With investors looking for the most anticipated public offerings of 2018, Money Morning readers have been asking, "Should I invest in Lyft stock in 2018?"
While the company isn't publicly traded yet, its business growth and its goal to be profitable in 2018 are two reasons to believe there could be a Lyft IPO in 2018.
The company 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 fell to 70% as of Oct. 30, 2017.
But do more rides alone make Lyft stock worth buying?
Before making a decision about investing in the IPO, here's everything you need to know about the $10 billion company...
Lyft was founded in 2012 by John Zimmer and Logan Green.
The duo originally started a company called Zimride, which was a ridesharing company for college students needing long-distance carpools back to school.
In 2013, they sold Zimride to Enterprise Holdings to focus solely on Lyft.
And so far, it seems like focusing solely on Lyft was the right decision...
The ride-hailing service increased its rides 136%, from 53.3 million rides in 2015 to 162.6 million in 2016.
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Lyft operates in the United States, and it just expanded to Toronto, Canada, on Dec. 12, 2017.
And because of Lyft's rapid uptick in rides, it's fetching a lofty valuation...
Lyft's latest valuation is currently $10 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 this year, according to Bloomberg. In fact, CapitalG, the investment arm of Alphabet Inc. (Nasdaq: GOOGL), led a $1 billion funding round for Lyft on Oct. 19.
But Google potentially snapping up Lyft stock before a public offering isn't the only reason an IPO is imminent...
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.
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Lyft has completed its interviews for an IPO advisory firm and plans to make its selection shortly.
And when Lyft selects its underwriters and sets an IPO date, 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...
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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) (7.8% of its holdings) than SNAP (1.56% of its holdings), for example, it balances out the risk of IPOs. If FPX just owned shares of SNAP, FPX would be down 43.48% over the last year.
But the PYPL stock price is up 86.92% 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 25.52%. In comparison, the Dow is up only 25.25% in the same time.
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