Shares in the ride-hailing company Lyft dropped 7.3 percent on the news that rival Uber was looking for a valuation of between $90 billion and $100 billion ahead of its initial public offering (IPO), according to reports.
When it officially goes public on Thursday (April 11), Uber reportedly plans to sell $10 billion in stock. Uber was previously looking for a valuation of $120 billion. Lyft, however, has a market cap of just below $20 billion. The company raised $2.69 billion when it went public last month.
Lyft stock has moved a lot since the company’s IPO. It was priced at $72 a share just before the company went public, then it opened at $87.23, then dropped below its set IPO price. It’s down 27 percent from opening day and 11 percent from where it started.
Some analysts say it’s because the stock is overvalued, or because of the crowded ridesharing space there’s no certainty the company will be profitable. There’s also the potential regulatory issues Lyft might face.
Michael Ward, an analyst at Seaport Global, said as much in a note to his clients, saying, “While we believe the ridesharing market will continue to grow and expect LYFT to be a prime competitor, in our view, current valuations reflect an overly optimistic view of consumer behavior in the U.S.”
Lyft reportedly sent a letter to Morgan Stanley on April 2 asking the firm about its alleged role in selling a short product to pre-IPO investors. Lyft wants Morgan Stanley to go on record saying it did not engage in this type of activity, or if it did, that it practiced proper due diligence in marketing it. In addition, the company has asked that if Morgan Stanley did sell or market this product, that it stop immediately, as well as provide a list of any involved shareholders.
Lyft added that it was prepared to take legal action against Morgan Stanley if necessary and asked that the firm respond to the allegations by the end of the day on April 2. Two sources, however, said Morgan Stanley has yet to formally respond to Lyft’s requests.
A Morgan Stanley spokesperson did give a statement to CNBC, saying that the firm “did not market or execute, directly or indirectly, a sale, short sale, hedge, swap or transfer of risk or value associated with Lyft stock for any Lyft shareholder identified by the company or otherwise known to us to be the subject of a Lyft lock-up agreement.”