Uber’s $324-M data breach fine: 3 reasons why it is still a buy

Uber Technologies (NYSE: UBER) has received a setback today after the Dutch Data Protection Authority imposed a $324 million fine on the company.

The fine was imposed because the company failed to protect the personal data of European drivers.

The company was accused of sending the drivers’ data to the US without proper safeguards in place. This transfer of data happened in 2020 and is largely irrelevant in the current context.

As far as UBER is concerned, apart from paying the fine(which it can still challenge in court), it will now have to live with European regulators keeping a close eye on how it uses drivers’ data in future.

According to the Dutch Data Protection Authority, Companies that process personal data must ensure that this data is adequately protected.

The stock has reacted negatively to the news and is down over 2% today. UBER has enjoyed a great bull run in the last one year with its stock up over 64% in one year.

The stock has been relatively flat since the start of the year, which is what makes the current dip in share price a good buying opportunity.

Potential improvement in data infrastructure

Despite the apparent negative news, shareholders can take a positive perspective. The decision will force the company to use better data protection measures.

This investment in its infrastructure, though not very helpful in the short term, will only help the company in its plans.

Uber knows that in today’s world, it needs to handle user data extremely carefully. Companies are already under pressure from consuming for allowing their data to be used to train AI models.

While Uber doesn’t necessarily fall in that category, it cannot afford such mishaps when scrutiny is potentially so high.

The company has reacted to the news and still claims it was compliant with all the legal requirements when the alleged breach happened.

Uber said in a statement:

This flawed decision and extraordinary fine are completely unjustified. Uber’s cross-border data transfer process was compliant with GDPR during 3 years of immense uncertainty between the EU and US. We will appeal and remain confident that common sense will prevail.

Legal battles aside, a strong data infrastructure can help the company strengthen its position in the European market.

Even if it can avoid paying the fine, it cannot afford the implications of a poor data protection system. It could result in the loss of future deals and lagging behind European competitors if action isn’t taken now.

Growth in ads business

UBER’s Q2 results showed promising growth in the mobility business. But its delivery business showed even greater growth.

The delivery segment is not yet profitable, but the company’s performance indicates that is only a matter of time.

Apart from the above two segments, many analysts expect the ads business to be the real driver of future growth.

The revenue run rate at the end of Q2 for the advertising business crossed the $1 billion mark.

The ads business is also helping the mobility business gain more traction, which all adds up at the company’s bottom line.

The company’s click-through rates (CTR) came in at over 2.5% showing exceptional ad-engagement.

For context, the industry average for CTR is less than 1%.

BYD partnership

UBER”s BUY partnership is also going to be an important catalyst. As per the agreement between the two companies, over 100,000 new BYD vehicles will join UBER’s platform across multiple global markets.

Uber has set a goal of 2040 to electrify all of its fleet and this step takes the company closer to reaching that aim on time.

Plans to deploy autonomous vehicles in collaboration with BYD are also in place. BYD already dominates the Chinese market and is aggressively expanding into other markets with every passing quarter.

Uber’s growing business and forward-looking management have put the company on a growth path.

A small blip like the $324 million fine hardly matters in the grand scheme of things, making this dip an ideal buy opportunity.