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Listen, I'm not the kind of guy to say, "I told you so," but if I was, I'd sure be saying it now.
That's because I told you a few weeks ago that the former unicorn known as Lyft Inc. (NASDAQ: LYFT) would crash and burn on its IPO.
And that's exactly what it did.
Only, it's worse than the press is making it out to be.
Here's how Lyft, a distant cousin of Icarus, flew too close to the sun…
An IPO Worth Bragging About…
All the hype about the Lyft IPO was, predictable.
It's show business, folks.
Lyft's lead IPO bankers, JPMorgan Chase & Co. (NYSE: JPM) and Credit Suisse Group AG (NYSE: CS), did a great job of polishing their lead actors' acting chops.
According to The Wall Street Journal, "Lyft executives spent considerable time practicing potential investor questions with its lead bankers."
The Journal went on to say, "The preparation paid off. Investors who attended the roadshow said they entered wary that the ride-hailing company posted a big financial loss in 2018, but Lyft's co-founders succeeded in assuaging those fears, emphasizing that part of the reason was that they are making focused investments-such as with bikes and scooters- that they believe will pay off in the long term."
IPO Explosion: Average people have made tens of millions of dollars from cannabis IPOs – here’s how you can become one of them…
Which is one reason I said the IPO would face trouble. Investors want the company they're investing in to have their core business down, meaning profitable down to the bottom line.
Lyft lost $911 million last year on their ride-sharing business, which proves they're so good at managing transportation basics, they have to go headlong into bikes and scooters, because at least there are no labor hassles there – I mean no drivers to pay.
Speaking of drivers and profitability, and something called cash burn, which Lyft is genius at, while the IPO was making headlines, Lyft drivers were striking in Los Angeles, San Francisco, and San Diego because Lyft had cut their pay – to reduce its cash burn, of course.
Not to worry, Lyft raised a fast $2.34 billion from selling 32.5 million shares at the IPO price of $72, so they have plenty of fresh cash to burn.
And burn they did.
After shares were priced at $72 on Thursday, way above the expected range of $62 to $68 on the high end, the world watched breathlessly Friday morning for the first trade and whether there'd be champagne corks popping.
Of course, it helped that Lyft's dog-and-pony show was so successful, especially with bountiful performances by Lyft's founders and lead actors John Zimmer and Logan Green, that the deal was oversubscribed twenty times over.
Maybe that's new math, but I don't believe it was 20x oversubscribed. If you do, you probably believe pigs fly.
Which they do, or try to do, in Lyft's case.
Hyped to heaven, or at least the sun, Lyft opened just before noon, taking a while to debut on account of lead bankers managing the price higher so when the first trade hit the tape the press would dutifully go bananas and spread the word, Lyft has wings!
It opened at $87.24!
That breaking-news-worthy print, which was also the high of the day, meant Lyft was instantly up 21.16% on its opening.
And pop went the corks.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.
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