Lyft Stock Is Behaving Like A Post-IPO Unicorn, Clouding Long-Term View

LYFT stock - Lyft Stock Is Behaving Like A Post-IPO Unicorn, Clouding Long-Term View

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Maybe it’s a good thing that the initial public offering for Lyft (NASDAQ:LYFT) hasn’t done so well. Starting off with an initial ask of $72, LYFT stock quickly jumped toward the $90 level on an intra-day basis. But just as abruptly, shares quickly collapsed.

A much-anticipated, technology-related IPO swinging for both sides of the bull-bear debate? If that sounds familiar, it is. While we look at Facebook (NASDAQ:FB) today with respect and admiration — that is, minus the ugly controversies — that wasn’t the case when it first went public.

Back then, critics contended that the social-media firm was a money loser. In 2012, the year FB debuted in the markets, it reported income of a loss of $59 million. Further, bearish analysts wondered aloud if Facebook could monetize its then billion-plus active users. Take away the industry, and you have a similar narrative right now with LYFT stock.

But in hindsight, the smart investment move was to trust Mark Zuckerberg and company. Will people say the same about the LYFT IPO seven years from now?

Obvious Dangers Surround the LYFT IPO

If your name is Will Ashworth — or maybe if you’re Canadian — the answer is a resounding “No”. My friend and InvestorPlace colleague warned readers to not ignore the obvious: both LYFT stock and Uber shares — when they soon join in on the IPO fun — are money pits.

And yes, it is an obvious statement, but it’s worth repeating. As Ashworth rightfully pointed out, people lose their minds when hyped companies go public. Furthermore, these rookies are eaten alive by those who know what they’re doing. Ashworth writes:

“As it stands right now, Lyft and Uber are exceptionally good at losing money, it’s part of their unicorn DNA. By buying shares of either company’s IPO, you’re merely helping professional venture capitalists exit their investments.”

Now, it’s reasonable to say that LYFT stock generates more confidence than Uber. While both swim in red ink, Lyft has operating losses of $688 million. Its rival, though, measures in at a staggering loss of $3 billion.

Still, conservative analysts will urge folks not to jump into the LYFT IPO merely because of this metric. Since fiscal 2016, the ride-sharing outfit has seen losses widened considerably. Although its revenue growth over the same time frame impresses, Wall Street will eventually want to see profits.

That, according to the company’s prospectus, may not happen, ever.

Lyft Centralizes Taxi Services

In the cryptocurrency space, we hear people talk passionately about decentralization. Here, advocates attempt to push dependency away from central bank-issued fiat currencies toward democratically administered financial instruments. It’s beautiful, it works, and it will likely change the way you conduct business.

The investment proposition underlying LYFT stock functions in similar fashion, except the emphasis is on centralization. Instead of taxi drivers from various communities and countries doing their “thang,” everyone operates under Lyft’s rules and procedures. It’s beautiful, it works, and it’s already changing the way you travel.

Ashworth and other analysts invoke their own personal stories about using Lyft or Uber. Invariably, most of these accounts involve traveling within their cities of residence. However, I’ve had an opportunity to use ride-sharing apps in other countries, and I absolutely love it.

You see, most countries — either through law or culture — lack our general sense of fairness and transparency. This applies especially to taxi drivers. For instance, prior to Lyft or Uber, eastern European taxi drivers considered foreign (usually American) tourists as easy targets.

But with ride-sharing apps, the game has changed. You don’t even need to speak the language of the country you’re visiting, yet you have near-certainty that your driver will take you to your destination safely. Why? Because he or she isn’t answering to their government; instead, they’re answering to a multi-national corporation.

If the driver wants to keep their cushy job, they’ve got to play by the standardized, centralized rules.

LYFT Stock is the Future (Warts and All)

How will this benefit the LYFT stock post IPO? Currently, investors are focusing on the red ink splattered on the financials. Admittedly, they’re troubling, but this fixation is also myopic.

For decades, taxi riders had to suffer terrible service and high prices because an alternative did not exist. With technology and the digitalization of everything, we finally have options. Look around you: people are affirmatively and convincingly choosing ride-sharing platforms.

But that’s just in your scope of vision. Both Lyft and Uber have viable opportunities to expand globally, and tourists couldn’t be happier. One of the reasons why I haven’t returned to France for many years is because their transportation networks smell like old urine. With either one of these apps, I can now travel through the City of Lights without gagging.

But it’s more than that. Ride-sharing infrastructures encourage all operators and participants to be on their best behavior. It has opened up doors for me, and I’m sure, millions of international travelers. That’s a key, underappreciated reason to consider LYFT stock for the long run.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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