It was all about Lyft (LYFT) as it should be. I am talking about the start of an IPO season that might bring public as many as $1 trillion worth of companies' stock.
Lots of people were quite cynical about the whole process, instantly jumping to the conclusion that the stock was ridiculously overvalued and the brokers ripped off the customers.
That's just not true. The brokers actually would have preferred if the stock had not opened at $87 and change, up $15 from the IPO price. But market orders from individuals with no discipline caused the exuberance that stretched the valuation. Had they not been so undisciplined the opening would have been more reasonable, perhaps as reasonable as $75, where we thought it could trade to and not be absurdly valued versus other profitless high growth companies.
But here's the thing. The $87 price could have been far worse. There could have been a wave of orders that would have driven this stock as high as $100, but the syndicate desks released some of the buyers from their positions to actually try to keep the stock down so as not to create losses for those who bought at the opening. Understand that it is very difficult to keep the buyers under control.
How do I know this: Because when TheStreet.com came public some 20 years ago I saw the syndicate desk at Goldman Sachs lose control of the offering with an unruly mob of buyers who drove the stock from $20 to $63, and then it crept up a few dollars and then spent the rest of the year going down. I was distraught and begged the desk to find sellers but they couldn't find enough to meet the insane demand.
We did not have that today and that's why I regard $87 as a win for the system even as it was a loss for those who were too eager and too excited.
Is the price going to stand up over time? Tough call. Again five points lower is where it can withstand the heat until it shows a declining loss while continuing in the widening of gross margins and even a pick up of share versus rival Uber.
But here's what matters to me. This country is carved up between Uber which has about 60% of the market and Lyft with about 40%. It's hard to imagine a duopoly producing a savage rate war. If anything I could see rates going higher which is why I like these companies. Lyft will have to grow into this market cap. I think it will do it.
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