With investors looking ahead to the biggest public offerings of 2018, our readers have been asking, "Should I invest in the Lyft IPO?"
The company just touted that it reached 500 million rides on Oct. 11, 2017, and Lyft has also trimmed away at its rival's market share for U.S. ride-hailing services. Uber owned 80% of the market at the start of 2017, but sits at 70% right now.
But do more rides alone make Lyft stock a buy on the Lyft IPO date?
Before making a decision, here's everything our readers need to know about the $7.5 billion company...
The Background: From Zimride to a Lyft IPO
Lyft was founded in 2012 by Logan Green and John Zimmer.
The two originally started a company called Zimride, which was a ridesharing solution for college students needing long-distance carpools back to school.
The duo sold Zimride in 2013 to Enterprise Holdings to focus entirely on Lyft.
And so far, it seems like focusing solely on Lyft was the right decision...
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Lyft currently operates only in the United States, but the company could expand into Canada by the end of 2017, according to a Sept. 14 Fortune report. Thanks in part to the scandals at Uber, the ride-hailing service increased its rides 136%, from 53.3 million rides in 2015 to 162.6 million in 2016.
And because of Lyft's rapid uptick in rides, it's fetching a lofty valuation...
Lyft's latest valuation is $7.5 billion, which may sound surprising to some, as the company lost $600 million in 2016.
However, some investors are willing to accept that valuation because Lyft plans to be profitable by 2018, according to Bloomberg. In fact, CapitalG, the investment arm of Alphabet Inc. (Nasdaq: GOOGL), just led a $1 billion funding round for Lyft on Oct. 19.
Alphabet may have been so eager to lead this round because it could be the last chance to invest in the company before it goes public...
The Lyft IPO Could Happen Early in 2018
Lyft is in the process of hiring an IPO advisory firm, according to a Sept. 28 Reuters report. The advisory firm will help pick the underwriters for the IPO who will, in turn, determine the IPO offering price.
The IPO offering price is a discounted stock price only available to big banks and hedge funds before it's sold to the public.
Lyft has completed its interviews for an IPO advisory firm and plans to make its selection shortly.
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And when Lyft selects its underwriters and goes public, we want our readers to be prepared.
Before buying Lyft stock, here's what Money Morning Director of Technology & Venture Capital Research Michael A. Robinson wants you to know...
Should I Buy Lyft Stock on the Lyft IPO Date?
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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 Arca: 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) (7.37% of its holdings) than Snap Inc. (NYSE: SNAP) (1.08% of its holdings), for example, it balances out the risk of IPOs. If FPX just owned shares of SNAP, FPX would be down 34.93% so far in 2017. But the PYPL stock price is up 79.86% 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 21.23%. In comparison, the Dow is up only 18.25% in the same time.
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