Uber will cut costs and treat hiring as a ‘privilege’: CEO email

Uber will cut spending and focus on becoming a leaner company to deal with a “seismic shift” in investor sentiment, CEO Dara Khosrowshahi told employees in an email obtained by CNBC.

“After the gains, I spent several days meeting investors in New York and Boston,” Khosrowshahi said in the email, sent late Sunday. “It is clear that the market is undergoing a seismic shift and we need to react accordingly.”

Tech stocks have fallen sharply with the peaks of the coronavirus pandemic, with investors worried about the prospect of an end to the era of cheap money that defined a historic bull market. The Nasdaq Composite posted its fifth straight week of declines last week, its longest streak of weekly losses since 2012.

To address the shift in economic sentiment, Uber will cut marketing and incentives spending and treat hiring as a “privilege,” Khosrowshahi said.

“We have to make sure our unit economy works before we grow,” wrote the Uber boss. “The least efficient spending on marketing and incentives will be withdrawn.”

“We will treat hiring as a privilege and will be deliberate about when and where we will add staff. We will be even stricter on costs overall.”

That makes the carpool giant the latest tech company to warn of a slowdown in hiring. Facebook last week told employees it would halt or slow the pace of adding mid-level or senior positions, while Robinhood is cutting about 9% of its workforce.

Uber will now focus on achieving profitability based on free cash flow rather than adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), Khosrowshahi said.

“We’ve made a lot of progress in terms of profitability, setting 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 must) get there fast.”

Uber’s revenues more than doubled to $6.9 billion in the first quarter as demand for its ride-hailing business rebounded thanks to the easing of Covid restrictions. The company has relied heavily on its Eat food delivery unit to boost sales in the pandemic.

Still, Uber also posted a loss of $5.9 billion for the period, citing a drop in its equity investments.

“We’re serving multi-trillion dollar markets, but market size is irrelevant if it doesn’t translate into profit,” he said.

While investors are “happy” with the growth of Uber Eats coming out of the pandemic, the segment “should be growing even faster,” Khosrowshahi said. He added that the company’s freight business is a growth opportunity that “needs to get even bigger.”

He ended the note with an appeal to the team: “Let’s make it legendary. GO GET IT!”

Read the full letter below:

Uber Team —

After the earnings, I spent several days meeting investors in New York and Boston. It is clear that the market is undergoing a seismic shift and we need to react accordingly. My meetings were super enlightening and I wanted to share some thoughts with you all. As you read them, remember that while investors don’t run the company, they own the company—and they’ve entrusted us with good management. We can set the strategy and make the decisions, but we need to do it in a way that serves our shareholders and their long-term interests.

1. In times of uncertainty, investors seek security. They recognize that we are leaders in scale in our categories, but they don’t know what that’s worth. Channeling 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 the targets have changed. Now it’s about free cash flow. We can (and must) get there fast. There will be companies that put their heads in the sand and take time to turn around. The hard truth is that many of them will not survive. The average Uber employee is just over 30, which means you’ve spent your career in an unprecedented long run. This next period will be different and will require a different approach. Don’t worry, we’re not going to stick our heads in the sand. We will meet in the moment.

2. Investors finally understand that we are a completely different animal from Lyft and other unique ride-sharing platforms. They are incredibly excited about the pace of our innovation, how quickly we are recovering, and the huge opportunities for growth such as Hailables and Taxi. Although they recognize that we are winning, they still don’t know the “size of the prize”. Your questions range from, “Has anyone other than you made money from on-demand shipping?” to “Ridesharing has been around for a while, why isn’t anyone else profitable?” They see the size of TAM but don’t understand how it translates into significant profits and free cash flow. We have to show them.

3. Investors are happy with the growth of Delivery coming out of the pandemic and see that we have performed better than many other winners of the pandemic. I must admit it came as a surprise to me because I firmly believe that Delivery must be growing even faster. The main questions were: “Is Delivery a good deal and why?” and “What happens if we go into recession?” We need to answer these two questions with undeniably strong results.

4. Investors who asked about shipping love shipping. However, less than 10% of them asked about it. Shipping needs to get even higher for investors to recognize its value and love it as much as I do.

5. Finding momentum means making trade-offs. The attractiveness rate for our investments has increased, which means that some initiatives that require substantial capital will be slowed down. We have to make sure our unit economy works before we get big. Less efficient marketing and incentive spend will be withdrawn. We will treat hiring as a privilege and will be deliberate about when and where we add headcount. We will be even stricter on costs in general.

6. We started to demonstrate the Power of Platform, which is a structural advantage that sets us apart. As you know, our strategy here is simple: attract consumers in Mobility or Delivery, encourage them to try each other and tie it all together with an attractive membership program. The advantage here is obvious, but we have to show the value of the platform in real dollar terms. We are serving multi-trillion dollar markets, but market size is irrelevant if it doesn’t translate into profit.

7. We have to do all of this while continuing to provide an excellent and differentiated experience for consumers and winners. Whether someone is booking rides for a summer trip with friends or a new parent who relies on Uber Eats for everything from groceries to dinners to diapers, it’s up to us to make every interaction great. The same goes for those who come to Uber to win. We’ve responded to the pandemic by becoming pay-centric in a way we’ve never been before. We are innovating for the winners, thinking deeply about their experience and putting ourselves in their shoes – literally – driving, delivering and buying ourselves. Because of hundreds of improvements in this area, people who want to earn flexibly are now coming to Uber first, where they benefit from our scale, diversification, and commitment to treating them with respect.

I have never been so sure that we will win. But it will require the best of our DNA: the hustle, grit and innovation that defines the category. In some places, we will have to retreat to run ahead. We will definitely have to do more with less. It won’t be easy, but it will be epic. Remember who we are. We are Uber, a unique company in a generation that became a verb and changed the world forever. Let’s write the next chapter of our story, working together as #OneUber, and let’s make it legendary.

GO GET IT!

Dara

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