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Chart of the Day / A Safer Way to Trade the Lyft IPO

A Safer Way to Trade the Lyft IPO

March 5, 2019

Lyft just filed with the US SEC to raise up to $100 million in a public offering.

Should all go according to plan, the company will soon list on the NASDAQ under the symbol, LYFT.

Granted, the IPO will generate a good amount of excitement and buzz.  However, investors would be smart to avoid what may be a slow motion train wreck right out of the gate.

The good news – If you take a look at the company’s S-1, we can see that the company’s list of riders continues to turn higher. Just in 2018 alone, it had 30 million total riders across the U.S. and Canada.  Active riders increased 47% year over year in the last quarter of 2018.

And two, revenue is increasing. In 2018, the company earned $2.1 billion.  That’s up from $1.1 billion sales in 2017, and $343 million sales in 2016.  Revenue per active user did increase 33% year over year to $36.04, as well.  That’s a sizable jump from the $15.88 average in the first quarter of 2016.

However, it’s also bleeding money.

While it managed to earn $2.16 billion in 2018, it also saw its net loss grow to $911.3 million in 2018 from $688 million in 2017. For comparison, Uber lost $1.8 billion in 2018.  Worse, Lyft has already warned that it has “incurred net losses each year” since its inception, and “we may not be able to achieve or maintain profitability in the future.”

That doesn’t exactly instill confidence in potential investors.

There are also potential risks to the company, which it highlights in its S-1, as well.

For example, the U.S. government could force Lyft to change the worker status of drivers from contractors to employees, for example.  Right now, drivers don’t get overtime or benefits, like health insurance, as contractors. Should that change, the company noted, it “could harm our business, financial condition and results of operations.”

While there are some reasons to like the stock, there are still incomplete “what ifs” that lead us to question if LYFT would be a good investment.

In my opinion, it’d be best to avoid the stock altogether.  There are better ways to trade the excitement of LYFT.

The First Trust US Equity Opportunities ETF (FPX)

The FPX tracks hot IPOs in their first 1,000 days of trading.  By buying it, not only can you avoid paying gobs of money for IPOs that may or may not work out, but you’re also being exposed to multiple hot IPOs at the same time at lesser cost.

Plus, as you can see, the FPX never once took a hit on any of the failed IPOs either.

In fact, even with some of the most obnoxious IPO failures, the ETF managed to run from a 2009 low of around $11 to a recent high of $75.  It’s a safer alternative than risking your hard-earned money to another potential flop. With the FPX, it doesn’t matter if the stock is hot or a dud, the excitement surrounding IPOs continues to send the FPX to new highs.