Sizzle Fizzle: Lyft’s Liftoff Sizzles

IPOs are everywhere, it seems, but Lyft may be a special case.

Yes, Levi Strauss was a star earlier in the month, with a debut on the public markets that sent the 160+-year-old firm’s shares up more than 30 percent on the first day of trading.

Now comes Lyft. At this writing, post the stock market’s open, the company brought a bit more than 32 million shares to market, with an initial price of $78, notably above the $62 to $68 range that had marked the beginning of the week and pricing indications of $72 into the open.

So, count it as a sizzle even before the sizzle began for real. Want more sizzle evidence? Four brokerages initiated coverage of the company even before the first shares traded hands. Talk about enthusiasm (we note that such public pronouncements on newly-public companies usually take place after the IPO).

As noted by TheStreet.com, Wedbush initiated with a “neutral” rating and an $80 price target, as its analysts noted that “the ridesharing industry has become one of the most transformational growth sectors of the U.S. consumer market over the past five years, with Lyft establishing itself as a clear No. 2 player … the brand loyalty of Lyft has been quite impressive, as the company continues to attract drivers and riders with its brand.”

Ah, but what does the IPO itself tell us? We’ve noted in the past that the company has been losing money – a lot of it. In 2018, according to the prospectus, the company logged $2.2 billion on the top line while losing $911 million. Growth costs money. The company has said more than 18 million people used the service at least once in the fourth quarter of 2018, which compares quite favorably with the 6.6 million seen in the same period of 2016.

If a company loses money but is growing, investors are at times willing to overlook the red ink, with the expectations that it turns to black ink at some point. And indeed, Lyft is targeting EBITDA (a rough cash flow measure) margins of 20 percent – but when or how it will get there is not exactly clear. In terms of the business model – that is, of raid-hailing in general, across Uber and Lyft – there are headlines here and there about wage disputes (drivers want to be paid more, and Uber has just cut wages).

Public opinion counts, and it should be noted that Lyft, in tandem with the IPO, said it has started a civic engagement program titled City Works in the cities in which it operates. The debut is in Los Angeles, and the company will donate $50 million annually to the program. Initiatives will include working with transportation initiatives and promoting clean energy.

In terms of the competitive model, Lyft clearly – at least for now – is banking on ride-hailing, as are investors. Uber, of course, is banking on a more distributed ecosystem (food delivery, etc.). It remains to be seen what happens when both these firms face greater financial scrutiny (along with public filings). But for now, the sizzle of the week has wheels — literally.

Sizzle

Cannabis: It may soon be a case of “smoke ‘em if you got ‘em.” The U.S. House of Representatives is poised to vote to end the federal prohibition of marijuana within weeks, according to reports. Such a bill would then go to the Senate.

IPOs: Lyft is on deck, but indications are that the ride-hailing IPO is already pricing above its stated range of between $62 to $68. In the meantime, Levi Strauss shares, which debuted last week, were up more than 30 percent right out of the gate. All of this comes amid the strongest quarter for stocks in general logged in a decade. Old economy, new economy – everyone gets a bid in the stock market.

Loyalty: Credit unions sizzle when it comes to loyalty, with 81 percent of consumers surveyed in the latest Credit Union Innovation Playbook saying they use CUs as their FI of choice because they trust those institutions.

Fizzle

Wells Fargo corporate banking: The scandals have mounted, and the impact lingers. Reports came this week that Wells has been struggling to expand its corporate banking unit, on top of a 4 percent revenue decline in that segment in 2018, where once that unit was logging mid-single digit gains.

Bitcoin scam: The headlines continue that support for bitcoin payments is waning on a case-by-case basis, and that exchanges are pulling back on futures. In the meantime, scams continue. In one recent example, a trader offered U.S. investors the chance to buy discounted bitcoin – and investors sent $1.5 million to his brother, a fugitive in Europe, who then made off with the money.

Zappos gets a boot: The U.S. Supreme Court has rejected an appeal by the online shoe firm – and customers can proceed with lawsuits tied to a 2012 data breach that compromised the information of 24 million customers.