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Lyft IPO – too early to form judgements?

The first day pop in Lyft attracted much comment, but the drop from its initial high should not get in the way of a positive longer-term story.

Lyft IPO: look beyond the first day

The Lyft initial public offering (IPO) was barely a week ago and already investors are queuing up to declare that it has been a complete failure.

The negativity surrounding a new stock is probably unavoidable in this era of social media and lightning fast ‘quick takes’. After an initial pop, the shares dropped back, although they have already recovered much of the lost ground, rising from $67.00 to $72.00 by the end of the week.

It would be silly to judge a company by the size of the bounce seen in the first day of trading. Facebook's IPO was marred by technical glitches and the stock ended the day only a fraction higher than the IPO price (at $38.23, from an initial price of $38.00). Things got worse from there, with the stock falling almost 60% before a steady recovery since then that has seen the price gain 900%.

Lyft shorters could face 'short squeeze'

While Lyft might not reach these dizzy heights in such a short space of time, it has not exactly slumped, and even if it did it might not suggest that the IPO was a complete flop. It has a tough time ahead of it, as losses for 2018 rose 32% from a year earlier, while it has to fight it out with Uber, a major competitor in the ride-sharing space. Facebook had no rivals, or at least none of comparable size, but Lyft and Uber are very closely-matched.

In a warning for those looking to short the stock, the number of shares out for shorting had risen to 12.4 million, or 38% of the total float. Such a large number presents the potential for a ‘short squeeze’ if the price begins to rise appreciably. A good set of numbers from Lyft in its next quarterly update could spark just such an event.

Longer-term, the firm has plenty of potential. Car ownership looks to be a declining proposition, especially among the younger generation, and while others (such as car firms) will look to move into the field, the potential growth is huge. Lyft has to prove itself, but the first week of trading is a poor metric by which to judge a company.

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