You Can Double Your Money When Lyft Goes Public – But Not The Way You Might Think!
Editor’s Note: We heard you loud and clear – you loved Kuni’s last article so he’s back with a special look at how to play Lyft’s IPO and possibly make a mint in the process.
Investors are getting ready to throw billions of dollars at a company that’s not worth the cost of the paper its stock certificates will be printed on. Worse, this same company has just 4,000 employees and has lost $911 million…during the past 12 months alone.
I’m talking about Lyft, of course.
The ride-hailing service is billed as a lucrative side-hustle where anyone can make fast cash giving people a lift around town. You can use your own car, set your own schedule, and work whenever you want. Chances are you’ve either called Lyft or ridden in one of “their” cars. Perhaps you’ve even started your own side-hustle as a Lyft driver.
The hype surrounding its expected initial public offering, possibly on March 28th – just three days from now – is staggering. Many investors, of course, can’t wait to jump in.
Lyft is what Wall Street calls a “unicorn” – meaning it’s a private company that’s worth more than $1 billion. Others include Lyft competitor Uber, as well as smaller ride-hailing services like UCar, BlaBlaCar, and GrabTaxi.
The premise of a “unicorn” company is that you’ll make a fortune when these companies go public, and you get in, meaning you snap up shares during the Initial Public Offering.
Just because a unicorn is valued at a billion dollars by Silicon Valley insiders and their investment bankers doesn’t mean that it’s worth it.
Stocks that are held out as “Wall Street’s Darlings” are just like any other fad – most fail, and quickly. Look at VeraSun Energy and Aventine Renewable Energy Holdings Inc., for example. Both renewable energy companies IPOed for a notable $420 million and $389 million respectively in the early 2000s amidst the renewable energy boom that captivated investors worldwide. In less than a decade, both companies have gone bankrupt and faded away, costing investors every last penny of what they put in.
Lyft and Uber – ride-hailing – is today’s renewable energy, at least as far as investing goes.
Unicorns don’t have the best track record.
Take Snap, for example. After a 44% run higher on the first day of trading and a peak of $27.09, shares tanked, dropping 60.2% in only two years, hitting $10.79, where it’s trading today.
Blue Apron went public at $11.00 is trades at only $0.97 today, an incredible loss of 91.2%.
I could go on… Spotify, Dropbox, GoPro. They were all Unicorns, and ALL are trading far lower today than they were when they went public.
If you’re thinking Lyft is different because of the reported $2.2 billion in revenue they generated last year, look again. Wall Street wants you to think about that sizeable revenue, just like your parents wanted you to believe in Santa Claus, the Tooth Fairy, and the Easter Bunny.
The only number that matters is the $911 million loss Lyft ran up in 2018. It’s the largest loss ever for a company that’s going public, and I think it speaks volumes about why you shouldn’t invest in the IPO.
The company even goes so far as to specifically warn in its pre-IPO filing that the company has a “history of net losses, and we may not be able to achieve or maintain profitability in the future.”
You see, companies like Lyft that rely on “independent contractors” (read: drivers) are depend heavily something called the “take rate”. This is the part of the ride fare that goes to Lyft itself.
Currently, Lyft “takes” about 27% from each ride fare – a number that has increased over the last three years by 9%. This increase might feel like a good thing to drivers, but remember that this is coming directly out of the drivers’ pay… and drivers need incentive to stay, and NOT go working for somebody else.
Herein lies the problem.
When Lyft goes public, they’re not going to be keeping investors happy with $900 million or more in losses every year and will have to find more ways to make money. And the easiest thing to do is increase the “take rate” – just like your parents may have taken away a part of all or part of your allowance when you got grounded.
Chances are you’re catching on.
Lyft has no choice but to increase their “take rate”, but doing so lowers drivers’ incentives, and increases turnover which, in turn, leads to less revenue overall. No amount of growth will change this equation if losses widen.
It’s simple math, and there’s nothing you can do about it.
Except get even.
You don’t want to sink huge amounts of money that you’ve spent a lifetime building up on a company that’s destined to fail. That’s why, you’re going to play their downfall.
For example, my dad – Keith Fitz-Gerald – has been telling investors keen to play Lyft that it’s best to let fools-rush-in when it starts trading, then “fade the trade.” That’s a Wall Street expression meaning you bet on the fall that’ll happen when suckers realize the stock isn’t worth what Wall Street and Silicon Valley want you to think it is.
He’s also suggesting Put options- a bet that the stock will decline. However, chances are, you may have to wait 5 days to several weeks because each exchange has an options approval process that requires newly listed companies to meet trading volume, price, and liquidity requirements. Even the pros have to guess.
There’s another option, and it could be even more profitable.
I suggest you create a 2-part side-hustle that can pay off big, but won’t cost you a lot of money to get started.
First, buy GSV Capital Corp. (NasdaqCM:GSVC).
It’s a business development company trading at $7.17 per share as I type, which means 100 shares will set you back only $717 dollars. Lyft shares made up 7.9% of GSV’s total net assets as of December 31, 2018.
The Lyft IPO may kick that up as much as 25% to 50% almost instantly which means you could make a quick $365.
But if making 100% or more on your money is more appealing?
Consider buying call options on GSVC – a bet that prices will rise by a certain date.
I suggest the GSVC June 21, 2019 $7.50 Calls (GSVC190621C000075000) which are trading for between $0.70 and $0.90 each. Every option controls 100 shares which means the same $717 could control more than 1,000 shares of Lyft at a fraction of the price.
Now, the same 25% move could turn into $1.74 – or 117.5%!
Make it a winning day,