The transportation industry has been disrupted. For the better part of a decade, ridesharing companies have created a new way to get around. Cheaper than taxis and more private than a subway, apps like Uber and Lyft have become the go-to choice of transport for millions of people, but what does that mean for the average investor? Is this the next Apple? Or will the stock crash shortly after lift off.
It May Be Overvalued
This is the choice investors faced when Lyft, the first of these companies to go public, began its IPO at $72 on Friday. The price of the stock soared and stayed above $80 for the remainder of the day. Many investors remain bullish thanks to the stock’s strong start, but others warn to be cautiously optimistic. Founder and CEO of Business Insider, Henry Blodget, told CNBC: “The big issue is valuation, how much it’s worth… But, at $88, if that’s where it opens, you’re looking at a stock that’s trading at about 10 times this year’s revenue.”
It Isn’t Alone
The other elephant in the room is, of course, Uber. The senior company that does work not only in ridesharing, but also food and package delivery is expected to go public later this year. Many industry experts expect the valuation of Uber to be $120 billion, while Lyft was valued at less than $25 billion. With an already diversified business, and plenty of room to grow, Uber could leverage revenue from its other services and international markets to put pressure onto Lyft. It’s likely that both companies will take losses as they fight for control of the U.S. ridesharing market.
The Bottom Line
Like many young tech companies, Lyft was in the red for 2018, and with each year of revenue growth, the losses grow with it. If you haven’t yet made a move on Lyft, it would be worth reading the company’s S-1 and really deciding what is most important to you. Although some gains could be made, you might end up with the next SNAP instead of the next AAPL.
Growing rapidly, but losses have piled up, too
The ride-sharing company has been growing rapidly, but losses have piled up, too. Lyft is growing rapidly but is also paying a lot to achieve that growth, having lost almost $1 billion in 2018. Tiernan Ray, a tech columnist for TheStreet, thinks shares are likely do well on the first day of trading given the current scarcity of ways to invest in ride-sharing, but the debut of much-larger rival Uber, which is also expected to IPO soon, will likely impact that equation and put pressure on Lyft’s shares.
Don’t add further risk to your portfolio
Given the uncertain global macro environment, investing.com doesn’t advise investors to add further risk to their portfolios, especially in the domain of technology start-ups. That said, ride-hailing business isn’t going to die off and Lyft will find a way to balance its books at some point. The stock has a strong appeal and after the successful IPO, it has momentum and a lot of cash to burn. If you’re a risk-taker, Lyft shares are worth taking a shot.
Winners will be venture capitalists and Wall Street, not individual investors
MarketWatch advises: Don’t buy Lyft and other money-losing IPOs. So, the timing looks right for VCs, many of which have owned stakes of these private firms for years, to finally cash out. Big pension plans and mutual fund companies also may want to grab a piece of the action to show their investors how cool they are.
Bleeding red ink by the billions
But for individual investors who may be tempted by these shiny objects in hopes, they’ll be the next Amazon.com AMZN, or Alphabet GOOG, GOOGL, I have one word of advice: Don’t. Most of these new companies are bleeding red ink by the billions. It will take years for them to get into the black — if they ever become profitable at all. Too many individual investors — I’m talking to you, millennials — invest in fads, like crypto or cannabis, or companies they think they know. And it usually ends in tears: just ask people who bought into Snap SNAP, or Twitter TWTR. Before you put a dime in any of these new unicorn IPOs, their CEOs need to explain how they plan to turn red ink into black, and when.