Lyft Scores $500 Million Funding Round Ahead of IPO

Lyft raised $1 billion in October 2017, and it's adding more money to its stockpile ahead of the inevitable Lyft IPO.

lyft ipo

Uber's rival raised an additional $500 million from a group of investors that includes the Ontario Teachers' Pension Plan and Fidelity Management & Research Co., according to a Dec. 5 TechCrunch report.

And because of the massive funding rounds and company growth in 2017, investors are anticipating they will finally have a chance to own Lyft stock in 2018...

Everyone's Still Waiting for the Highly Anticipated Lyft IPO

Lyft has gained so much momentum in the past two years, it'd be foolish for the company not to take advantage of investors' interest in owning shares of Lyft.

Lyft went from providing 53 million rides in 2015 to 160 million in 2016. That's a 201.88% increase in just a year.

Also, Lyft is expanding internationally, which will increase its ride totals even more.

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The amount of money raised, increases in rides, and international expansion are all signs Lyft is gearing up for an IPO. The company wants to seem as impressive as possible before going public so it can get the largest valuation possible.

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The more investors think Lyft is worth, the more they are willing to pay for Lyft stock.

Lyft has gone from a $7.5 billion valuation in June to an $11 billion valuation as of October, according to TechCrunch.

But before investors get too excited about buying Lyft stock, Money Morning Director of Technology & Venture Capital Research Michael A. Robinson has a warning...

What Investors Need to Know Before Buying 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 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, but you still get exposure to popular IPOs.

Because FPX owns more of PayPal Holdings Inc. (Nasdaq: PYPL) (7.28% 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 44.59% so far in 2017. But the PYPL stock price is up 72.60% 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 have 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). 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 26.29%. In comparison, the Dow is up only 24.77% in the same time.

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