Shares of ridesharing company Lyft hit fresh lows on Wednesday, falling as much as 6 percent as skepticism regarding its valuation continues to put downward pressure on its stock price.
After debuting with an opening price of $72, Lyft continues to struggle with analyst downgrades early on in its publicly-traded existence. Lyft was already in a tenuous position prior to its IPO debut–according to S&P Global Market Intelligence, Lyft posted a loss of $911 million in 2018, making it the most any U.S. startup has lost in the 12 months leading up to its IPO.
Lyft did post a record $2.16 billion in revenue, but according to Ilya Strebulaev, a Stanford University business professor who studies late-stage startups, that doesn’t necessarily translate to success once going public.
Just recently, Michael Ward, an analyst at Seaport Global Securities, issued Lyft a sell rating and a 12-month price target of just $42 a share–a drop of over 40 percent from its opening price. Ward cites the company’s valuation as a cause for skepticism.
Ward says that unless a major shift in the mindset of millennials takes place in terms of opting to use more ridesharing services as opposed to a their own vehicle, the stock could continue to languish.
New York University professor Aswath Damodaran was more generous with his price target of $59, but also questioned the foundation of its business model.
“The driver is a free agent. The customer is a free agent. There is absolutely no stickiness in the business, and they know it. That’s the basic problem I have with the ride-sharing business not just Lyft,” said Damodaran.
The drop in Lyft shares comes as competitor Uber plans to make its IPO registration with the U.S. Securities and Exchange Commission (SEC) public on Thursday. Uber will begin its investor roadshow during the week of April 29 and begin trading on the New York Stock Exchange around early May.
ETFs to Play
For investors looking to play the IPO space, they can look at exchange-traded funds (ETFs) like the Renaissance IPO ETF (NYSEArca: IPO), Invesco NASDAQ Internet ETF (NasdaqGM: PNQI) and the First Trust US Equity Opportunities ETF (NasdaqGM: FPX). These options can certainly provide investors with the distinct advantages of investing in ETFs as opposed to simply investing in individual stocks.
Stocks are exposed to all of the risk associated with ownership of that particular company and may be more costly holding multiple positions as opposed to one ETF. Conversely, an ETF that purchases a mix of stocks or other assets will have less risk exposure.
Additionally, investors may feel it’s time for value to overtake growth-oriented sectors like the IPO industry. With that said, investors can play the Direxion Russell 1000 Growth Over Value ETF (NYSEArca: RWGV) and the Direxion Russell 1000 Value Over Growth ETF (NYSEArca: RWVG).
For investors looking for continued upside in growth-oriented equities over value-oriented equities, RWGV offers them the ability to benefit not only from growth opportunities potentially performing well, but from their outperformance compared to value.
Conversely, if investors believe that value-oriented equities will outperform growth-oriented equities, RWVG provides a means to not only see value opportunities perform well, but as a way to capitalize on their outperformance compared to growth.
For more relative market trends, visit our Relative Value Channel.