Skip to Content
Fund Spy

Does Your Mutual Fund Own Lyft?

As Lyft's IPO approaches, some mutual fund investors already own it.

Ride-sharing company Lyft is set to go public this week. The company is one of several highly anticipated IPOs, with competitor Uber and content-sharing website Pinterest also expected to make their public market debuts this year. The wave of IPOs comes amid a strong start to the year for U.S. equities. The S&P 500 was up 12.2% for the year to date through March 25, 2019, providing favorable timing for newly listed companies that hope to benefit from broader market tailwinds.

Lyft is one of many private firms that have grabbed the attention of mutual fund managers in recent years. As startups gained traction with consumers and raised huge sums of money in the private markets, they delayed their IPOs, preferring to build their businesses without the pressure that comes with being publicly traded. Some mutual fund managers, who were already doing due diligence on such names to understand the competitive dynamics facing their public company holdings, decided to invest privately, with prominent fund companies such as Fidelity and T. Rowe Price leading the charge.

The trend was not ubiquitous: Our inaugural 2016 report showed just 3.6% of U.S. equity and allocation funds were invested in private companies at the time, with the median fund staking 0.51% in such investments.

With private firms lacking the liquidity enjoyed by public companies, many of these funds have held on to their investments in the ensuing years. In some cases, managers added to their holdings in future funding rounds or made new investments.

Lyft is one of the more interesting cases. In our 2016 study, only two funds owned it, while 52 owned its main competitor Uber--the most popular private company investment by far. Since then, Uber has had several high-profile missteps and public-relations crises, eventually leading to the ouster of its CEO. The turmoil caused some mutual fund managers to rethink their positions; when SoftBank aggressively pursued shares of the company in late 2017, some managers scaled back their bets.  Fidelity Contrafund (FCNTX), for instance, cut its stake by more than half between December 2017 and July 2018, though it still owned $98.6 million in Uber shares as of January 2019, consuming 0.08% of fund assets.

As Uber dealt with the fallout, Lyft grabbed market share in the United States. It also gained some mutual fund investors, with Fidelity jumping on board in late 2017. By early 2019, 35 Fidelity funds and one AB fund had stakes in the company.

Being early to Lyft could prove advantageous. It appears the Fidelity funds got in at a lower valuation than the IPO may demand. Some Fidelity funds participated in the H-series funding round that closed Nov. 22, 2017, in which it acquired shares at $39.74 each. Some Fidelity funds then participated in the I series on June 27, 2018, at $47.35 per share. As of January 2019, Fidelity valued its Lyft stake at $46.93 per share. According to PitchBook, the company is expected to go public in the range of $62-$68 per share, inferring a boost for the Fidelity funds.

However, the funds' allocations to Lyft are modest. All held stakes that constituted less than 0.75% of fund assets as of January 2019. It's also unclear what terms apply to the ownership stakes acquired privately. For instance, a lockup period after the IPO could prevent the funds from selling shares and cementing gains.

There are other risks, too. Lyft is going public as a money-losing business. Morningstar equity analyst Ali Mogharabi predicts it won't be profitable till 2022. While he assigned a narrow Morningstar Economic Moat Rating to the company, it still has plenty of competition from its bigger rival Uber, which has raised more money privately and is expected to go public later this year. Lyft doesn't have a geographical reach outside the U.S. and isn't focused on food delivery or logistics, though it does avoid exposure to regulatory risks in other countries and can focus on its primary business lines, which include scooters and bikes. Long term, it remains to be seen who the winners and losers in ride sharing will be if autonomous vehicles take off.

In the meantime, it will be interesting to observe how mutual funds play the Lyft IPO and whether or not managers view it as a compelling long-term investment.

Katie Rushkewicz Reichart does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.