Leading the 2019 caravan of Bay Area tech unicorns to go public, Lyft saw its shares soar nearly 21 percent early Friday, extending the momentum of one of the most successful tech IPOs in years.
By day’s end, shares in the San Francisco ride-hailing company slid but were still up nearly nine percent in Lyft’s first day of trading.
Lyft co-founder and CEO Logan Green rang the opening bell for the Nasdaq Stock Market on Friday, with co-founder and President John Zimmer at his side at the company’s driver center in Los Angeles, which was awash in confetti and applause from employees and drivers as TV cameras rolled.
Lyft’s initial public offering, which raised $2.3 billion and valued the ride-hailing company at $21 billion as it beat top rival Uber to market, was the biggest on the Nasdaq since Facebook’s market debut in 2012 — and now is among the top U.S. tech IPOs. Lyft’s entry also was closely watched because Uber is expected to go public within a month, and several other Silicon Valley tech unicorns are likely to trot out after that.
“The elevated pricing … points to the advantage of being a first mover ahead of Uber,” said Alejandro Ortiz, analyst at SharesPost, a San Francisco private-trading marketplace. He said Friday that Lyft’s debut “should bode well for Uber and the others to come.”
Lyft, which was founded in 2012, lost a whopping $911 million last year on $2.2 billion in revenue. But investors snapped up its shares, encouraged by analysts such as Tom White of D.A. Davidson, who in a note to investors last week rated the shares “buy,” citing the company’s momentum.
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Lyft’s shares opened at $87.24, much higher than the $72 price it set Thursday, which was at the upper end of the revised range the company announced this week amid high investor demand. Shares then closed at $78.29.
Lyft said its market share rose to 39 percent in 2018 from 22 percent in 2016. Ortiz pointed out Friday that Lyft’s revenue also grew 150 percent each year over the past couple of years and that investors are “betting there’s still appreciation to be had as a public company.”
Its market debut was “a big success for Lyft,” White said Friday, noting that he had expected the first-day pop considering the shares were oversubscribed. He also said he’d heard it “was standing room only” at the company’s roadshow leading up to its IPO.
But Richard Clayton, research director for union pension-fund adviser CtW Investment Group, is a naysayer.
“(Lyft has) no clear, convincing path to profitability,” Clayton said in an interview Thursday in which he also brought up looming regulatory challenges, which include different cities instituting minimum wages and possible reclassification of drivers — the backbone of ride-hailing services — from independent contractors to employees. Proposed legislation in California, after a state Supreme Court ruling on that issue last year, makes that a possibility.
Clayton also said in a note to potential investors last week that “absent a price increase, Lyft can only become profitable by reducing the drivers’ share of revenue.”
That’s already a sore spot for Lyft and other ride-hailing drivers. For example, dozens of Lyft and Uber drivers protested Monday in San Francisco, complaining about working conditions and pay cuts. Drivers held a one-day strike Monday in Los Angeles and San Diego, where Uber recently slashed driver rates from 80 cents a mile to 60 cents a mile.
“I’m making 20 percent of what I used to make five years ago,” said Edward Escobar, founder of the Alliance for Independent Workers and a driver for Lyft and Uber in San Francisco for the past five years, in an interview Thursday. “Drivers are mad as hell, they don’t want to take it anymore. You can’t argue with the math.”
No. 2 U.S. ride-hailing company Lyft, which is in more than 300 markets in the United States and Canada and had 30.7 million riders last year, is much smaller than No. 1 Uber. It had 1.9 million drivers last year worldwide, compared with Uber’s 1 million U.S. drivers alone. But Lyft gained ridership as it took advantage of a hit to Uber’s reputation in the past few years by portraying itself as less cutthroat and more socially conscious.
On Friday, Lyft said it would donate $50 million or 1 percent of profit, whichever is higher, every year to support transportation initiatives in cities, beginning with Los Angeles. Some studies have blamed ride hailing for adding to traffic congestion.
“Lyft has a strong track record of helping drivers increase their earnings, and has led the industry in initiatives like in-app tipping, same-day payments, access to affordable rental vehicles, and more,” a company spokeswoman said Friday.
Another issue with Lyft that concerns analysts and others is its dual-class stock structure, which is not uncommon among tech companies. Green and Zimmer own about 5 percent of Lyft’s shares but together have 49 percent of voting power.
“That limits changes to the management and board,” CtW’s Clayton said. “It makes Lyft an even worse investment.”
But investing has paid off for Lyft’s earliest and biggest backers. Rakuten owns 13 percent of the company, while General Motors owns 7.8 percent, Fidelity 7.7 percent, Andreessen Horowitz 6.3 percent, and Alphabet 5.3 percent.
Lyft’s IPO vaulted it to No. 2 behind Facebook in terms of money raised during a market debut by a Bay Area tech company. Facebook raised more than $16 billion at a valuation of $81 billion seven years ago, while Twitter raised $2.1 billion in 2013 and Google raised $1.9 billion in 2004.
Also on tap for initial public offerings this year are other San Francisco-based unicorns — companies with valuations of at least $1 billion — besides main Lyft rival Uber: Airbnb, Pinterest, Slack and Postmates. Palantir, which is in Palo Alto, also is expected to go public this year.
