Citron Research, headed by the short-seller Andrew Left, has strongly criticized investors who are betting against the ride-share company Lyft. The research firm has gone so far as to label shorting Lyft as “The Amateur Short.”
Lyft short bets have neared almost $1 billion in its first week as a publicly traded company, with plenty of “dry powder” for further bets, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, a financial-analytics firm.
The company’s IPO was notably volatile, with shares falling 20% in its first few days of trading. Lyft opened for trading at $87.24 and subsequently fell below their initial-public-offering price of $72 before partially recovering on Friday.
Citron was a pre-IPO investor, holding its shares for at least two years. In addition, the firm has continued to buy the stock on the open market following the IPO.
Citron notes it has 25 years of experience shorting stocks, which have included Wayfair and Tesla, and listed several reasons why Lyft is not a suitable short candidate. Citron cites the following reasons not to be short Lyft.
Active riders have grown more than 500% over the past three years, with use among millenials exponentially higher than older cohorts. This indicates the number of active riders will grow significantly as this cohort ages. Over 70 million people will turn 18 over the next 17 years, many of which will opt for ride-shares over vehicle ownership, Citron says.
2. Upward sloping cohort curves
Similar to Amazon, ride-share users repeatedly use the company’s services, lowering its customer acquisition costs, Citron says. Ride-shares are time-saving benefits well in excess of alternatives, implying potential pricing power.
3. The trend is real
Teenagers are no longer tied to their cars, as 16-year-olds with driver’s licences declined from 46% in 1983 to 26% in 2016. This trend is likely to continue in the future, signaling increased demand for ride-shares, according to Citron.
“This is not a trendy video game or a GoPro camera…. this is a way of life that is saving people time and ensuring safety. Ridesharing is not a fad… it is a megatrend,” Citron said.
4. Massive valuation discount to Uber despite taking share
According to preliminary IPO valuations, Uber may go public at a $120 billion valuation. This is a significant premium to Lyft, roughly six times its public-market valuation despite it taking share in the US market. The two companies control 99% of the market, however, Lyft’s share has risen from 22% in 2016 to 39% in 2018.
5. Blue Sky Narratives
Lyft has made significant moves to position itself in the autonomous-vehicle market. In 2018, Lyft reached 5,000 paid self-driving rides in Las Vegas, Citron said. In addition, if ride-sharing adopts a subscription model, Lyft and Uber will have Amazon-like prospects and effectively lock in customers and prevent the competition from scaling.
Some other analysts have also been positive on Lyft, with Wedbush’s Dan Ives referring to its large addressable market as a “golden opportunity”.
Finally, Citron notes that while Lyft lost over $900 million ast year, so too did tech giants Amazon, Netflix, and Square in their early days — all of which have produced spectacular returns.
Despite its strong conviction on Lyft, Citron has been known to change its mind. Left famously switched his position on Tesla from short to long just before the electric-car maker announced record results.
Lyft was up 3.5% from last Friday’s IPO price.