tried this kind of financial engineering to prop up a bad business, it
didn't go well then

\- valued at 10x 2018 revenue, wow, given the losses, wow.

\- CEO won't talk about how they'll become profitable, now that they are out
of the IPO window that's a bit of a worrying trend, though clearly Wall St
doesn't seem to currently care

\- no international expansion plans outside of Canada > "We may choose to do
that some day but we don't have current plans."

-now trading below its opening trade, not to be confused with its opening price.

Uber had better IPO this year.

By Year end Lyft will have reported 3 times so investors will start to look
for losses to shrink and see a path to profitability. Lyft Share lock ups will
also be off so Lyft will get some selling pressure.

If Lyft can't support the high valuation it currently has 9-12 months out then
Uber had better have a better story than "we're Lyft but bigger".

I'd expect to see an S-1 from uber in April and an IPO by the end of the
summer to avoid this scenario.

~~~
koolba
> valued at 10x 2018 revenue, wow, given the losses, wow.

Well it would have to be _some_ multiple of revenue as a multiple of profits
wouldn’t make any sense (as its negative).

Still though that’s nuts!

~~~
spikels
For growth companies equity analysts look at forward ratios - projected
several years out. 10x in 2018 will probably be 5-6x in 2019 and 3-4x in 2020
and maybe 2-3x in 2021. Still very high but at least approaching sane levels.

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abhinai
Can some kind soul please explain to me why _popping_ on the first day is
considered to be a good thing? Isn't the company leaving the money on the
table for investment banks and their rich clients if they do not sell their
shares at an optimal price?

~~~
soVeryTired
I think part of it is that the pop generates goodwill among the big players,
making it easier for the company to tap the markets in the future. But it's
fair to argue that a pop means that some money was left on the table.

~~~
zaphirplane
Buying good will for 4 billion, that’s a lot of waste cause no one is paying
you that when you are in trouble and need it

What I’m trying to say is your hypothesis is not correct

~~~
soVeryTired
They sold 32.5 million shares at $72 apiece, raising $2.3 billion. If you
really believe that the 'true' price was the first transaction on the open
market, then they left about $400m on the table, not four billion.

------
nickvanw
$SNAP "popped" 40% when it IPOed:
[https://money.cnn.com/2017/03/02/technology/snapchat-
ipo/ind...](https://money.cnn.com/2017/03/02/technology/snapchat-
ipo/index.html)

It now trades at less than half of that.

~~~
techntoke
Everyone with a little bit of objectivity knew they were way overvalued.
However, I remember the inauthentic PR machine kept pushing them everywhere.

~~~
scarejunba
Nah, that's just hindsight bias because loads of people claiming objectivity
thought that about FB too.

And they were crowing when FB hit 16. But they were wrong all throughout.

------
gumby
The underwriters should have priced the deal higher so the company would have
more money to invest. Pop is a handout to favored clients of the underwriters
(or a subsidy to encourage them to subscribe).

It's like the VCs having the company pay its legal bill when doing a deal:
less of the LP's money for the company to invest, while they get to pocket the
money the LPs _did_ give the firm for this purpose (management fee -- the 2%
of "2 and 20").

And the press describes the pop as a _good_ thing. It's underwriter
malpractice.

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jak92
Might be a bit premature to write these headlines? The day isn't over.

At least that's a benefit of printed papers.

~~~
nerdkid93
I thought it was shocking since yesterday the rumored price was $72. That's a
pretty big disparity.

~~~
kenneth
The price that Lyft sold newly issued shares at yesterday was $72. They raised
$2B at that price. Some of those investors put up their new shares into public
markets this morning and got a handsome profit.

~~~
gtr32x
I'm curious how true this is, don't they have lock-up periods? Would love to
get educated here if that's not the case or there are exceptions.

~~~
raiyu
The lockup period is for existing shares that affect employees, founders, and
prior investors. The new shares that are issued and then sold at the IPO
offering price are able to be traded immediately and this is where the volume
comes from.

In order to be a buyer of an IPO you need to have a tremendous amount of net
worth, think 10’s of billions of dollars, you need to have a relationship with
a bank, and you need to subscribe to all of the IPOs on the calendars, not
just cherry pick the ones that you want.

The entire IPO process is really a very limited market place to a very select
few buyers and these are typically very large endowments, mutual funds, and so
forth.

In order to assure the company that they have buyers, they promise a return to
those buyers in the price popping immediately after the IPO, otherwise the IPO
pricing loses it’s allure.

In a Dutch auction, typically new shares aren’t created, and instead existing
investors sell shares. This means that the company doesn’t get any of that
cash on it’s balance sheets. This is done when the company is profitable, or
has enough cash reserves to become profitable in the near future and the
investors then want to get all of that pop by offering those shares directly.

Now for investors in a regular IPO, it’s also ok for investors, because while
the company gets a bit less cash on its balance sheet, the investors shares
are valued immediately on the public market and have the benefit of the pop.
With the idea being that they will retain this higher value post the 6 month
lock up.

However, you will already have two sets of quarterly results typically in that
window in which case Wall Street will continue to evaluate the stock. If you
can hit your projections you will be in good shape, however, if there are any
misses, as was the case with Snap, all of that exuberance was tied to
impossible numbers so the reset can be quite harsh.

And in public markets, that reset is instantaneous, because as soon as the
news hits the market cap is immediately affected as shares are then traded on
this news.

