What's going on?
US ride-sharing startup Lyft kicked off 2019’s Great Unicorn Cull on Friday as its shares traded on the stock market for the first time – and promptly rose 9%, for a whopping $27 billion valuation. That’s nearly double what Lyft was worth just nine months ago…
What does this mean?
Lyft’s initial public offering (IPO) saw strong demand, leading it to hike the number of shares offered. Selling 12% of the company’s stock raised more than $2 billion in the biggest US tech IPO since Snap Inc. in 2017.
Since the 2008 financial crisis, many companies have been happy to remain in the hands of founders, early employees, and venture capital funds. But in 2019, regular investors will get the chance to sink their teeth, Voldemort-style, into a record crop of such “unicorns” – privately owned companies worth more than $1 billion.
Why should I care?
For markets: Lyft ain’t in Kansas anymore.
With Lyft’s financials now subject to public scrutiny, reality could bite fast. Its estimated 39% US market share is nearly twice what it was in 2016, but larger rival Uber (plotting its own IPO shortly) is also much more diversified. Lyft’s $1.3 billion 2018 marketing spend helped it post the biggest-ever annual loss of any company making its market debut (at least until Uber arrives). A failure to cut losses soon may lead to investors selling those shiny new shares…
For you personally: Beware the Jabberwock.
Investors are desperate for high-growth US stocks that aren’t the FAANG Five. But while the likes of Facebook and Alphabet were profitable for years pre-IPO, only one of the eight unicorns predicted to polish their horns on markets in 2019 has managed the feat. Those eight are expected to raise $108 billion from investors – more than all 510 IPOs in 1999, the height of the dotcom boom. Remember: do your research before huffing the hype. Lyft’s founders retain 5% of the company’s shares, but almost 50% of the voting power. How’s that worked out for Snap?