Lyft's trading debut to be watched by IPO-hungry tech companies

All eyes will be on Lyft Inc. Friday as it makes its public market debut, after investors rushed to get a piece of the first big U.S. technology listing this year.

Shares of the No. 2 U.S. ride-hailing company will start trading on the Nasdaq Global Select Market under the ticker LYFT after an initial public offering that’s been viewed as a bellwether for Silicon Valley companies. All the signs before the listing looked good: the IPO was oversubscribed just two days into the marketing pitch, and Lyft ended up selling more shares than planned at the top of an already elevated price range.

The real test will come when the stock hits the public market for its first day of trading -– and beyond. Attention-grabbing tech listings often soar in their debuts, but their paths can diverge over the long run. Snap Inc. jumped 44 per cent on its first day in 2017 while Alibaba Group Holding Ltd. rose 38 per cent in its 2014 debut. Snap now trades at less than two-thirds of its listing price while Alibaba has almost tripled its market value.

“So far so good,’’ Barrett Daniels, a Deloitte partner who specializes in IPOs, said after Lyft priced its shares. “Now it just has two more hurdles to clear to end up with a very nicely crafted IPO: It needs to open at or above US$72 and it needs to have a decent pop.’’

Lyft raised about US$2.34 billion, pricing 32.5 million shares Thursday at US$72 each, it said in a statement. That was at the top of the marketed range, which was increased to US$70 to US$72 on Wednesday. The San Francisco-based company also increased the size of the offering from the 30.8 million shares it had planned to sell.

The IPO gives Lyft a value of about US$25 billion, including restricted stock and greenshoe shares that could be issued later by underwriters. Based on the total number of shares that were to be outstanding after the offering, its market value would be about US$20.6 billion.

Chilly Start

After a chilly start to 2019 for U.S. IPOs as the federal government shutdown stymied activity, Lyft’s success could light a fire under a market that’s likely to welcome Uber Technologies Inc., Pinterest Inc. and Slack Technologies Inc. -- to name a few --- before the end of the year.

“It’s good news for them to see that the market has a huge appetite for IPOs,” said Reena Aggarwal, director of the Center for Financial Markets and Policy at Georgetown University. “I think it’s a good sign all the way around, if there’s a successful IPO and others coming in the pipeline after that.”

The offering fulfilled a key strategic goal for Lyft: beating larger rival Uber to the market. Uber is expected to publicly file for its offering in April, kicking off a listing that could value it at as much as US$120 billion, people familiar with its plans have said.

“We really think this is going to be the best year we’ve seen for IPOs in ages,” Jackie Kelley, Americas IPO markets leader at Ernst & Young, said in an interview. “The tech IPOs are really going to get the market moving.”

Industry’s Potential

The company’s appeal to investors is based on the potential for the ride-hailing industry’s expansion as well as its own growing revenue, which doubled to US$2.2 billion in 2018 from the previous year, according to its IPO filing with the U.S. Securities and Exchange Commission. During that time, its losses also grew, from US$688 million in 2017 to $911 million last year. Lyft told potential investors that it expects its expenses to decline next year, according to people who were present for one of its pitches.

Through Class B shares that carry 20 votes for each ordinary share, co-founders Logan Green, who is chief executive officer, and Vice Chairman and President John Zimmer will have about 49 per cent of the voting rights, according to the filing.

JPMorgan Chase & Co. led the offering with Credit Suisse Group AG and Jefferies Financial Group Inc. More than two dozen banks were listed in the company’s filing as participating in the offering. JPMorgan will serve as the stabilization agent, giving it a chance to earn additional fees by ensuring the first day of trading goes smoothly.

Bookings Milestone

Lyft said in filings that its total bookings reached US$8.1 billion last year, with 1.9 million drivers providing rides to almost 31 million customers in the U.S. and Canada.

That growth helped offset concerns about losses among would-be investors, who packed into Manhattan’s St. Regis hotel and the Olympic Club in San Francisco during the company’s roadshow. Investors were seen leaving the presentations with enthusiasm and pink Lyft prospectuses.

“A roadshow being standing-room only is a pretty good indicator that investors are interested,” Deloitte’s Daniels said. Lyft’s price bump showed there was “genuine demand and excitement,” he said.

The company didn’t give any preference when allocating shares to potential stockholders who weren’t investors in Uber, said a person familiar with the matter, who asked not to be identified because it wasn’t public.