Should Investors Ride with Lyft’s IPO?
By Sidney Keene
People have been “ridesharing” ever since the creation of the vehicle. With initial intentions of saving the planet by reducing gas emissions, ridesharing has evolved into an industry of its own with two dominant companies: Lyft and Uber. Already exceedingly successful, both have decided to go public with an initial public offering (IPO) within the next year. As IPO represents the first time a private company issues stock to the public, there are bound to be new effects on the economy. But are these worth it, or should an investor avoid Lyft/Uber IPO? An IPO can serve as a great economic stimulator, especially an IPO for companies such as Lyft or Uber. For one, new revenue can be generated for the business to expedite growth. Lyft and Uber are a part of a unique market, where their survival relies on customer reviews. In order for a prospective customer to choose one over the other, credibility needs to be established. Referrals, relating to reviews left online, are their main method of competitive advantage. Generating more profit for the company not only helps the business, but also the customer (the investor who is putting money into bettering the business). With the newly obtained wealth, these companies have the opportunity to make the experience better for the rider, including technological advancements in the app or implementations in the vehicles.
Investing in this IPO can also help Uber or Lyft employees financially. Often times, start up companies must hire at a low wage, but, to succeed in employee retention, state in a contract that when they decide to go public, the employee will receive a cash-in opportunity. Lyft is giving its employees this exact option as “those who have completed more than 10,000 rides are eligible for a cash bonus of $1,000, which can be used to purchase stock at the IPO price,” (Shaban, Hamza). Those who have completed more are eligible for larger payouts. Often, those who receive this gift move on to start their own businesses, further increasing the GDP within our nation and giving consumers more innovative options.
Lastly, the Lyft and Uber IPOs give investors new opportunities. Within the past decade, technological innovations have skyrocketed, and with that, opportunities to invest in new concepts has become very popular. Since there is such a large demand for more efficient and cost effective public transportation, the chances of the stock increasing in value in the future are high, and therefore, gives buyers more of an incentive to purchase.
While there are many great reasons to invest in an IPO, there has been recent hesitation regarding investment in the transportation market, Lyft specifically. New information has been released that the company may be slow to make profit in the future, especially since they “generated a net loss of $911 million in 2018, compared with losses of $687 million and $683 million in 2017 and 2016, respectively” (Bary, Emily). Losses have been sharply increasing since 2017. This gives investors less of an incentive to purchase their stock, as its value may depreciate in the future, and they will not obtain a return on their investment. Additionally, there are low barriers to entry in this market. While it is true that Lyft has been able to stand its own against Uber, this probably means traditional car companies like General Motors and Ford could enter the market in the near future. Lastly, Lyft has explicitly stated that they will giving only 50% of votes to shareholders. This turns prospective investors off, as most buy shares to voice their opinion on how to change something within to make the company more successful.
To conclude, stock plays an important role in our economy. While it is not counted towards the money supply in our economy, it can determine how much money somebody has in the future. This is similar to an interest rate that appreciates money over time, except more risky as the investor does not know whether or not the stock will go up in value. However, with all being said, it would be smarter to invest in Lyft or Uber IPO, rather than not, because it can stimulate our economy by generating cash for the company, giving employees the opportunity to go off on their own start-up businesses, or give new options to investors.
Works Cited
Bary, Emily. “Lyft IPO: 5 Things the Ride-Hailing Company Just Revealed.” MarketWatch, 4 Mar. 2019, www.marketwatch.com/story/lyft-ipo-5-things-the-ride-hailing-company-just-revealed-2019-03-01.Egan, Matt. “Lyft Is Losing a Lot of Money. And It Might Not Turn a Sizable Profit until 2023.” CNN, Cable News Network, 19 Mar. 2019, www.cnn.com/2019/03/19/investing/lyft-ipo-uber-profit/index.html.
Shaban, Hamza. “Lyft's IPO Is Set to Give Drivers a Chance to Cash In.” Chicagotribune.com, 1 Mar. 2019, www.chicagotribune.com/business/ct-biz-lyft-ipo-bonus-for-drivers-20190301-story.html.
Also, it might be smarter to invest in Lyft or Uber because there is a high chance that the by owning some stock you can 'invest' that money by hoping that the return on investment of these stocks is higher than the investment on some saving accounts. Savings accounts have a really low rate of return on the investment. Although there is a higher risk in investing on stocks I think it would be smart to invest in Lyft or Uber because of their recent growth.
ReplyDelete-Kaustav Saha
This is a very interesting topic because even though stock doesn't directly affect GDP, it could in the future, if the stocks were to provide the buyers with new wealth. Therefore, as you said, I think it is very important to consider stocks when looking at the overall health of the economy; this is also because people are less likely to invest during an economic downturn. While stocks are typically mutually beneficial, because they provide a business with more revenue and buyers with payouts, I am not sure if it would be a good choice to invest in Lyft from the consumer perspective. If the company has been taking losses, it is not a smart long term decision and will do more harm than good for those who invest, especially if they are not provided with a full vote. Either way, I appreciate that the company is attempting to help their employees by offering stock, as many drivers for Uber and Lyft do not make high wages and as you said, their success is completely based on reviews.
ReplyDeleteThis is a great topic because both Uber and Lyft have been getting very popular in the last year. Not only are both of the companies making large sums of money, but they are making leaps as well by coming out with public stocks which not many companies do. I think that it would be smart to invest in either one of these companies because they are so new that their stock is most likely a lower price along with the fact that in the future we are going to end up heading more in this direction when it comes to transportation. Lyft and Uber are both going to become much more popular and when this happens those who bought their stocks are going to profit highly. I really liked how the article also talks about how much these companies are making now to show how successful they have been.
ReplyDeleteIt is interesting that both Uber and Lyft are opening up their IPO to the public, as they were previously private. Lyft will have a bit of a 'first mover advantage' with investments in comparison to Uber, as they are opening up their IPO to the public first. However, Uber is more well known than Lyft, which might make up for the this advantage Lyft has. It is interesting to think about how many people will be investing in these companies, as the future of transportation relies heavily on companies such as these as the demand for Uber/Lyft drivers is increasing. I feel as though since IPO is opening up to the public for these companies, not only are the investments going to rise, but overall popularity of the companies will as well. While the wages of the workers for these companies will increase from the new public IPO, as the popularity rises, the wages will continue to increase for that reason as well. Therefore, it seems thar Uber and Lyft drivers are looking to have a very bright future concerning their payment!
ReplyDeleteIn the article it was mentioned several times how Lyft and Uber are newer to the market, which is definitely true. But as far as investing goes, would consumers really be interested in investing in these two companies? Not that they have hit their peak, but what is being worked on next to be the up and coming transportation problem solver? How could Lyft or Uber take advantage of the next new thing and use it to their benefit? I was also surprised to read that employees who have done over 10,000 rides receive a bonus. I wonder how hard that is to achieve and if the employee is able to keep track of data like that.
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