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Lyft Gears Up for Debut After Kicking Off Tech IPO Frenzy

Lyft Gears Up for Market Debut After Kicking Off Tech IPO Frenzy

(Bloomberg) -- After a chilly start to 2019 for U.S. initial public offerings, Lyft Inc. is set to light a fire under the listings market when its shares price Thursday.

So far, investors seem willing to overlook the company’s surging losses in favor of strong revenue growth combined with a first-mover advantage. While a slew of tech offerings is expected to follow Lyft’s debut, there hasn’t been a multibillion-dollar IPO by a U.S. technology company since Snap Inc. went public in 2017.

“The market is ready and waiting,” Tim Sullivan, chief executive officer of Oceanic Partners Inc., which is an investor in Lyft, said in a Bloomberg radio interview Thursday.

Potential investors haven’t shown much restraint since Lyft executives and advisers hit the road to market the IPO last week. The offering was oversubscribed after just two days of the roadshow, and on Wednesday Lyft chose to up its price range to raise as much as $2.2 billion. Investors have already been advised to place their orders above the elevated range to avoid missing out, three people familiar with the matter said.

The listing -- on track to be the biggest this year, for at least the next few weeks -- will help rescue the first quarter from the worst start to a year for U.S. listings since 2016. The federal government shutdown, which shuttered the U.S. agency that reviews IPO plans and delayed the expected rush of 2019 activity, has since given way to heightening enthusiasm for an expected surge of offerings.

Price Hike

After initially marketing shares for $62 to $68 apiece, Lyft said in a filing Wednesday that it now planned to sell them at $70 to $72 each. At the top of that range, the U.S. ride-hailing No. 2 would be valued at about $24.7 billion, including restricted shares and so-called greenshoe shares that can be issued later by the underwriters.

Such price hikes are by design, said Barrett Daniels, a Deloitte partner who specializes in IPOs. Many banks price shares lower in the beginning of the roadshow to drum up interest and create buzz before marketing them in a higher range. But you can’t price-hike a stock that nobody wants, Daniels said.

Companies that learned that lesson the hard way have included Blue Apron Holdings Inc., the meal kit delivery company that lowered the range for its 2017 IPO to $10 to $11, after investors didn’t bite on $15 to $17. The stock now trades at less than $1 a share.

“A roadshow being standing-room only is a pretty good indicator that investors are interested,” Daniels said. Lyft’s price bump is “more than a manufactured well-designed IPO,” he said. “This is genuine demand and excitement.”

Record Losses

Lyft’s debut in the public markets comes after a record year of losses as well as growth for the San Francisco-based company. Last year, Lyft reached total bookings of $8.1 billion, with 1.9 million drivers providing more than 1 billion rides in the U.S. and Canada, according its filings with the U.S. Securities and Exchange Commission. Lyft said that in 2018 it made $2.2 billion in revenue, but also lost $911 million -- a 32 percent increase from the year before when it lost $688 million on revenue of $1.1 billion.

The loss doesn’t seem to concern would-be investors, who packed into Manhattan’s St. Regis Hotel and the Olympic Club in San Francisco. Investors asked few questions of the company’s assembled representatives, according to people who attended, and were seen leaving the presentation with enthusiasm and pink Lyft prospectuses.

The clamor around Lyft is a positive signal for other technology companies planning to go public in what promises to be big year for IPOs.

“If the first tech IPO comes roaring out of the gate, it’s off to the races for the rest of the stampede,” Daniels said.

Next month, Uber Technologies Inc., the world’s largest ride-hailing company, is expected to officially kick off its plans for an offering that could value it at as much as $120 billion, people familiar with the matter have said. Slack Technologies Inc., Postmates Inc. and Pinterest Inc. are also considering listings this year.

Strong demand ahead of an offering doesn’t always mean success in the public markets. Facebook Inc. and Snap were both oversubscribed before their IPOs. Facebook’s stock wallowed in its first year of trading before beginning a five-year ascent. Snap is trading below its offering price.

Lyft’s bankers have compared it to luxury fashion retailer Farfetch Ltd. as well as food delivery marketplace Grubhub Inc., said two people who attended investor meetings. Its bankers also drew comparisons to Netflix Inc., Square Inc. and Facebook, said the people, who asked not to be identified because the meetings were private.

What Bloomberg Intelligence says: 


Lyft’s revised IPO range of $70-$72 a share implies a price-to-trailing 12-month sales multiple of 9.4x, about that of Netflix and above Spotify and GrubHub. Lyft’s active-rider growth of almost 20% in the U.S. is key to boosting share in its core U.S. market as it could equal larger rival Uber by 2021, based on our sensitivity analysis. 

-- Mandeep Singh, Senior Industry Analyst, Technology

Click here to view the research

--With assistance from Eric Newcomer.

To contact the reporter on this story: Olivia Zaleski in San Francisco at ozaleski@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Michael Hytha

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