5 Reasons Not To Short Lyft, According To Activist Short Seller Citron Research

After dipping as low as $66.10 per share earlier this week, Lyft Inc LYFT roared back above the IPO price on Friday, rising 4.4 percent to around $75 per share. Following reports of extreme short selling in Lyft this week, the stock may have ironically gotten a boost from one of Wall Street’s most notorious short sellers.

Citron Research's Andrew Left says it’s never a good idea to short a disruptive company like Lyft just because it isn’t profitable.

“Over the last 25 years, we have shorted more stocks than anyone reading this article. From Wayfair to HubSpot to our initial Tesla short, most all bad recommendations had one common theme: money losing companies with high growth and large TAM,” Left wrote in a Friday report.

Reasons Not To Short Lyft

Left listed five reasons shorting Lyft is a bad idea:

1. Lyft’s customer base is very young, and demographics trends favor long-term customer growth.
2. Lyft is one of a handful of businesses that save customers time and sell themselves through sheer convenience.
3. The trend among millennials away from car ownership is not just a fad but is rather a long-term transition.
4. Lyft is trading at a steep valuation discount to Uber despite the fact that Lyft’s market share increased from 22 percent in 2016 to 39 percent in 2018.
5. The future of ridesharing as a subscription model that is the “ultimate blue sky” opportunity.

Short Interest On The Rise

Despite the warning, the latest numbers from financial technology and analytics firm S3 Partners suggests short sellers aren't heeding the warnings. As of Thursday afternoon, Lyft had about 13.4 million shares held short, or about 41.1 percent of the stock’s public float.

“As we have seen in most IPO’s, shares shorted usually takes several weeks to plateau as short sellers leg into their positions over time so we should see over $1 billion in LYFT short interest very soon and if the short selling trend continues, closer to $1.2 billion within a few weeks,” analyst Ihor Dusaniwsky said.

So far, the first batch of Lyft short sellers aren’t faring so well. Lyft shares were at their highest levels of the week in midday trading Friday.

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