Money Rehab with Nicole Lapin - Demystifying Lyft's $2 Billion Typo

Episode Date: February 15, 2024

This week, a simple typo led Lyft's market cap decline of over $2 billion. Nicole explains what went wrong, and why it's a cautionary tale for investors. $ Investors: Robinhood has the only IRA that gives you a 3% boost on every dollar you contribute when you subscribe to Robinhood Gold. Learn more at Robinhood.com/boost  $ Want the kiddos in your life to become money masters? Check out Greenlight, the best money app and debit card for families (and get one month free!): http://greenlight.com/moneyrehab $ Is mental health a resolution for 2024? Get 10% off your first month of therapy with BetterHelp at: http://betterhelp.com/moneyrehab  $ The secret to health and wealth is in your gut. Literally. Get 20% off a 90 day bottle of Just Thrive Probiotic and Just Calm. Try it at: justthrivehealth.com and use promo code: MONEYREHAB. $ Want one-on-one money coaching from Nicole? Book a meeting with her here: intro.co/moneynewsnetwork 

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your

reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Oh, typos. We have all made them in work emails. I know I've said give me a sex instead of give me a sec an awkward amount of times. But normally when it comes to typos,

the worst case scenario is you're kind of embarrassed. But for Lyft, a typo this week led to a market cap decline of over $2 billion. When we did an encore over the weekend of the Money Rehab episode with Lyft co-founder and former president John Zimmer, I had no idea that days later Lyft would be smack dab in the middle of headlines. Here's what happened. We're in the thick of earnings season, the time when public companies report to investors how they did financially over the last quarter. These earnings calls can have a big impact on the company's stock price. Now, if you invest in index funds or ETFs, my favorites, earnings calls won't affect your investments very much because index funds and ETFs shelter you from all of these fluctuations of one given stock. That's the whole point. But if you invest

in specific companies, you will certainly be affected by their earnings calls. And if you're a day trader, then earnings season is your time to shine or not. Buying and selling a company stock around earnings is a popular move for day traders, especially buying and selling stock options, which is a trading move that is essentially betting the price will go in a particular direction after the earnings call. The payoff can be big, but it's far more likely that you will lose money, especially if you're a novice. Now, there are some obvious announcements that can affect a stock price. Like if a company reports lower measures of financial success, the stock price goes down. If a company reports higher, the stock price goes up.

This is what happened to Lyft. Kinda. On Tuesday, the company shared their earnings release that they were expecting one of their profit margins to expand by 500 basis points in 2024. Now, a basis point is a weird finance term that represents 1 100th of a percentage. Why do we have to know this? Well, I'll circle back to it in a second, but for now, let me just translate. When Lyft said they were expecting one of their profit margins to grow by 500 basis points, they were saying they were expecting a 5% growth. So basically, take that decimal point and scooch it over two places and you get 5.00%. The stock market loved this news, and as a result, their stock shot up 60%. But that 5% growth? That was a typo.

Lyft's CFO had to clarify that they were actually only expecting the increase to be 50 basis points, not 500. 50 basis points is 0.5%. That is a very, very different picture than 5%. And that's why we need to know basis points, ladies and gentlemen. The clarification from Lyft's CFO caused the stock to plummet, erasing over $2 billion in market cap. Quick dictionary note here, market cap, short for market capitalization,

provides investors with insights into a company's size relative to other companies, and often investors will use market cap as a measurement of value this crazy story though is such an excellent cautionary tale for trying to play investing games around earnings reports because there are all sorts of factors that will affect stock prices that we can never ever predict if it were not for this typo Lyft would have had an awesome week Lyft actually reported a four percent or 400 basis point increase in revenue compared to the prior year and that stat is actually accurate thankfully if this typo thing would have never happened this good revenue news

alone probably would have gotten them some love from the market and the price would have likely gone up in fact the news cycle recovered from Lyft's whoopsie and the day after the typo news broke, the stock did jump 35% to $16.39. It's the highest close in more than a year. But the market is just so sensitive. Trying to predict it is like trying to predict what I'm going to say when I'm hungry. And I can confirm I am very unpredictable in that state. And even though Lyft had a pretty graceful recovery from this super cringey moment, all I can confirm I am very unpredictable in that state. And even though Lyft had a pretty graceful recovery from this super cringy moment, all I can hear as I think about this story is the exchange from my conversation with John Zimmer. Does it suck more now being a public company? It always sucks.

