Lyft Inc. stock was volatile Tuesday, the day after the shares dropped below their initial public offering price, as more skeptics emerged on Wall Street.
Investors in the ride-hailing service “need to take a big leap of faith” to justify its current valuation, Seaport Global analyst Michael Ward told clients as he gave Lyft its first “sell” rating. The current valuation reflects an “overly optimistic view of consumer behavior” in the United States and expectations that millennials will forgo owning cars, Ward said. His price target on the stock is $42, or 39% below the last closing price.
Lyft shares fell as much as 4.2% on Tuesday morning before paring losses and briefly trading higher. They closed at $68.97 — down less than 0.1% for the day and down 4.2% from their IPO price.
The stock tumbled nearly 12% on Monday, its second day of trading, after multiple cautious analyst reports warned that the company’s growth may be poised to slow. Only two of the eight analysts tracked by Bloomberg have a “buy” recommendation on the shares.
Seaport’s Ward expects millennials and future generations will continue to own vehicles as primary transportation and rely on ride-sharing services as a convenient supplement.
Short sellers are expected to start circling soon. As long investors exit the stock, short interest should steadily increase as more and more shares become available. Early indicators are pointing to strong demand from short sellers, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
As Lyft’s IPO is widely expected to pave the way for a slew of unicorns — including ride-hailing giant Uber, messaging-platform firm Slack and digital-scrapbooking and image-search site Pinterest — debuting in the public markets this year, the slump in the stock has much broader significance. “This is a major gut check time for Lyft and the tech IPO world to see how this stock trades given it was the first one out of the box,” Wedbush analyst Daniel Ives wrote in a note to clients Tuesday.