Despite a broad market rally inspired by a dovish Federal Reserve and a U.S.-Mexico deal to avert tariffs, shares of Uber (NYSE:UBER) have faltered. Weighing on Uber stock recently are headlines regarding C-suite departures at the ride-hailing giant. Specifically, chief operating officer Barney Harford and chief marketing officer Rebecca Messina have left the company.
Those are noteworthy departures. Most business experts view the COO position as the second-most important position in the corporate hierarchy, right behind the CEO. Meanwhile, at Uber, the CMO position carries especially important weight, since Uber has historically struggled with branding and marketing. As a result, investors aren’t too happy about the departures. Uber stock has traded down ever since the news broke.
This dip is nothing more than a buying opportunity. Zooming out, these C-suite departures don’t mean much. The core growth narrative remains healthy. Plus, the execs leaving won’t negatively impact this sales environment.
Indeed, these departures may actually provide a medium-term tailwind. Controversy surrounded Harford’s tenure. And let’s face it: Uber could use new branding and marketing.
Thus, the consensus framework regarding recent Uber news is all wrong. Not only can shares survive the departures, they might actually thrive.
The Departures Won’t Hurt the Growth Narrative
The big picture here is pretty simple. Uber is king in the global ride-sharing and online food-delivery markets. Both of these segments are significantly under-penetrated today. They will consequently grow by leaps and bounds over the next several years as the sharing economy gains traction. As they do grow, Uber will grow too. The company has the necessary liquidity, size, reach, and technology advantages to maintain leadership position.
As these new growth markets become more mainstream, and Uber gains more size, the organization can lever more options. For instance, lower promotion volume and scale will drive healthy margin expansion. What are worrying losses today will transition to huge profits tomorrow. That translates to a higher UBER stock price in the long run.
Nothing about this long-term growth narrative changes in a negative way because of the COO and CMO departures.
Consequently, near-term weakness related to these departures is a short-term phenomenon that will pass. Inevitably, longer-term strength will replace the pessimism.
Departures Could Actually Be a Good Thing
As I suggested earlier, the Uber news regarding the executive-level vacancies could spark positive developments.
With respect to Harford, he was a relatively new guy. The ride-sharing firm brought him in to help with the initial public offering. Additionally, Harford imposed controversial distractions.
Back in 2018, he was caught saying racially insensitive things on a conference call with colleagues. Also, his style of work reportedly didn’t match well with the rest of the organization. As such, him leaving could clear the air, relieving many of disruptive tensions. Further, the CEO is broadly taking over Harford’s duties, and a more hands-on CEO is rarely a bad thing.
Meanwhile, on the CMO front, Uber has struggled with branding and marketing for a long time. The brand evokes an all-business, all-the-time vibe. This starkly contrasts with the more friendly and welcoming environment which the Lyft (NASDAQ:LYFT) brand evokes. As it turns out, consumers prefer the latter approach. Naturally, Lyft has gained share on Uber over the past few years.
Broadly, Uber’s failure to establish a more consumer-friendly brand — especially after the Uber IPO — may be this company’s biggest shortcoming today. A change in the marketing department will ultimately fix this branding problem. Later, the company can focus on preserving market share, and eventually extend dominance in the sharing economy.
Bottom Line on Uber Stock
Buy Uber stock on recent weakness related to the COO and CMO exiting the company. Those departures are merely transient noise. If anything, they provide potential tailwinds in the intermediate term. Stay patient, and the rewards will arrive sure enough.
As of this writing, Luke Lango was long UBER and LYFT.
