Lyft Launches in Toronto Ahead of Its Inevitable IPO

Lyft has been making headlines for all the right reasons in 2017, and the latest round of positive news is the ride-hailing service launched in Toronto, Canada, on Dec. 12, 2017.

The announcement increases the speculation Lyft is gearing up for an IPO...

lyft ipo

Entering new markets makes Lyft a more attractive investment because it will allow the company to make more money. The more money Lyft makes, the more investors will be willing to pay for Lyft stock when the company goes public.

However, you shouldn't buy shares of Lyft just because of international expansion.

Here's what Lyft's latest move into the Canadian market means, plus whether the ride-hailing app deserves your hard-earned money when it goes public...

Lyft Finishes 2017 Strong by Moving into Toronto

Lyft expanding to Toronto means more services will be available than simple ride shares. Toronto Lyft users will now have a variety of services to choose from, which include:

  • Lyft Plus: Provides a vehicle that fits at least six riders
  • Lyft Premiere: Provides a high-end sedan or SUV
  • Lyft Lux: Provides a black car that's supposed to be used as a way to get to a formal function, business meeting, wedding, or fundraiser
  • Lyft Lux SUV: The same service as Lyft Lux, but exclusively offers SUVs

Travelers can also hail a ride to and from Toronto's Pearson Airport.

We're still waiting for Lyft to publish updates on how its service has fared in the new market, but early data looks promising. There were 50,000 Torontonians who downloaded the Lyft app a month before the launch, according to Lyft co-founder John Zimmer.

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But as we said earlier, expanding into a new market alone doesn't make Lyft stock a buy.

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 the Lyft IPO

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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.

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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) (7.65% of its holdings) than SNAP (1.53% of its holdings), for example, it balances out the risk of IPOs. If FPX just owned shares of SNAP, FPX would be down 45.22% so far in 2017.

But the PYPL stock price is up 73.34% 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 26.17%. In comparison, the Dow is up only 25% in the same time.

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