~~~
chollida1
> In a Dutch auction, typically new shares aren’t created, and instead
> existing investors sell shares. This means that the company doesn’t get any
> of that cash on it’s balance sheets. This is done when the company is
> profitable, or has enough cash reserves to become profitable in the near
> future and the investors then want to get all of that pop by offering those
> shares directly.

This is wrong. Typically its still the company that sells shares. Infact Dutch
auctions vs typical IPO's are orthogonal to who sells shares.

In both case the vast majority of the time its the company selling shares from
its float.

~~~
kenneth
I think GP was thinking of direct listing, like Spotify's, in which the
company does not issue new shares and instead the stock is listed on a market
and insiders put up their own sell orders to provide initial volume to the
market. In this case, there is no lockup and founders, employees, and other
insiders can get immediate liquidity.

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veryworried
I don't know about anyone else, but I'm prepared to open up a huge short
position when Lyft gets to about 90. No way this thing will keep going up.

~~~
sombremesa
Looks like you'll have to wait a long time.

------
mruts
Seeing that IPOs are designed to pop, I don’t find it that surprising.

The naive way to look at an IPO that pops the first day of trading is that the
investment bankers left a lot of money on the table and the company got
screwed. But if an IPO was set at a fair price (the price after the first day
of trading), the company might have a hard time generating the pre-IPO demand
in the first place for their roadshow. After all, the only reason to subscribe
to an IPO and get pre-allocated shares is to make some juicy risk-free
returns.

So the company makes the explicit choice to trade off short-term profits for
short-term (but hopefully longer) artificially induced demand.

The bankers win by allocating shares to investors they like hoping that the
favor will be returned in the form of business in the future (on top of the
fat fee they make). The subscribed investors win by the risk-free return. The
company wins be inducing demand.

This has been the process and the incentives that have governed IPOs for a
long long time. It’s interesting that this process might be supplanted with
direct listings or auctions ala Spotify or Google.

~~~
deminature
It's absolutely surprising considering the last private price is less than
half of the publicly trading price.

~~~
mruts
Maybe the dotcom bubble is a bad example, but 50% or more pops were pretty
common.

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ra7
And they are down 5% from that $87.24 pre-market price.

~~~
jarsin
No profits. Check.

10x Revenue Valuation. Check.

Shares locked up for everyone except rich guys. Check.

Houston we are clear for LYFT OFF!

~~~
raiyu
Technically the shares are locked up for the rich guys as well. The founders
and VC investors won’t be able to sell for 6 months.

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gvand
Don't all the IPO usually pop on the first day? Just to get back to some lower
level in the following days.

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slap_shot
Obligatory: underwriters usually price IPOs at a discount (called
"underpricing") and preferred investors get the benefit of that in this early
"pop."

~~~
dman
Also the reason you pay underwriters is to engineer the pop, so underpricing
might not be all there is to it.

~~~
alexpetralia
Hm isn't it the listing firm who pays the underwriters?

Why would they want to "engineer" a pop? The bigger the pop between the
listing price and what the price settles at, the less cash the listing firm
raised relative to what they could have raised.

Even existing shareholders don't really benefit from a pop because they would
be able to sell at the "true" market price that the listing firm _should have
raised_ at, as well as the true marketing price that the price eventually
reaches. The only people who benefit are those who got in between the listing
price and the closing pop price - at the expense of the listing firm.

~~~
1024core
If you _really_ want to get the full market value out of your IPO, you should
use something like a Dutch Auction
[https://www.investopedia.com/terms/d/dutchauction.asp](https://www.investopedia.com/terms/d/dutchauction.asp)

IIRC Google did that, and didn't experience a first-day pop.

The company sells its shares to the underwriter at the IPO price; so the
company gets the money up front from the underwriter. It is in the company's
interest to price it as high as it can; and in the underwriter's interest to
price it _as low_ as it can. If the underwriter wins, you see a pop; if the
company wins, you see flat or a decline.

This is why a Dutch Auction is the best option for IPOs, but underwriters hate
that (insert "the underwriters hate him!" meme).

~~~
mandeepj
FB also did that. It closed only $0.23 above the IPO price and down $3.82 from
the opening bell value

[https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac...](https://en.wikipedia.org/wiki/Initial_public_offering_of_Facebook#First_day)

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sharemywin
How long until all the insiders can sell their stock?

~~~
arcticbull
Usually 6 months, occasionally 12, and the leadership may have a longer
blackout window

~~~
vkou
That's for employees, what about insider investors?

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icedchai
Too bad no retail investor got this pop.

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pishpash
What's the volume? Let's not get fixated on the price when volatility is high.
Mean vs variance yo.

~~~
v64
my broker is showing 57.9m shares traded as of 2:52pm Eastern

