The four-day-old Lyft stock has encountered a new threat: Short-sellers.
Tuesday marks the first settlement day for Lyft shares, allowing hedge funds to begin borrowing shares to settle short sales. And they came in full force — short sellers have borrowed $455 million worth of Lyft shares, or 6.61 million shares, according to IHS Markit.
Shorting the ride-hailing company is not cheap because there are not many shares available and it remains in high demand. In fact, it would cost a short-seller more than 100 percent or about 27 basis points a day to fund a short stake in Lyft, the most expensive U.S. company with more than $5 million in balances to bet against, IHS Markit said.
“New IPOs often attract short sellers, who seek to capitalize on falling momentum after an IPO. Timing is the key, which is why short sellers are often willing to pay extraordinary borrow fees for IPOs,” said Sam Pierson, securities finance analyst at IHS Markit, in a note Wednesday.
Short-selling is done by market players such as hedge funds who borrow shares of a stock from a broker and sell them, in the hopes of buying them back at cheaper prices later and returning them, profiting from the difference.
The short interest is adding more uncertainty to Lyft which already had a rocky start to its public offering. The stock surged 9 percent on its debut, then tanked 12 percent on its second trading day, and it’s still having a hard time getting back to its IPO price of $72.
“Even successful companies often stumble out of the gates,” Pierson said, pointing out Facebook shares fell more than 50 percent during the first three months of trading.