Lyft stock slumps after IPO
After making a remarkable entry on the NASDAQ Composite (QQQ) through its IPO, Lyft’s (LYFT) stock price slumped 12% on April 1, ~4% below its IPO price of $72. Investors are probably skeptical about the high valuations for the stock given that it isn’t expected to start making profits for a few years. Moreover, the company’s road to profitability is unclear, adding to the stock’s volatility. Some investors who might have gotten onto the IPO bandwagon due to fear of missing out might be reassessing their position and the inherent risk.
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The path to profitability unclear
As reported by CNBC, Guggenheim started coverage of Lyft with a “neutral” rating. Guggenheim analysts Jake Fuller and Ali Faghri said, “We simply have to look too far out with too many big assumptions in order to make a case for the stock.” The analysts also don’t like Lyft’s lack of visibility regarding its path to profitability.
While right now there is a certain amount of pessimism and uncertainty regarding the stock’s profitability and valuation, as the initial euphoria around the IPO dies down, the stock should start trading more in-line with its fundamentals.
Meanwhile, as small investors assess their positions, investors who had invested in Lyft way back should benefit from the expansion of the stock and the overall industry. Carl Icahn, who invested in Lyft in 2015, is in for a windfall, as he had invested $100 million when the company was just valued at $2.5 billion.