Berko: Save for hype, things aren’t looking up for Lyft
By Malcolm Berko
Published: March 31, 2019, 6:00am
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Dear Mr. Berko: Lyft, a hot issue, will be coming public soon between $65 and $70. I’m not a big customer, but my broker offered to get me as much as 100 shares. What do you think?
— J.O., Wilmington, N.C.
Dear J.O.: I may be wrong as Corrigan, but if you were offered 100 shares, then Lyft “ain’t” a hot issue.
Yes, the Street talk is that Lyft will be coming public soon, if not today, selling 30.8 million shares at $65, give or take a dollar or two. A $65 IPO gives Lyft a value of $20 billion, or $5 billion higher than the company’s last private market evaluation six weeks ago. How can a company that continues to grow humongous losses increase its market value by $5 million a week?
I’ve been in this business for nearly 50 years, and with increasing alarm I’ve watched the dumbing-down of the American investor. We used to buy stocks because companies had good revenues, good earnings and good dividends. And those three “goods” ensured that the value of their shares should increase. That was commonsense investing. Today, the term “common sense” has been corrupted. The following corrupted quote is so true: “An investor is born every minute,” P.T. Barnum might have declared, “and a stock broker is registered every hour to make sure no stockholder is spared.”
Most American investors lack the intelligence to understand an income statement or a balance sheet, nor can they read or understand a prospectus. Ergo, too many Americans lack simple analysis skills. Rather, they become dysfunctional optimists who feed off hype, groupthink and a corrupted sense of common sense that leads to poor judgment. And they unquestionably believe if they buy Lyft at $65, the price will double to $130. Because it’s written!
Still, you may not be able to buy Lyft at the new issue price. Those IPO shares are usually allotted to your brokerage’s biggest clients, and the small shots like you are usually forced to purchase in the aftermarket where the shares could trade a lot higher. The shares could also trade lower, and they should trade lower because Lyft has no profits in sight. In fact, Lyft’s registration statement said: “We have a history of net losses and we may not be able to achieve or maintain profitability in the future.” Did you read that, J.O.?
Lyft is going public because some big investors who put big dollars into Lyft several years ago want their big money back. Why not? When these big-money investors pull out — as others are certain to do — Lyft will have serious cash flow problems. Management may have to squeeze its drivers for a bigger cut of the fare, and the drivers may have to ask passengers for more money.
I think Lyft will sell below its IPO price sooner rather than later. And the thousands of frantic shareholders who may have purchased Lyft in the aftermarket could be crying in their beer if the shares drift below their purchase prices.
Last year, Lyft generated $8 billion in bookings. Its take on $8 billion was $2.2 billion, and the company lost $911 million. In 2017, Lyft had $4.5 billion in bookings and lost $696 million on revenues of $1.1 billion. And the drivers’ share of bookings has been falling from 82 percent in 2016 to 77 percent in 2017 to 73 percent last year. And some believe it will drop to 70 percent in 2019. This is disconcerting because some drivers are now considering organized “blackout hours” during the week, warning management about reducing a driver’s cut. And without question you will see a rise in user cost, which will make local cab companies more competitive with Lyft.
