TMT/Internet

Brief TMT & Internet: Rakuten (4755 JP): Lyft IPO’s Big Lift Unlikely to Lead to a Sustained Re-Rating and more

In this briefing:

  1. Rakuten (4755 JP): Lyft IPO’s Big Lift Unlikely to Lead to a Sustained Re-Rating
  2. Lyft IPO Preview: Maybe We’ll Just Walk?
  3. HDC Holdco Trade: Holdco Re-Rating Should Be Transferred to Sub, Time to Long Sub/Short Holdco

1. Rakuten (4755 JP): Lyft IPO’s Big Lift Unlikely to Lead to a Sustained Re-Rating

Softbank

Lyft Inc (0812823D US) has kicked off its IPO by posting its S-1 filing last Friday. Rakuten Inc (4755 JP) is Lyft’s single largest shareholder with a 13.05% stake. Rakuten has invested around $700 million to acquire its current Lyft stake and stands to make 3-4 times its investment if Lyft achieves its rumoured IPO valuation range of $20-25 billion.

Lyft’s IPO valuation range was first reported by Reuters on 20 February 2019. On the back of the news, Rakuten’s shares have so far risen around 10%. Notably, at the IPO valuation range, the Lyft stake would account for 20-25% of Rakuten’s current market cap. While the Lyft IPO will prove to be a big winner for Rakuten from an ROI perspective, we believe that from a valuation perspective, the upside is modest.

2. Lyft IPO Preview: Maybe We’ll Just Walk?

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Lyft Inc (0812823D US) , a leading ride-sharing company, released its IPO prospectus in order to raise 3bn USD. Our key points are below 

Intro to Lyft

Lyft – a comparison vs. peers

Strengths and Weaknesses

Financials

3. HDC Holdco Trade: Holdco Re-Rating Should Be Transferred to Sub, Time to Long Sub/Short Holdco

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  • HDC Holdco and its major Sub HDC-OP are now at 247% of σ on a 20D MA for the first time since mid Nov last year. On a 120D, their current price ratio is substantially higher than the mean. Holdco discount is now 40% to NAV. This is nearly a 10%p drop since early Jan.
  • My previous stub trade on the HDC duo again paid off very nicely. I went long Holdco and short Sub on Jan 11. This trade is now delivering a 15% return. During this period, Holdco climbed 23%. Sub went up 8%. They created a 15%p gap in price performance. Holdco’s 23% running was mainly attributable to re-rating of some of its major unlisted holdings.
  • Sub also has several key assets that could equally be re-rated. Much of Holdco’s assets that have presumably undergone re-ratings lately are business wise closely correlated with Sub. A 15%p price yield gap should be too harsh on Sub. I expect their price ratio will be challenged downwardly at this level on a short term time horizon.
  • I’d close my previous position. I’d initiate a new trade. I’d go long Sub and short Holdco. I’d close this trade at < 50% of σ. Given the fluctuation level of this duo, this’d give nearly a 8% yield. 

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