And there's always chaos. And that's the only thing that's ultimately constant. But for a while, you weren't a public company. So you dealt with that between you and Logan, I suppose, and the rest of the team. But how did that change in the pressure being public? There are moments that suck more. I'd say the fact that you have an external barometer that goes up and down, sometimes with extreme volatility related to external events, as well as events

specific to us, that can be difficult. But if you have a long-term view and you don't let those things get to you too much and you just heads down operate, I think overall, it is a positive. If you kind of blur your eyes on the short-term volatility and think about what the market is telling not only our company, but all of these companies, it might not always be a straight line trend of sharing this feedback. I think overall, it is helpful. And by going public, we were able to raise enough capital that allowed us to not need to raise any more capital ever again. So overall, I'd say it's a positive, although, yes, there are there are shitty or sucky periods. Is it possible to blur your eyes or put your blinders on or whatever?

Like, how often do you check your stock price? It is honestly more frequently than I should. And so I'm probably looking at it every day. Part of it is I need to know what's happening because we're managing a team that looks at it. Hopefully they don't look at it that frequently, but it is part of many of our team members' compensation. And I care very deeply about them having a good experience. compensation. And I care very deeply about them having a good experience. And I care deeply about our ability to retain them. And so it's an important data point for me to understand and something we need to manage. But the blurry eyes comment is more about, okay, there's only like the things we control on it, I want to know about and I want to control. The things that are less in our control, I need to make sure I put more of my energy

and the team's energy into things that will drive long-term value for shareholders and for the overall mission. And how would you suggest or maybe even take this advice yourself to kind of wean yourself away from the compulsion of constantly refreshing and refreshing if you're, let's say, an employee at a public company and a lot of your comp is involved in it, or if you're a new investor, you know, it's very cool to say you're a longtime customer of Lyft. Now you can buy the stock and now you're an investor. But how do you have boundaries? Yeah, I mean, I think I think think just setting a goal for your investment,

just jumping into an investment without a goal is not ideal. So if your goal is over three years to see that stock go up X or Y percent because you believe it's undervalued or believe they can do A, B, or C, that is helpful to have that, okay, in three years, I'd like to see this type of return. And therefore, I really only need to check it literally every year. Now, I doubt people will, because their money's on the line,

it is a normal thing to want to check it. We had one investor who I won't name during our IPO, when they said, just so you know, we're extremely long-term investors. We're probably not going to check your stock for the first few years.

Whatever. No, this was like a certain... Like institutional? Institutional type of capital that actually I do believe they do do that. So for me, it's helpful as like most investors will not do that and most people will not do that. But it's a helpful reminder that this institution has done extremely well because they are not paying attention to the volatility in the near term and that they are focused on their goal,

which is long term value creation. So every person will have to find their balance. We as investors can take a lesson from John. If you're diversified in lower risk investments like S&P 500 index funds and investing smart for the long term, you have to put your blinders on. You can't get off the roller coaster in the middle of the ride. For today's tip, you can take straight to the bank. If you're interested in getting into options trading, which again, I do not recommend for beginner investors, but if you're not going to listen to me and you're looking at options trading for a particular company, you should make sure you're paying close attention to the company's implied volatility around earnings season. If you're on

a trading platform, implied volatility is going to be represented as the word vega. Volatility is a factor that experienced traders can profit from, but it's a variable that can also screw you over if it doesn't go your way. So if the implied volatility is going up, proceed with caution. Or better yet, don't proceed at all. You know my mantra. Index funds and chill. One of the most stressful periods of my life was when I was in credit card debt.

I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a time checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it.

If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bank Corp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply.

Go to Chime.com slash disclosures for details. I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions,

moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make. Thank you.