Lyft’s IPO: Conventional or Exceptional?

Lyft’s initial public offering (IPO) is the first of several that are expected from Silicon Valley’s hottest technology companies. Does Lyft’s IPO set the precedent for tech IPOs moving forward? Or is it the exception?

2018 was a banner year for technology IPOs, and that momentum has continued into 2019, with many of the big unicorns making real moves towards the market. Lyft, a San Francisco-based company, made its public debut on the Nasdaq last month. However, it hasn’t been completely smooth sailing. Lyft’s IPO spiked 9 percent initially before stumbling 12 percent by the second trading day, setting an ominous example for its high-valued peers.

Pinterest is likely to make its public debut this month, and Uber revealed its S-1 yesterday. Slack, after confidentially filing to go public, may follow Spotify’s lead and become the first business software company to opt for a direct listing rather than a traditional IPO. Lastly, Airbnb could list as soon as June of this year, but it’s still unclear exactly when it plans to go public. These companies’ extensive histories of raising money as private companies makes going public even more significant, letting employees and early investors cash out.

With Lyft biting the bullet and being one of the first to hit the public market, beating rival Uber, it has de facto set the narrative heading into the IPO process – but not in the way it intended.

Rather than raising valuations up, Lyft has actually impaired valuations for many of the tech giants that are planning to IPO. Rival Uber’s IPO seems to have learned from their competitor’s mistake by adjusting its IPO terms. Valued at $72 billion in September with hopes to have a $120 billion valuation for its IPO, they adjusted significantly downward with the company reporting a valuation of $90 to $100 billion instead. Pinterest revealed a price range of $15 to $17 per share for their debut on the public markets with an initial market cap below its last private valuation. Their initial released market cap of $8.5 billion is a significant haircut from the $12.3 billion valuation it had in 2017. Airbnb seems to be taking note and indicating that they may not even file in 2019 after the significant slip in valuations of other tech companies.

To existing institutional and retail shareholders, because of the poor reception of Lyft, the signal from Uber that they reduced their valuation before filing to go public, and the indication from other tech companies that they may be deferring their IPO, there is less of a supply and demand imbalance. Investors in IPOs will need to sell less existing technology inventory to create funds to acquire these new tech IPOs. In this case, poorer, lower and fewer is better. 

Marty is president and founder of martinwolf M&A Advisors.