
Lyft’s IPO Was a Success, Just Not for Investors Who Bought on Friday - chollida1
https://www.nytimes.com/2019/03/29/business/dealbook/lyft-ipo-stock-price.html
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nostromo
> Lyft’s stock market debut has set up its founders, employees, early backers
> and even those who scored shares in the initial public offering Thursday
> night for quite a windfall.

... not really? Most of those folks are locked out for several more months and
can't sell -- at which point the stock may suffer increased selling pressure,
much like Snap. These folks are no more successful now than they were a week
ago.

Also the IPO price was $72 -- and Lyft is selling at $69 right now, so, no,
the institutions that bought the IPO are not having a windfall at present.
(But now I see this article was published Friday, before today's continued
decline, so I see why this made it past the fact checkers.)

I found this simple graphic a great distillation of why Lyft and Uber may be
considered overvalued:

[https://i.imgur.com/z1aCZaX.png](https://i.imgur.com/z1aCZaX.png)

~~~
yojo
It's actually worse than that for RSU holding employees. The taxation event
occurs on share release for RSUs, at a cost basis of the price on release. In
many cases, that will be the day of the IPO, at the IPO price.

If the share price falls over the lockup period, employees end up owing tax at
a share price higher than they are able to sell. Some of that is usually
offset by the company withholding some of the released shares for taxes, but
the current withholding rate is substantially under most engineers' marginal
tax bracket. It amounts to a ~10% extra tax penalty on the share decline.

~~~
toast0
> current withholding rate is substantially under most engineers' marginal tax
> bracket

RSUs are withheld at Federal bonus rates, which seemed pretty reasonable (it's
25% until your total taxable comp from an employer hits $1M in the tax year,
and then it jumps to 39.6%); and California equity statutory rates, which is
the second to top marginal rate, which works out right, unless you made enough
to pay the mental health tax.

Although, given that state tax isn't deductible anymore, perhaps 25% isn't
nearly enough at the federal level anymore?

~~~
smkellat
State and Local Tax deduction is limited to $10,000. It isn't eliminated.

~~~
toast0
In the context of a windfall, limited to $10,000 is effectively eliminated;
especially in the context of 25% withholding not being enough.

Realistically, since the standard deduction is way more than SALT deduction
plus the maximum mortgage deduction, few people are going to end up deducting
those, unless they've made a lot of charitable contributions or had a lot of
medical expenses in a given year.

The analysis of 2018 tax return trends is going to be very interesting.

------
raiyu
The stock price drop isn’t exactly surprising. There are heavy losses from
last year, another year of tremendous losses this year, and while growth is
highly valued there is a difference between losing 5%, 50%, or 90% of revenue
in a calendar year.

Snap was certainly overvalued at IPO, again heavy losses and very large
revenue growth projections. Each quarter that they missed in their MAU growth
and/or revenue growth the stock got hammered. It hit a low and now is
rebounding to more sensible levels. If they can get their spending more under
control and continue their positive revenue growth they will mature into a
solid public company.

The other challenge for Lyft is that it’s hard to find a comparable. For Snap
you have twitter and Facebook so you can estimate the costs it takes to run
the operation as well as the potential revenue on a per user basis from two
publicly traded companies that have both been in the market for a while.

With Lyft what stock would you use as a comparable to better understand their
cost structure at scale as well as the proper way to value their customers
true LTV?

The stock is still trading well above the last private round. I would consider
it entering into true bear territory if it starts trading below the last
private valuation. Which is what happened to Snap.

Then that shows you that valuing a stock on future growth especially at the
later stages can be quite dangerous as any misstep is magnified.

This is also challenging news for Uber really. Because it has a similar story.
Great revenue growth but heavy losses. If anything coming out first was great,
they get all of the press and attention. The IPO was a great success
internally because they capitalized the company well and given the pop and the
receding stock price they didn’t leave any money on the table.

Now that they are public it’s going to be about the long game. Given the heavy
drop in price, you would expect this to continue for the next several quarters
until after the lock up period when more shares will hit the market. They need
to keep hitting their numbers with no negative surprises as well. It’s not
crazy to see them get adjusted down 30-50% and have the stock settle into a
floor before the fundamentals of the business really take over in terms of
valuation.

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john_moscow
Well, it's called an exit for a reason. Essentially, a team of professional
financial analysis that have models and experience pricing the stocks, and a
knowledgeable PR team, decide the best time and the price to dump the stock
onto the market in order to maximize the returns the existing equity holders
will get. As a retail investor, you're practically betting against the house
here.

~~~
monitorman
If things were as simple as this, you could then always short IPOs for a
while, and the expected value would be positive.

~~~
stevedewald
Yes, and the expected value is positive. Unfortunately for us, the banks that
underwrite the IPO choose who to allocate the shares to, and they would prefer
to allocate them to clients that have a history of not dumping the stock
and/or lending shares out for shorts.

~~~
gruez
You'd think that if the EV was positive, that no one would buy the IPO, and
would instead but a few days/weeks later. Why buy before the dip?

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Havoc
Options, specifically put options available on Thursday. Judging by reddit,
everyone and their dog wants in on that.

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shhehebehdh
> It serves as an important reminder that amid all the hoopla around trading
> debuts, small investors wind up taking a lot of the risk.

 _Speculators_ take on a lot of the risk, whether they be small or large.

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Animats
Too soon. Bottom fell out on Monday. Update.[1]

[1] [https://www.nytimes.com/2019/04/01/technology/lyft-
stock.htm...](https://www.nytimes.com/2019/04/01/technology/lyft-stock.html)

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JumpCrisscross
JPMorgan priced this like a bag of numpties. They had a range in 62 to 68, but
caved to pressure and jacked the price. Early investors are fine--if they had
sense, they sold some before the IPO. Same with employees. But retail got
screwed, and that's a shame for Lyft's long-term prospects amongst those
investors, as well as for upcoming B2C IPOs, _e.g._ Uber, Airbnb and
Pinterest.

