How does Lyft Express work
It's easy these days, Lyft (NYSE: A2PE38). The second largest ridesharing service in the U.S. went public last week at $ 72, and after trading as high as $ 88.60 shortly after it opened, it closed below its IPO on each of the last three trading days .
After the botched IPO, the bears are of course happy. The losses are rising due to the strong advertising activity at Lyft, which is trying to close the large gap with Uber through aggressive pricing. Unfortunately, this is rarely the basis for a sustainable business model. Things are pretty hairy for investors right now, but a stock will never succeed after the first four days of trading. Monday morning might not be the last time Lyft stock traded around $ 72.
Under the hood
The pessimism is pretty common. When Seaport Securities listed its share price at $ 42 earlier this week, no one doubted it. Analyst Michael Ward is not convinced that the addressable market will be as big as Lyft and the bulls believe. Generation Y and future generations are unlikely to forego car ownership, and the valuation for a distant silver medalist therefore seems way too high.
When reports surfaced Wednesday that Carl Icahn had sold his 2.7% stake in Lyft for the IPO price, the market reaction was that he dodged a bullet. The legendary billionaire has done it again. Really?
Lyft isn't dynamic right now, but let's take a closer look. Seaport’s Ward suspects the worst is yet to come. Still, there are people on Wall Street who see it differently. The current expected high is at $ 97, suggesting an equally tempting upside potential of nearly 40% from today.
There will be strong bull arguments in the coming weeks as the banks that helped get Lyft public start to tune in. They sold some of Lyft's stock late last week at $ 72. As long as the IPO price stays below this point, they are likely to remain bullish. The financial giants will want to make sure Lyft doesn't fail, especially if they want the Over-IPO later runs smoothly. Uber won't hit its $ 120 billion market valuation if Lyft can't hold out above $ 20 billion.
Uber may be a lot bigger - and generate more than five times the sales of Lyft - but it's growing at a much slower pace. Lyft's sales more than doubled in the past year before following Uber's international push or even starting food deliveries.
It cannot be overlooked that Lyft was in the red for $ 911.3 million last year. Aggressive pricing means Lyft has to bleed properly in its battle against Uber. But is that the only way to get an advantage? There's a reason most of the country doesn't know the name of the third largest user in this growing area.
Lyft stock will fluctuate. Each quarterly report will be a warning to investors. The shock, however, is when the stock price doesn't climb back above $ 72 in the coming weeks or months. There are many ways to push the stock price up when it's down. The IPO may now have been a failure, but the stock and the industry are not.
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Rick Munarriz has no position in any of the stocks mentioned. It has been translated so that our German readers can take part in the discussion.
The Motley Fool has no position in any of the stocks mentioned.
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