Lyft went public on March 29 and within three weeks, the going has been far from smooth for the California-based cab hailing firm. Investors have now sued the company for overhyped claims.
Two almost identical complaints were filed against the company on April 16, saying that it exaggerated its prospectus to potential investors, who are now facing losses. Within days of going public, the company was trading below its listing price of $72 despite an oversubscribed offering. The company's shares are trading 19 percent down its listing price, at $58.36, as on April 22.
Investors are concerned about the company's claim that it has a market share of 39 percent in the US. They were also miffed as the company failed to inform them that it recalled over 1,000 bikes in its ride-share programme.
The company's shares fell sharply as news emerged that Lyft's major rival Uber Technologies is also filing for an IPO. Uber happens to be a much larger company with a larger market share, giving investors a better alternative.
Investors became increasingly wary of new companies after the 2008 financial crisis. Snap Inc's IPO in 2017 invited a lawsuit within 10 weeks of launch, while Blue Apron Holdings got one within seven weeks.
Some companies have been served with a lawsuit even sooner than Lyft. After Facebook started trading publicly in 2012, it plunged over 19 percent in the first two days. Within a week, it received a class action on behalf of investors who were out over $2.5 billion.
Lyft is among the many tech 'unicorn' companies going public this year. Other IPOs in the offing include Uber, social media giant Pinterest and Slack. Both Lyft and Uber are loss-making companies but that has not deterred them from considering an IPO. Nearly 81 percent of US companies were unprofitable in the year leading to their public offering, according to data."The rise in unprofitable IPOs reflects the general preference in both public and private markets for growth over profitability. As we've seen during most of the recovery period since the Great Recession, investors are not so margin-focused, but continue to put a premium on businesses with long-term future expansion or disruption potential," Paul Condra, an analyst research firm PitchBook, told Recode.