Executive Exit is a Distraction for Lyft Stock, but Not a Crisis
One of the most-anticipated initial public offerings, ride-sharing specialist Lyft (NASDAQ:LYFT) hasn’t exactly taken stakeholders on a comfortable trip. After a strong first-day surge, the LYFT stock price quickly turned volatile. Early birds couldn’t wait to get out, sending shares to below $50 in May.
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But since then, Lyft stock has, up until a few days ago, enjoyed a steady turnaround. Between May 13 and June 28, shares gained over 36%. Coincidentally, rival Uber Technologies (NYSE:UBER) also benefited from a strong bullish trend channel over the same period, climbing 19.3%.
Then came mid July, the temperatures rose and the Lyft stock price fell, losing 8.2%.
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So why did the LYFT stock price register a series of red ink during the last week of July? Wall Street didn’t look too kindly on the announcement that Lyft’s COO Jon McNeill is leaving the company.
Although I don’t agree with the overreaction, I can understand why the bears punished Lyft stock. First, McNeill had a very short run at the ride-sharing outfit: about 18 months. I’m almost certain that most investors speculated that something was wrong with the company.
This is a cushy, high-profile and well-paying job that you just don’t leave so abruptly.
Second, before McNeill joined LYFT, he was president of global sales and services at Tesla (NASDAQ:TSLA), which has bleeding executives left and right. And the more we hear about the electric-vehicle maker’s fundamental problems, the more we appreciate that they possibly made the right decision.
By the way, McNeill was one of the first to leave Tesla, making his move prescient. Now, shareholders of Lyft stock want to know: did McNeill see something wrong with LYFT as well?
Don’t Cancel Your Ride with Lyft Stock
Admittedly, the COO leaving is an incredibly distracting news item for the LYFT stock price. And obviously, other investors feel the same way. This week along, the shares have lost nearly 5%.
However, I don’t think that McNeill’s departure is a harbinger of more bad news. Nor do I believe that a hidden or underappreciated vulnerability exists with Lyft stock. Instead, I’d encourage stakeholders to focus on the longer-term narrative.
First, CCN Markets contributor Lawrence Meyers discussed several possible reasons why McNeill left. Aside from some of the pessimistic reasonings, Meyers points out an alternative, positive factor: McNeill, being a young exec, likes to make a quick impact and move on.
Now, this is speculation until we hear directly from either Lyft’s management team or from McNeill himself. But the important takeaway here is that we shouldn’t rush to conclusions.
Second, Lyft stock represents one of the most transformative investments available today. According to the Pew Research Center, the number of Americans who use ride-sharing services have increased dramatically. Moreover, this transition has occurred very quickly.
For example, 36% of American adults today have taken a ride with LYFT or Uber. But in late 2015, only 15% had used such services.
Moreover, this unsurprisingly is a demographic phenomenon. Roughly half of those aged 18 to 29 have used ride-sharing services. Also, people with an annual income of $75,000 or higher are much more likely to use LYFT or Uber than those who earn far less.
And ultimately, this segment in our broader demographic is the relevant class: young, upwardly mobile, and technologically savvy. That’s the driving force behind Lyft stock. McNeill’s departure, while significant, isn’t worth losing sight of this powerful narrative.
LYFT is the Future
The other reason you shouldn’t panic is that LYFT stock isn’t going anywhere. Although the individual stories are quite tragic, ride sharing severely disrupted the taxi industry. As these companies gain prominence, the share of consumers for taxi drivers diminishes.
You know what? That trend will get worse for traditional drivers. At the end of the day, ride-sharing platforms offer a quicker and cheaper way to get around. When used correctly and appropriately, ride sharing is also safer.
That’s because those providing the rides are, at least presently, independent contractors. Their ability to serve people, and thus make a living, depends on their reputation. Provide poor service enough times and you’ll be out of work. This invisible hand of capitalism keeps everyone — including the riders — in check.
Therefore, don’t worry about the executive departure. It’s a loss but it’s not an irreplaceable one. Instead, focus on LYFT’s underlying catalyst to sleep well at night.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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