Lyft Inc. shares had seen strong demand among short sellers on Tuesday even as borrowing fees surpassed that of other U.S. equities as investors rushed to bet against the loss-making ride hailing service, which has warned it may never be profitable.
About 6.61 million Lyft shares (LYFT) with a market value of $455 million were reported as on-loan on Tuesday, according to IHS Markit Securities Finance on Wednesday, which sees borrowed shares as the best proxy for short selling.
In comparison $661 million worth of Facebook shares were borrowed on the first day after its IPO, according to Sam Pierson, an analyst at IHS Markit.
After rising as much as 23% in its Friday market debut, the stock pared gains sharply to finish the day up just 8.7 percent. Lyft faces criticism for its dual-class share structure and its strategy for autonomous driving. Investor worries also include new laws aimed at increasing driver pay.
Tuesday was the first day short sellers could borrow shares in Lyft, which was handed its first ‘sell’ rating from Wall Street on the same day.
Annualized borrowing fees for Lyft shares ranged from 85% to 150% of the amount borrowed but the majority of activity was for just over 100%, according to IHS Markit, which said this makes Lyft the most expensive stock to borrow among companies with more than $5 million of stock on loan.
Facebook shares (FB) sold short on the day after its IPO had an annualized fee of 39 percent of the amount borrowed.
“For Lyft to have that many shares on loan with that fee is notable,” said Pierson. “For an IPO there’s a lot of demand up front but even within that framework this is fairly high.”
Still, short sellers did not appear to be the dominant force on Wednesday as the stock was last up 3.0% at $71.06 bringing it closer to its IPO price of $72 but well below an intraday high of $88.60 reached on the first day of trading.
Investors who sell securities short borrow shares and then sell them, in a bet that the stock will fall so they can buy the shares back at a lower price, return them to the lender and pocket the difference.
SEC regulations prohibit underwriters from lending out their shares to cover short sales for 30 days. Tuesday was the first settlement day for Lyft share sales, so it was the first day other investors could loan out their shares.
Of the 8 analysts who cover Lyft so far, three recommend buying the stock while four say to hold it and one has a sell rating on the stock. The median price target for the stock is $77.50 with targets ranging from a low of $42 and a high of $97.
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