Uber (NYSE:UBER) shares dropped another 3.3% over the past week, after the company announced some surprising management changes. On June 7, Uber announced COO Barney Harford and CMO Rebecca Messina are leaving the company.
For a company with a huge amount of near-term uncertainty, this latest Uber news was frustrating for investors on many fronts. The timing of the announcement is suspicious at best and yet another reason investors should think twice about buying Uber stock.
It’s probably very difficult for Uber stock investors not to be cynical about the timing of these management departures. The Uber IPO happened just one month ago. The company and the executives involved would likely never admit it, but there’s no way these departures came completely out of the blue within the past month.
Uber and/or the executives leaving knew what they were doing. Announcing a management shuffle right before an IPO creates uncertainty in the market. It might weigh on IPO demand and valuation. Announcing the departures right after the Uber IPO creates too much suspicion that the company was withholding the announcement. Announcing the departures one month after the IPO creates enough plausible deniability that the company/executives won’t get too much heat.
I don’t know if Uber or the executives leaving are to blame. Either way, this announcement was carefully timed. There’s nothing deceptive or fraudulent about the timing of executive departures; however, this was a Public Relations 101 move to make the announcement after the dust settled on the Uber IPO.
You don’t have to take my word for it.
“While the timing of these executives departures so soon after the IPO will raise some eyebrows for investors and add more pressure on [Uber CEO Dara Khosrowshahi and company] in the near-term we believe this move is better to happen sooner rather than later,” Wedbush analyst Daniel Ives says.
“This news comes as a shock to the Street and clearly one of the last things investors wanted to see with the stock currently coming under pressure.”
Uber Stock IPO a Flop
Former Kase Capital hedge fund manager Whitney Tilson recently summed up his thoughts on these IPOs very bluntly. Tilson said he has never participated in a tech IPO and doesn’t plan to any time soon. In fact, Tilson went as far as to say the U.S. market is currently in an IPO bubble.
“Mathematically speaking, they’ve done studies and it’s the single worst place to invest,” Tilson said. “There is no surer way to lose money in any strategy than buying hot IPOs.”
Tilson’s comments echo the sentiment of one of his biggest influences, value investing guru Warren Buffett.
The general idea with these tech IPOs is that they tend to happen when company insiders believe the market value is highest. Value investors know when a stock is at its highest point, it’s time to sell, not buy. IPO investors are buying many of these stocks at the absolute worst time. Not only is the valuation at a relative high point, IPO underwriters and the financial media hype these stocks so hard that the market gets whipped into a frenzy.
As a result, more than a month later, Uber stock IPO investors are underwater on their investment.
Where to Go From Here
The timing of the executive departures is yet another example of how IPO investors often get played as suckers. The question for investors at this point is what to do now.
Management turnover is just one of many unanswered questions for Uber stock investors. Uber seems to be reshaping its corporate structure. The company’s losses have mounted as its business has grown. Growth is slowing.
According to Reuters, eight out of the 10 largest tech IPOs of all time generated a negative overall return of between -25% and -71% in their first year of trading following their IPOs.
As I have said before, long-term Uber stock bulls that believe in the company have a valid thesis. Uber may very well end up being the Amazon (NASDAQ:AMZN) or Netflix (NASDAQ:NFLX) of transportation. However, both Amazon and Netflix have experienced decades of strong stock market returns, nit just one year.
Uber stock investors should consider letting the dust settle for a year before they buy the stock. In a worst-case scenario, Uber gets its act together and investors have to pay a higher price a year from now. They would also be potentially be making a much safer investment than they would be today.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
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