What’s going on here?
Lyft are set to go public with an initial public offering (IPO) this Friday.
What does this mean?
Lyft is racing to be the first ride-hailing app to sell shares on the US stock market. It is hoping to be listed before its rival Uber, which is due to be listed a month later. After Lyft goes public, its competitors Uber, DidiChuxing (China-based competitor), OlaCabs (India-based competitor) and GrabTaxi (Singapore-based competitor) will use it to test the waters for their own IPOs. They can assess investors’ reaction to Lyft and see what prices they can hope to get. Lyft has selected J.P. Morgan Chase to lead the IPO effort with Credit Suisse and Jefferies as underwriters in a more junior capacity (an underwriter acts as a middle-man between the company and investors in an IPO).
What’s the big picture effect?
TIn deciding to go public, a company must weigh the advantages and disadvantages of such a decision. One advantage would be the increased capital through fundraising at the time of listing. Additionally, the company’s stock is now tradable. The stock can then be used to finance future acquisitions by paying for part of the purchase price in stock.
However, IPOs can be expensive as underwriter fees, legal fees, listing fees and more can rise into the millions. Another negative is that directors can sometimes lose power when decisions have to be voted on by shareholders. Consequently, Lyft has categorised its shares into different classes with different voting powers. The Class B shares, which have 20 times the voting power, will be kept by co-founders Logan Green and John Zimmer.
Lyft is marketing itself to investors solely as a ride-hailing company. This is to differentiate itself from Uber, which has diversified to areas such as food delivery. While tech IPOs are common nowadays, Lyft’s IPO is particularly significant. It seems that the success of Lyft’s IPO will dictate how each of its competitors will approach their own IPOs.
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