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Lyft shares lift off in IPO, then lose speed

Lyft IPO lifted by service's popularity
  • Lyft on Friday went public on Nasdaq, with the ridesharing service now valued at more than $26 billion
  • Despite a hot initial public offering, Lyft continues to lose hundreds of millions of dollars each quarter
  • Lyft's offering is expected to open the door to more big tech IPOs this year, including for rival Uber and companies such as Pinterest and Slack 

Lyft, a company that has lost $2.2 billion since 2016 and has never turned a profit, is already in heady company as far as investors are concerned. The ridesharing service ended its first day as a public company valued at more than $26 billion -- that easily tops transportation industry stalwarts such as American Airlines and United Continental.

Now for the hard part. After surging more than 20 percent in the biggest technology initial public offering so far this year, Lyft's shares closed on the Nasdaq exchange at $78.29, up a modest 8.7 percent from the $72 opening price. While Wall Street is clearly betting that Lyft's future will be more profitable than its present, the company will now face intense scrutiny in every aspect of its business.

Since 2012, Lyft has racked up $3 billion in debt, although recent growth has surged -- the San Francisco-based company saw its revenue double to $2.2 billion last year from 2017. Lyft's overall bookings hit $8.1 billion in 2018, as 1.9 million drivers ferried nearly 31 million customers in the U.S. and Canada.

Lyft's performance will also serve as a benchmark for a number of other big tech companies eyeing IPOs, including arch-rival Uber, social media company Pinterest and messaging software provider Slack. Lyft will also serve as a yardstick for other "gig economy" players -- notably, its move to offer stock options to drivers.

"This IPO is a 'watershed' event for the tech sector as well as the ride-sharing industry that in our opinion has become one of the most transformational growth sectors of the U.S. consumer market over the past five years," Wedbush Securities analysts said in a note ahead of the IPO, adding that Lyft is now the "clear #2 player" behind Uber in the ride-sharing sector.

Demand for Lyft shares comes after the company's bankers spent a week meeting with investors to explain why buying into the IPO makes sense despite the company's string of losses. Indeed, Lyft has acknowledged it may be many more years before it starts making money, especially if its efforts to lower costs by developing a fleet of self-driving cars don't pan out.