Short positions on Lyft cast shadow over Uber IPO
Negative sentiment surrounds ride-sharing company as short-sellers increase their bets
Short-sellers have been increasing their bets against Lyft ahead of the ride-sharing company’s earnings report on Tuesday, casting a shadow over the imminent initial public offering of rival Uber.
The negative sentiment around Lyft, which has suffered a sharp fall in its share price since going public in March, underlines investor nervousness over the ride-sharing industry just as Uber prepares to raise $9bn later this week.
As of Friday, more than 19m Lyft shares — about 60 per cent of the freefloat — were on loan, indicating that the stock is subject to heavy short selling, according to data from IHS Markit.
Short-sellers have been increasing their bets against the stock over the past two weeks, the data showed.
Short-sellers borrow shares and sell them with the agreement to replace them later when, they believe, the shares will be trading at an even lower price. Lyft has been dogged by heavy short selling since it listed in March. After an initial pop at its debut on Nasdaq, shares sank and now trade well below the offer price of $72.
Shares were trading down 3.2 per cent at $60.52 on Monday, having rebounded from a low of $54.32 on April 26.
Analysts expected Lyft to report growth in riders and revenue in the first quarter, but also deeper losses from a year ago. That would be a continuation of trends for the company, which has pushed to gain market share from its larger rival Uber. This has boosted the amount of money it takes in from rides, but has also ballooned losses due to hefty spending on fare subsidies and driver incentives.
Lyft is expected to report revenues of $739m, up 86 per cent from the same quarter last year, according to consensus estimates collected by S&P Global Market Intelligence. Its loss before interest, tax, depreciation and amortisation is forecast to widen from $239m to $275m.
“Lyft’s shares have pulled back following the IPO; we expect shares to get back on track and view solid earnings and [second quarter] guidance as a key catalyst to reaffirm Lyft’s position and remind investors of the massive opportunity [long-term],” wrote John Blackledge, analyst at Cowen, in a note to clients. He expects the number of active riders to rise 40 per cent to 19.7m.
Daniel Ives, managing director at Wedbush, the broker, said that short-sellers could be hit if the stock price were to appreciate, forcing them to cover their positions at a loss.
“You could definitely have a short squeeze just given how crowded of a short it is going into this first earnings,” said Mr Ives, who has cut his revenue estimate for Lyft by 2 per cent.
He added that “you would have to see great numbers and robust guidance. If you get any hint of them tripping over their shoelaces in the first quarter . . . that would be disastrous.”
Uber has been pitching its IPO to investors ahead of a listing on the New York Stock Exchange expected on Friday. Its offering could raise up to $9bn, dwarfing the $2.3bn Lyft raised in its March IPO. Uber has said it will continue to spend aggressively to protect its market share worldwide.