A $3 billion investment chief breaks down the strategies he expects traders to use around the Lyft IPO — and reveals how his firm is planning to play it
The road show is usually populated by the elite class of investors connected enough to score an invite. That means large institutions, established players, and firms that already sank money into the company during its private years.
But some money managers may not even want to be involved at that stage. The speculative nature of investing in an IPO is a risky endeavor — one usually filled with peaks and valleys as investors battle to establish a firm trading price. Many prefer to wait and let the dust settle.
In a recent interview, he told Business Insider that while he and his colleagues were certainly interested in Lyft — and the ride-hailing industry as a whole — he’s playing the waiting game and would strike when opportunity presented itself.
“We’re just going to see how it plays out,” Ablin said. “It’s of interest, but those kinds of plays are of interest to us longer term. This isn’t something we’re going to try and make a quick buck on.”
Ablin went further to break down the different ways he expected other fund managers to play the IPO. Below are the three main investing strategies he expects to play out over the coming weeks and months. Note that they all involve Uber— Lyft’s biggest ride-hailing competition — in some form.
1) Buy both Lyft and Uber (once it’s also public) as a play on the industry
Ablin says this strategy is the way to go if you’re a big believer in a specific theme but don’t want to go all in on one of the industry’s key players.
He recalls investors seeking exposure to the entire social-media space around the time Facebook went public. Not all of the companies that tested the market during that era ended up thriving, but that didn’t matter much to the portfolios that also owned Facebook. Following a rocky start, the stock ended up being a top performer.
“Generally, in my experience, in the IPO space, buying an entire theme is generally what happens,” Ablin said. “Eventually, the one winner generally pays for all the losers.”
2) Buy Lyft post-IPO, then sell those shares to fund the purchase of Uber shares (once it’s public)
This strategy functions as a carry trade of sorts. It involves investors buying exposure to Lyft following its IPO pricing and then offloading those shares to fund the purchase of newly available Uber shares.
“They’d do that if they perceive the Uber is the better bet, and they want the leader,” Ablin said. “There are probably some investors that will want to do that.”
Ablin adds that Lyft’s short-term upside may be exhausted by the time Uber hits the market, which he thinks could give Uber an advantage.
“It’s possible that there’s really only downside for Lyft when Uber arrives — at least in the near term,” he said.
Walter Todd, who oversees about $1.2 billion as the chief investment officer for Greenwood Capital Associates, doesn’t necessarily agree.
He thinks Lyft is hitting the market at the perfect time, considering stocks are rising and volatility is low. And he says there’s no guarantee that placidity will last through Uber’s IPO.
“Depending on what happens in the broader market, with the trade deal and everything else, the tone of the market today versus three to six months from now could be very different,” Todd told Business Insider by phone. “Conditions right now undoubtedly favor Lyft. There’s lots of appetite right now, and people looking to put money to work.”
3) Wait to see if Uber ends up surging after its eventual IPO, then buy Lyft, which is likely to be pulled higher
The third strategy laid out by Ablin involves waiting to buy Lyft until after Uber prices its IPO and starts trading. Needless to say, it’s an approach best reserved for the most patient investors.
The key variable here is what kind of initial valuation Uber ends up obtaining. If it comes in on the low end of the expected range, Ablin says, Uber’s stock could surge immediately after — which would be a boon for Lyft.
“There’s always the possibility that Uber comes in underpriced, then starts screaming in the secondary market,” Ablin said. “That could attract incremental buyers to Lyft who want to participate from a distance.”
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