Eager investors have been waiting for a Lyft IPO date announcement, and it looks like the transportation disruptor is taking concrete steps to make a public offering in 2018.
Lyft is close to hiring an IPO advisory firm, according to a Sept. 28, 2017, Reuters report.
The IPO advisor will select underwriters for the Lyft IPO. The underwriters determine the offering price of a new stock and try to sell the stock to hedge funds and large institutions before the stock is made available to the public.
The underwriter receives a fee for their services, which is usually 3% to 7% of the amount of capital being raised, according to InvestingAnswers.com.
Lyft is finished with the interviews for the advisory firm and will pick one shortly, according to the same Reuters report.
However, the advisory firm may have a hard time finding an underwriter...
Finding an Advisor Before the Lyft IPO Date May Prove Troublesome
Morgan Stanley (NYSE: MS) and Goldman Sachs Group Inc. (NYSE: GS) are go-to underwriters for IPOs. Morgan Stanley was the lead underwriter for 397 IPOs, and Goldman Sachs was the lead underwriter for 1,030 IPOs, according to Nasdaq.com.
However, both banks may not want to work with Lyft...
Who Is Dara Khosrowshahi?
In 2015, Goldman Sachs invested $1.6 billion in Uber. Morgan Stanley invested in Uber but did not provide details on how much or when, according to CrunchBase.com. Morgan Stanley also offers wealthy clients a chance to invest in Uber through a special fund, according to Fortune.
If either Morgan Stanley or Goldman helps Lyft go public, they could risk the opportunity to take Uber public. The new Uber CEO, Dara Khosrowshahi, wants to take his company public between 2019 and 2021, and he may not want to work with a bank that supported its biggest rival.
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Lyft has a $7.5 billion valuation and Uber is valued at $68 billion, so there may be more demand for Uber stock because of its higher valuation.
The underwriter could raise more capital for the Uber IPO and make more from fees.
But we aren't concerned with how much the underwriters will make. We want our readers to know whether their hard-earned money should be used to buy Lyft stock.
Here's what Money Morning Director of Technology & Venture Capital Research Michael Robinson has to say about buying IPOs...
Read This Now Before You Buy Lyft Stock
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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 said.
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 mimics 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, it's diversified. That makes it less risky than owning just one stock.
Because FPX owns more of PayPal Holdings Inc. (Nasdaq: PYPL) (6.96% of its holdings) than SNAP (1.05% of its holdings), for example, it balances out the risk of IPOs. If FPX just owned shares of SNAP, FPX would be down 40.03% so far in 2017. But the PYPL stock price is up 67.47% so far in 2017, and it accounts for a much larger position than Snapchat.
According to FTPPortfolios.com, FPX's holdings include the 100 largest and most recent U.S. public offerings.
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). And it also holds newly spun-off companies like AbbVie Inc. (NYSE: ABBV).
This structure lets you profit from IPOs and new public companies without the risk of owning just one stock. And for investors looking to outperform the market with safe investments, FPX is beating the Dow right now.
This year, FPX has climbed 20.04%. In comparison, the Dow is up only 15.41% in the same time.
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