~~~
freewilly1040
I don’t understand this expectation that retail investors should get a decent
profit on a stock they bought days ago. It was priced at 72, went up a bunch,
and is now down less than 5% from what they offered it at. It all seems...
fine?

~~~
JumpCrisscross
> _I don’t understand this expectation that retail investors should get a
> decent profit on a stock they bought days ago_

I don't have that expectation. IPOs are risky. IPOs of massively loss-making
companies' non-voting stock are riskier still.

But when two sets of investors--on institutional and one retail--bought stock
within days of each other, under similar informational and macroeconomic
circumstances, and one of those groups (the latter) was prohibited from buying
at the price the other (the former) bought at, and a single institution is the
arbiter of the price at which bucket A buys and sells, and bucket B gets
screwed to the tune of 20% on a day the general markets rose, it's a reason to
call out the bookrunner as a numpty. Particularly for a name, like Lyft, that
will disproportionately depend on retail investors buying their stock for
months to come.

~~~
sk5t
Well, so? Who was holding a gun to retail investors' heads to buy on Friday?
Today's sitters-out can be tomorrow's reasonably-satisfied long investors.

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forkLding
Investopedia has a good article on this:
[https://www.investopedia.com/university/ipo/ipo2.asp](https://www.investopedia.com/university/ipo/ipo2.asp)

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rb808
Lyft is a little down. By the time Uber IPOs no one will want to touch it.
Hopefully this is the end of dotcom boom II.

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gremlinsinc
Didn't lyft itself say they have no idea if they can get to profitability?
Wouldn't it make more sense to short lyft than invest in them? Ridesharing
companies have been burning through investor money, and having a VERY hard
time showing any real profits on the books, and with self-driving cars, the
manufacturers will become their own rideshare, and likely change the model of
car ownership to one of cars on demand.

~~~
bsder
> Wouldn't it make more sense to short lyft than invest in them?

Lyft beat Uber to IPO and raised a bunch of money. If Lyft's stock tanks, Uber
will get an extremely depressed IPO and raise far less money while having a
far higher burn rate. This could possibly cause Uber to collapse before Lyft
and leave Lyft as the remaining big player in the space.

In short, the market is likely to remain irrational longer than you can remain
solvent.

~~~
jquery
Lyft’s stock tanking is good for Lyft... what a doozy. As an Uber employee I’m
glad that’s the case, it’ll help prevent it from tanking :)

~~~
bsder
> Lyft’s stock tanking is good for Lyft... what a doozy.

It's not "good". It's "less bad".

And, the really interesting question is if Uber implodes and leaves the field
to Lyft, can Lyft actually take advantage of that? That's not at all clear,
either.

So, it may simply be that Uber leaves a bigger impact crater before Lyft does.

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docker_up
At this point, every single person who bought Lyft in the last two days is
underwater. The only ones who are still above water are the pre-IPO investors
and I wonder what their lock-up agreements are. In no way can this be called a
success for anyone, it's a terrible IPO.

~~~
m463
The purpose of the IPO is to fund the company.

Many companies have been railroaded by the banks to price their IPO shares so
conservatively that they make relatively little money on the IPO. It may be
dwarfed by the amount the banks and investors make in a few days.

Taking the long term view, maybe this IPO is just fine. The company gets
funds, they grow their business and the stock will rise well over time.

~~~
JumpCrisscross
> _The purpose of the IPO is to fund the company_

IPOs traditionally had four purposes:

(1) Introduce a company's securities to public-market investors;

(2) Price said securities;

(3) Let existing investors sell; _and_

(4) Raise money for the company.

> _Taking the long term view, maybe this IPO is just fine_

Analysts overstate the importance of IPO dynamics. Facebook had a terrible IPO
and. Snap had a great first day [1]. That said, burning an entire class of
investors (retail) on day one, particularly for a brand like Lyft, isn't a
great show. It's also reasonable to call out the bookrunner, JPMorgan, as a
bad choice for future IPOs.

[1] [https://www.cnbc.com/2017/03/02/snapchat-snap-open-
trading-p...](https://www.cnbc.com/2017/03/02/snapchat-snap-open-trading-
price-stock-ipo-first-day.html)

~~~
shhehebehdh
If the retail investors don’t like the price, they are not obligated to buy.
Caveat emptor. They wanted to make a quick buck, and I guess that’s fine. It’s
nice to want things. I feel precisely zero pity for them.

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idlewords
Instantly burning through invested money seems pretty on-brand for Lyft.

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dawhizkid
No idea why anyone would hold at least until the lockup period expires.

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YeahSureWhyNot
majority of the investment industry is about pump and dump during next round.
as per usual, the unsuspecting retail investors driven by 'advisors' end up
holding the bag. what else is new?

~~~
jjeaff
Add to that, that many/most of the "advisors" work for the same institutions
that are making tons on the IPO.

