While Lyft was the hottest IPO seen in the markets for some time at an impressive $23 billion public offering, the hype behind the company is beginning to fade.
The second-largest ride-sharing service in the U.S. has stiff competition in the face of Uber, which is planning its own IPO later this year at an evaluation that dwarfs Lyft’s. In light of this, there is a growing group of short sellers who expect Lyft’s stock to drop in the future. As Uber filed it’s IPO paperwork today, more than a million extra Lyft shares were shorted on Friday.
Lyft’s stock dropped as much as 6 percent this morning as traders shorted the company before recovering some of its losses. S3 Partners analyst Ihor Dusaniwsky went on to say that over a million shares were shorted this morning in a note to clients. He wrote that stock-borrowing fees have increased due to the demand and are at 3 percent, a significant increase to other companies where short selling fees for major large-cap stocks are as low as 0.5 percent.
“If short selling continues at this rate stock borrow supply will begin to show signs of scarcity and rates may head up to the double digits within a few days,” said Dusaniwsky. “Lyft’s stock price movements will be predominately dependent on the whims of its long shareholders.”
Short sellers have been growing increasingly excited about Lyft’s potential downfall. Earlier in April, Dusaniwsky commented on this phenomenon as the company became the second-largest short in the U.S. trucking sector at the time. Back on April 3rd, short-sellers were shorting over 38 percent of the 32.5 million share float of the company.
“We can expect Lyft to be a significant short in the market for a long time, especially with analysts already posting ‘sell’ recommendations less than a week after its IPO,” he added at the time. “There will be a slow and steady contraction of Lyft stock-borrow rates as lenders are loathe to forgo such a windfall of revenues too quickly.”
Various analysts have changed their tune regarding the company’s stock. Earlier in the month, Seaport Global analyst Michael Ward initiated coverage of Lyft with a ‘sell’ rating, arguing that Lyft’s current valuation was far too optimistic and made many assumptions regarding the potential of the ride-sharing market. He set his target price for the company at $42 per share, around 42 percent below the company’s original IPO price of $72.
“In order to justify its current market valuation, investors need to take a big leap of faith that the millennials and later generations will forego ownership of a car and opt instead for reliance on a ridesharing service,” Ward wrote in a note. “Despite the optics of vehicles being an underutilized asset, we believe people will continue to own their own vehicles as primary transportation and instead rely on the ridesharing services as a convenient supplement.”
By the end of today’s trading session, shares of Lyft settled at $59.81 per share, down around 2 percent.
Lyft Company Profile
Lyft is the second largest ride-sharing service provider in the U.S., connecting riders and drivers over the Lyft app. Lyft has recently entered the Canadian market, in efforts to expand its market outside of the U.S. Incorporated in 2013, Lyft offers a variety of rides via private vehicles, including traditional private rides, shared rides, and luxury ones. Besides ride-share, Lyft also has entered the bike- and scooter-share market to bring multi-modal transportation options to users. – Warrior Trading News
