Uber and Lyft Not Reaching Analysts Expected Destination
The many successful IPOs in 2018 brought greater attention to the ones in 2019, especially within the technology industry. For starters, an initial public offering (IPO) is when a private company goes public, gets sold to outside investors and then gets traded on the stock market. One reason a company does so is to raise money, but added prestige is another incentive for making such a decision. Headlining this list of popular 2019 IPOs are Lyft and Uber, with Robinhood, Airbnb and Slack joining them soon. Despite their popularity, however, the two ride-sharing companies’ public debuts are not panning out as well as analysts expected.
Days before Lyft went public in March, they increased their debut share price by $10, from an initial range of $62 to $68 Nevertheless, the share price popped 20% at the beginning of trading, rising to $87.24 per share. Later that day, though, the shares decreased to $81, and has been trading below the IPO price ever since. While successful in raising capital — they made $2.7 billion — Lyft’s market capitalization — the price of one share multiplied by the number of shares outstanding — has shrunk by more than $10 billion since it reached $25 billion at the end of their first day of trading. At market close on Friday, May 17, Lyft shares were trading at $53.79.
After years as a private company, Uber went public on Friday, May 10, 2019. Before their offering, many believed the company would reach a $100 billion valuation. The company priced shares at $45, but by the end of the first day, the stock closed 7.6% lower than its initial share price, at $41.57. Uber ended with a market capitalization of $76.5 billion dollars on its first day. The company was able to raise $8.1 billion of capital, but, as of market close on Friday, May 17, it was trading at $41.80, valuing it at a mere $70.1 billion, far short of analysts $100 billion expectations.
Although it seems as though these IPOs were complete flops, there is a silver lining: Uber and Lyft control nearly the entire ride-share service market in the U.S., and are continuing to render the traditional taxi business obsolete. The Seattle Times reported that each day in Seattle Uber and Lyft are used about 90,000 times — far more than the usage rate of the city’s light rail system. Based on these findings, the University of Chicago Booth School of Business estimated that while they promised to decrease the number of drivers, they have actually increased the number of people on the road.
But this isn't the reason Uber and Lyft’s stock prices are floundering. One possible reason is that the market is extremely competitive, and investors don’t have much patience for public companies who are losing money every quarter. Uber CEO Dara Khosrowshahi reiterated this when he told his staff that he expects to see “some tough public market times over the coming months.” Share price aside, however, if fellow technology companies such as Alphabet, Facebook and Amazon are any indication, Uber and Lyft’s continued innovation may lead to their rise to prominence as public companies.