Jon Najarian: Lyft could plummet to the $40s based on its last private raise

Signage for Lyft is seen displayed at the NASDAQ MarketSite in Times Square in celebration of its initial public offering (IPO) on the NASDAQ Stock Market in New York, U.S., March 29, 2019.

Shannon Stapleton | Reuters

When a stock is breaking down, market technicians are usually trotted out to guestimate the nearest support level(s). Support, is as the name implies, an area where the selling may slow, even subside and if that's at an oversold area, with too many newbie shorts betting against the stock, an area that we might expect a sizable bounce.

It is however, considerably more difficult to determine support or resistance for IPOs as they have virtually no trading history. But I said difficult, not impossible.

This brings me to the situation in the first of many Decacorns (valuation of over $10 billion) to come to market; Lyft.

As has been widely publicized, companies are remaining private far longer these days, as venture capital is plentiful. If used to be rare to see four rounds of funding, but today it is more then rule than the exception. Lyft has had nineteen rounds of financing in its seven-year history. At the end of 2015, General Motors led a round of 14 investors that raised $1 billion in its Series F round. The pre-money valuation at that raise was $4.5 billion. Three years later (June 28th, 2018), Fidelity led the nineteenth and final funding round (Series I) as an additional $600 million was raised at at pre-money valuation of $14.5 billion.

Then we had the high-publicized IPO for Lyft, in which the offering was oversubscribed to the point where the initial estimate of $62 a share was pushed higher and higher until the ride sharing company finally settled on a $72 a share offer of 30.77 million shares. This $2.2 billion pushed the initial valuation to about $20 billion (non-diluted, which means the restricted stock units, greenshoe etc are not counted) 38 percent above that final funding round just nine months earlier.

So as I read Seaport Global Securities analyst Michael Ward initiated coverage of LYFT at $42 a share I was not surprised. $42 is quite close to that final funding round, which on a non-diluted basis would be about $44.64 a share.