Uber plans to go public between 2019 and 2021, but some don't want to invest in the transportation disruptor because of its many scandals. That's why investors who want to own shares in a ride-hailing company but don't want to own Uber stock are asking us, "How do I invest in Lyft?"
Unfortunately, Lyft is not a publicly traded company yet, so you can't own shares of the transportation disruptor just yet.
But if Lyft wants to raise more money to fend off its biggest competitor, there could be a Lyft IPO in 2018...
What to Know Ahead of the Inevitable Lyft IPO
To create an account with Lyft, a passenger downloads the Lyft app onto their smartphone. They are then prompted to enter their phone number and payment information. When the information is entered, they can then request a ride through the app.
The passenger chooses their destination, and the driver will be paid based on the length of the trip.
At the end of the trip, the passenger can tip their driver through the Lyft app.
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And now that you know more about how Lyft works, here's what you need to know about Lyft's biggest obstacle ahead of its inevitable IPO...
Uber Is Lyft's Biggest Competition
Uber is Lyft's biggest competitor and the most well-known U.S. ride-hailing app.
Lyft is still growing its business despite the competition. The company went from 53.3 million completed rides in 2015 to 162.6 million completed rides in 2016, a 136% increase in just one year.
However, Uber is still vastly ahead of Lyft in its amount of completed rides. We don't have totals for all of 2016, but in just December 2016, Uber completed 78 million rides.
Lyft only operates within the United States, while Uber operates in 570 cities around the globe. That's part of the reason why Uber has a $70 billion valuation, while Lyft is only valued at $7.5 billion.
But while Lyft may be a smaller operation, retail investors may find it a more appealing investment than Uber because Lyft is not engulfed in scandals. Over the past year, Uber has dealt with accusations ranging from theft to creating a company culture that endorses sexual harassment.
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So, is Lyft a better investment than Uber?
Before buying Lyft stock on the Lyft IPO date, this is everything you need to know...
Should I Buy Lyft Stock?
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Money Morning Director of Technology & Venture Capital Research Michael Robinson doesn't believe retail investors should invest in overhyped IPOs.
"I generally tell retail investors to avoid buying an IPO at the open because the insiders have already made all the money available at the debut," Robinson told me.
You see, prices can soar for a few days after a company goes public, which nets early investors the biggest gains. However, retail investors are often buying in at an inflated price, and stock prices after a public offering can be extremely volatile.
But he has one exception...
"My exception to this rule is to put in a limit order that is fairly tight from the offering price. Otherwise the risk is you buy at the top and then go upside down. That's a big risk to carry with a new issue that hasn't hit the lock-up date," Robinson said.
However, we have one strategy that lets you safely profit from the hype these IPOs create, without the risk that can come with buying at the IPO price.
Robinson advises investors to purchase an exchange-traded fund (ETF) that will mimic the broader market for IPOs. It's the First Trust U.S. Equity Opportunities ETF Fund (NYSE: FPX).
Because FPX is an ETF, retail investors can buy and sell it just like a stock.
And because FPX holds a mix of recent IPOs and well-established companies, it's diversified. That makes it less risky than owning just one stock.
According to FTPPortfolios.com, FPX's holdings include the 100 largest and typically best-performing U.S. public offerings.
FPX is then adjusted quarterly to make sure it stays balanced between IPOs and established companies.
It currently holds IPOs that rolled out over the last several years, including Snap Inc. (NYSE: SNAP), Match Group Inc. (Nasdaq: MTCH), and Blue Buffalo Pet Products Inc. (Nasdaq: BUFF).
But it balances risk by holding well-known companies like AbbVie Inc. (NYSE: ABBV).
It also balances risk by holding more of these established stocks than the newcomers.
Because FPX owns more of PayPal Holdings Inc. (Nasdaq: PYPL) (6.99% of its holdings) than SNAP (0.99% of its holdings), for example, it balances out the risk of IPOs. If FPX just owned shares of SNAP, FPX would be down 44.04% so far in 2017.
However, the PYPL stock price is up 64.88% so far in 2017, and it accounts for a much larger position than Snapchat.
ABBV is First Trust's largest holding, consisting of 10.19% of its portfolio. In comparison, Snapchat only accounts for 1.22% of FPX's holdings.
This structure lets you profit from IPOs without the risk. And for investors looking to outperform the market with safe investments, FPX is beating the Dow right now.
This year, FPX has climbed 17.32%. In comparison, the Dow is up only 13.08% in the same time.
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