Check out the spreadsheet Professor Aswath Damodaran (New York University Stern School of Business) used to value Lyft prior to its IPO this past Friday (March 29). He valued the equity at approximately $16 billion, which includes the IPO cash infusion (he used the rumored amount of $2 billion for that). He pointed out that, once the stock opens for trading, “it is not value that will determine the opening bid, but pricing.” That is, “investors look at what others are paying for similar companies, scaling to some common operating variable.” What actually happened? Lyft started trading at $87.24 per share, more than 20% above its IPO price of $72, and the company raised about $2.3 billion from the listing. The initial pop nudged Lyft’s valuation to $25 billion. Damodaran had said that, if investors priced Lyft at $25 billion, “Uber will be quicker to go public and will expect markets to attach a pricing in excess of $130 billion to it, given that its revenues were more than $11 billion in 2018.”

Extra: Confusion over the price-versus-value phenomenon is at the root of many of the problems that arise in valuation, according to Damodaran. He discusses this in an article, “Damodaran Discusses Value Versus Price and His View of the BV World,” that appears in Business Valuation Update. If you’re a subscriber to BVU or to BVResearch Pro, you have access to the full archive of articles going back 25 years.