Uber to cut costs, treat hiring as a ‘privilege’: CEO email
Uber will cut spending and focus on becoming a smaller company to address the “seismic shift” in investor sentiment, CEO Dara Khosrowshahi told employees in an email obtained by CNBC.
“After the earnings, I spent several days interviewing investors in New York and Boston,” Khosrowshahi said in the email sent late Sunday. “The market is clearly going through a seismic shift and we need to respond accordingly.”
Technology stocks have retreated sharply from the heights of the coronavirus pandemic, as investors fear the prospect of the end of the era of cheap money that defined the historic bull market. The Nasdaq Composite recorded its fifth consecutive week of declines last week, the longest streak of weekly losses since 2012.
To address the shift in economic sentiment, Khosrowshahi said, Uber will cut spending on marketing and incentives and treat hiring as a “privilege.”
“We have to make sure our unit economics works before we get big,” the Uber chief wrote. “The least efficient marketing and incentive spending will be withdrawn.”
“We will treat hiring as a privilege and be thoughtful about when and where to add headcount. And we’ll be tighter about costs across the board.”
It makes the car-reservation giant the latest tech company to warn of a hiring slowdown. Facebook told employees last week that it will halt or slow the pace of adding middle or senior roles, while Robinhood is cutting about 9% of its workforce.
Khosrowshahi said Uber will now focus on achieving profitability based on free cash flow rather than adjusted EBITDA (earnings before interest, tax, depreciation and amortization).
“We’ve made a lot of progress in terms of profitability, and we’ve set a target of $5 billion in adjusted EBITDA in 2024, but the targets have changed,” Khosrowshahi said. “Now it’s about free cash flow. We can (and should) get there quickly.”
Uber’s revenue more than doubled to $6.9 billion in the first quarter, as demand for its transportation business rebounded thanks to the easing of Covid restrictions. The company has relied heavily on its food delivery unit to drive sales amid the pandemic.
However, Uber also recorded a loss of $5.9 billion in the period, due to a decline in its equity investment.
“We serve multi-billion dollar markets, but the size of the market will be irrelevant if it does not translate into profit,” he said.
Although investors are “happy” with the growth of Uber Eats emerging from the pandemic, Khosrowshahi said, the segment “should grow faster.” He added that the company’s shipping business is a growth opportunity that “needs to scale up”.
He ended the note with a rallying call to the staff: “Let’s make it legendary. Go ahead and get it!”
Read the full message below:
Uber team –
After the earnings, I spent several days interviewing investors in New York and Boston. It is clear that the market is undergoing a seismic shift and we need to act accordingly. My meetings were very straightforward and I wanted to share some thoughts with all of you. As you read it, please keep in mind that while the investors don’t run the company, they own the company – and they entrust us with running it well. We have to strategize and make decisions, but we need to do so in a way that ultimately serves our shareholders and their long-term interests.
1. In times of uncertainty, investors look for safety. They realize we are the tiered leader in our categories, but they don’t know the value of that. Directing Jerry Maguire, we need to show them the money. We’ve made a lot of progress in terms of profitability, setting a target of $5 billion in adjusted EBITDA in 2024, but goals have changed. Now it comes to free cash flow. We can (and should) get there quickly. There will be companies that put their heads in the sand and are slow to pivot. The hard truth is that many of them will not survive. The average employee at Uber is barely over 30 years old, which means you’ve spent your career in a long and unprecedented race. The coming period will be different, and it will require a different approach. Rest assured, we won’t put our heads in the sand. We’ll meet for a moment.
2. Investors finally understand that we are a completely different animal than Lyft and other ride-only platforms. They are incredibly excited about the pace of our innovations, how quickly we can recover, and the huge growth opportunities like Hailables and Taxi. While they admit we won, they don’t yet know “the size of the prize”. Their questions revolve around the whole series of “Does anyone else but you make money on on-demand transportation?” To “Ridesharing has been around for a while, why isn’t anyone else winning?” They see the size of the TAM, they don’t understand how that translates into big profits and free cash flow. We have to show them.
3. Investors are pleased with the delivery growth resulting from the pandemic and see that we have done better than many other pandemic winners. I must admit that came as a surprise to me because I firmly believe that delivery should grow faster. The key questions were: “Is delivery a good business and why?” and “What happens if we enter a recession?” We need to answer these two questions with undeniably strong results.
4. Investors who ask about shipping love shipping. However, less than 10% of them asked about it. Shipping has to get bigger so investors realize its value and love it as much as I do.
5. Meeting the moment means making trade-offs. The hurdle rate for our investments has risen, and this means that some initiatives that require significant capital will slow down. We have to make sure the economics of our unit is working before we can be very successful. Less efficient marketing and incentive spending will be withdrawn. We will treat hiring as a privilege and will be thoughtful about when and where to add headcount. We’ll be tighter about costs across the board.
6. We are beginning to demonstrate the strength of the platform, a structural feature that sets us apart. As you know, our strategy here is simple: get consumers on the go or hook up, encourage them to try one another, and tie everything together with a compelling membership program. The advantage here is obvious, but we have to show the value of the platform in real dollar terms. We serve multi-trillion dollar markets, but the market size will be irrelevant if it doesn’t translate into profit.
7. We must do all of the above while continuing to provide a premium experience for consumers and income earners. Whether someone is booking summer trips with friends, or a new parent who relies on Uber Eats for everything from groceries to dinner and diapers, we have to make every interaction excellent. The same goes for anyone who comes to Uber to make money. We’ve responded to the pandemic by focusing on income in a way we haven’t before. We innovate for income earners, think deeply about their experience, and put ourselves in their shoes – literally – by driving, delivering and shopping ourselves. Due to hundreds of improvements in this area, people who want to earn flexibly now come to Uber first, taking advantage of our scale, diversity and our commitment to treating them with respect.
I wasn’t more confident that we would win. But it will require the best of our DNA: innovation that defines buzz, grit and class. In some places, we’ll have to back off in order to run forward. We will certainly have to do more with less. This won’t be easy, but it will be epic. Remember who we are. We are Uber, a once-in-a-generation company that truly became and changed the world forever. Let’s write the next chapter in our story, working together as #OneUber, and making it legendary.
Go get it!