Uber will cut spending and focus on becoming a leaner company to weather a “seismic shift” in investor sentiment, CEO Dara Khosrowshahi told employees in an email obtained by CNBC.
“After the earnings, I spent several days meeting with investors in New York and Boston,” Khosrowshahi said in the email sent Sunday evening. “Clearly the market is experiencing a seismic shift and we need to respond accordingly.”
Tech stocks have fallen sharply from coronavirus pandemic highs as investors fret over the prospect of the end of the era of cheap money that defined a historic bull market. The Nasdaq Composite recorded its fifth straight week of declines last week, its longest weekly losing streak since 2012.
To address the changing economic climate, Uber will reduce marketing and incentive spending and treat hiring as a “privilege”, Khosrowshahi said.
“We need to make sure our unit economy works before we get big,” the Uber boss wrote. “The least effective marketing and incentive spend will be removed.”
“We will treat hiring as a privilege and deliberately determine when and where we add staff. We will be even more adamant about costs at all levels.”
That makes the ride-sharing giant the latest tech company to warn of a slowdown in hiring. Facebook announced to staff last week that it would stop or slow the pace of adding mid-level or higher positions, while Robinhood is cutting about 9% of its workforce.
Uber will now focus on profitability based on free cash flow rather than adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), Khosrowshahi said.
“We’ve made a ton of progress on 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 should) get there quickly.”
Uber’s revenue more than doubled to $6.9 billion in the first quarter as demand for its rides business rebounded on an easing of Covid restrictions. The company has relied heavily on its Eat food delivery unit to drive sales during the pandemic.
Yet Uber also posted a loss of $5.9 billion during the period, citing a drop in its equity investments.
“We serve multi-trillion dollar markets, but market size doesn’t matter if it doesn’t translate into profits,” he said.
Although investors are “pleased” with Uber Eats’ growth following the pandemic, the segment “is expected to grow 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 a rallying call to the staff: “Let’s make it legendary. GO!”
Read the full letter below:
The Uber Team —
After my winnings, I spent several days meeting with investors in New York and Boston. Clearly the market is experiencing a seismic shift and we need to respond accordingly. My meetings have been super clarifying and I wanted to share some thoughts with you all. As you read them, please keep in mind that although the investors do not run the business, they do own it and have entrusted us with the proper management of it. We can set the strategy and make the decisions, but we must do so in a way that ultimately serves our shareholders and their long-term interests.
1. In times of uncertainty, investors seek security. They recognize that we are the scale leader in our categories, but they don’t know how much it’s worth. Channeling Jerry Maguire, we have to show them the money. We’ve made a ton of progress on profitability, setting a target of $5 billion in adjusted EBITDA in 2024, but the targets have changed. Now it’s free cash flow. We can (and must) get there quickly. There will be companies that stick their heads in the sand and are slow to pivot. The harsh 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 bull 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’ll meet right now.
2. Investors finally understand that we are a completely different animal to Lyft and other ride-sharing platforms. They are incredibly excited about the pace of our innovation, how quickly we rebound, and the huge growth opportunities like Hailables and Taxi. While they recognize that we are winning, they don’t yet know the “size of the prize”. Their questions range from, “Has anyone else made money in on-demand transportation?” to “Carpooling has been around for a while, why isn’t anyone else profitable?” They see how big the TAM is, they just don’t understand how it translates to big profits and free cash flow. We have to show them.
3. Investors are pleased with Delivery’s growth following the pandemic and see that we have outperformed many other pandemic winners. I have to admit, this came as a bit of a surprise to me as I strongly believe Delivery should grow even faster. The main questions were: “Is shipping a good deal and why?” and “What happens if we go into a recession?” We need to answer both of these questions with undeniably strong results.
4. Investors who asked about freight love freight. However, less than 10% of them asked about it. Freight needs to get even bigger for investors to recognize its value and love it as much as I do.
5. Meeting the moment means compromising. The hurdle rate on our investments has increased, which means that some capital-intensive initiatives will be slowed. We need to make sure our unit economy is working before we go any further. The least effective marketing and incentive spend will be removed. We will treat hiring as a privilege and deliberately determine when and where we add staff. We will be even more intransigent on costs at all levels.
6. We started demonstrating the power of the platform, which is a structural advantage that sets us apart. As you know, our strategy here is simple: attract consumers to Mobility or Delivery, encourage them to try the other, and tie it all together with a compelling membership program. The advantage here is obvious, but we need to show the value of the platform in real dollars. We serve multi-trillion dollar markets, but market size doesn’t matter if it doesn’t translate into profits.
7. We must do all of the above while continuing to deliver an exceptional and differentiated experience for consumers and employees. Whether someone is booking rides for a summer trip with friends or a new parent relies on Uber Eats for everything from groceries to dinner and diapers, it’s up to us to make every interaction great. The same goes for anyone who comes to Uber to make money. We’ve responded to the pandemic by becoming revenue-centric in a way we’ve never been before. We innovate for employees, think deeply about their experience and put ourselves in their shoes, literally, by driving, delivering and buying ourselves. Due to hundreds of improvements in this area, people who want to earn money flexibly now turn to Uber first, where they benefit from our scale, diversity and commitment to treating them with respect. .
I have never been so sure that we will win. But it’s going to require the best of our DNA: restlessness, courage and category-defining innovation. In some places we will have to back up to sprint ahead. It will absolutely be necessary to do more with less. It won’t be easy, but it will be epic. Remember who we are. We are Uber, a one-of-a-kind company that became a verb and changed the world forever. Let’s write the next chapter in our story, working together as #OneUber, and make it legendary.
GO AND GET IT!
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