By Initial public offerings seem to be everywhere. Here’s why.
By now, I’m sure you’ve read an article or three on the recent Lyft initial public offering (IPO), unless you’re in a foreign country somewhere, in which case, I’ll explain: Lyft is a ride-sharing app where regular people make side money using their own cars to taxi people around. Trust me, once you use it, you’ll get it!
Lyft is actually the first in a slew of IPOs we may be seeing in the next 60 days – Pinterest, Lyft competitor Uber, Airbnb, Slack and others could be making their initial public offerings soon. Maybe you’re wondering, why are all of these brands I know all of a sudden coming to market at the same time?
One side of the government shutdown you might not be aware of is that, it wasn’t just the typical government officials you think of who weren’t working during that time. There were many “non-critical” employees who had to stay home, and that includes the Securities & Exchange Commission (SEC). A company can’t make a public offering without filing through the SEC.
Now, if you’ve ever been in any corporate office, you’ve seen the paperwork logjams that are prone to happen (maybe even in your own office!). That’s essentially what happened here. With the SEC operating on a skeleton staff during the most recent US government shutdown, initial public offerings essentially stopped. Now with the government, including the securities and exchange commission; “back to work” I think we will continue to see many brands we use rushing to register IPOs because no one knows when they might shut down again! It’s not a bad thing, but it has been the cause of some confusion on Wall Street.
What kind of confusion, you’re wondering? Most of the larger investors want to participate in the Lyft IPO and others, but don’t have a few billion sitting around to buy in. So, some are selling off other companies to make room to buy Lyft. This is not a vote against Amazon, or Google, or Salesforce.
These companies are simply some of the largest ones out there, and so a perfect option for fund managers to sell to get quick cash to participate in the Lyft IPO, in the anticipation of it appreciating significantly on its first few days of trading. These investors simply need capital to buy Lyft, in the anticipation of it going up 25 to 30 percent on day one. (Although, as of this writing, Lyft shares were down from the IPO price, according to CNBC and other news outlets.)
This is nothing new, of course. Over the years, as more and more companies go public, portfolio managers must continue to make room in their portfolios for the new issues they want to own. This always leads to a shuffling of their portfolios per se.
Keep in mind however, that Lyft is still losing about one billion dollars a year – only a handful of companies can lose like that, so investors beware! Eventually, that will be a problem, and given the drop since the IPO, many investors may already be wary.
As we continue to see established companies feeling the pressure in the sectors where these IPOs are happening, remember – that’s not a value judgement on those companies. It’s simply the fund managers needing some money to participate in the IPO, and that money will likely return to the market leaders at some point, once this current “IPO season,” for a lack of a better term, has passed.
Do you have any questions about some of these forthcoming IPOs? Our team is always happy to sit down with you and discuss the markets and your portfolios. Just give us a call.