Lyft Stock Is Stalled Out by the Uber IPO — But Not Forever

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After an initial public offering drought last year, this year they’ve poured in. But none are more anticipated — or controversial — than Lyft (NASDAQ:LYFT) and Uber. They are the mega unicorns that Wall Street has been looking forward to for years.

With Uber's IPO Just Weeks Away, What'll Investors Do With Lyft Stock?
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Lyft stock first listed a few weeks ago and its launch has been a disaster. From what we can gather, there is plenty of blame to go around. LYFT fell off a cliff from its first day on even as the S&P 500 set new highs.

Last night, LYFT reported earnings and the stock had a brief spike on the headline but soon flipped to red. As of this writing, the stock is down 7.4%.

Since its IPO, Lyft stock has been the object of jokes. This made it easy for the media rhetoric to be almost completely negative. The metrics support the doubters because these two companies need several mega miracles to get their stocks to viability.

For now they justify their spending behind the excuse of growth. This is similar to Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA). So this is not the first time where a controversial stock faces scrutiny from investors.

While the opinions don’t change the actual prospects of the company they do sway investors. So bids are scarce this week as Lyft stock is grounded by the anticipation of Friday’s IPO for it’s much larger rival, Uber.

Last night, Lyft management reported strong growth which was twice of last year. Normally this is enough to convince traders that it’s on track to hit milestones. But in these cases, they’ve been private so long that their valuations are sky high. I understand both sides of the argument.

What To Do With LYFT Stock Now

So in this case there are two types of investors in Lyft stock. The first group are the mega bulls. These people probably invested privately or on the IPO. They are strong hands that will probably stay in it for years to come. They are not sellers today.

Then there are those who want to own it but can’t mount the courage to jump in. So this is where the technicals can lend some help as there are lines to watch above and below current levels.

The first level to hold is $57.50 per share. If the bears push below it then they could target $54 per share or lower. While this is not a forecast, it is a scenario that exists here.

Conversely, if LYFT stock can shake this earnings dip by using the recent supports then they could start working on a rebound rally. There will be resistance at $60.80 but if the bulls can break above $61.70 then they could trigger a rally. The pattern will then target $70 per share area. Above $62.80 would accelerate things in favor of the bulls.

Looking Ahead for LYFT

The earnings report, though confusing, did not have any new alarming points. Earnings and guidance were within consensus. This is where most complaints come from these days. Management reported over 20 million active riders, up 40% from last year and well above target.

These are impressive numbers that could fuel the growth they need. Moreover they announced a partnership with Alphabet’s (NASDAQ:GOOGL) Waymo in offering a test program for a self driving service in Phoenix.

There were complaints from the driver incentive costs as they were up more than 50% — which is not a great trend. But they are competing with a behemoth and trying to expand a brand new market that they helped create. And this market depends on these drivers, who are not employees, but contractors. Besides, management also promised that they have capped their losses this year.

So on its own, LYFT could stabilize and mount a rally, but this week there are two issues hindering that. First, we have the White House causing the market wide correction. And second we have the UBER IPO. So until then the LYFT bulls are swimming upstream.

For those investors who want to own it for a pure play on the future of transportation they need not worry about the week’s stock price gyrations. This is the case where they plug their nose and buy it. But it would make sense to do so in tranches. This would leave room to add to it a lower prices if it goes against them at first.

Although I don’t fault anyone eager to buy it today, I personally don’t see the panic to buy the shares. I bet we will have ample time to build a position over the next few days.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2019/05/lyft-stock-is-stalled-out-by-the-uber-ipo-but-not-forever/.

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