Uber it will cut spending and focus on becoming a more agile business to address 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, which was sent late Sunday. “It is clear that the market is undergoing a seismic shift and we must react accordingly.”
Tech stocks have plunged sharply from the heights of the coronavirus pandemic, as investors fret over 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 weekly losing streak since 2012.
To address the change in economic sentiment, Uber will cut spending on marketing and incentives and treat hiring as a “privilege,” Khosrowshahi said.
“We have to make sure our unit economics are working before we grow,” the Uber boss wrote. “Less efficient marketing and incentive spending will retire.”
“We will treat hiring as a privilege and be deliberate about when and where we add staff. We will be even tougher on costs across the board.”
It makes the ride-sharing giant the latest tech company to warn of a hiring slowdown. Facebook last week told staff that stop or slow the pace of adding mid-level or higher roles, while Robinhood is cut 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 have made a lot of progress in terms of profitability, setting a target of $5 billion in adjusted EBITDA in 2024, but the goal posts have changed,” Khosrowshahi said. “Now it’s about free cash flow. We can (and should) get there fast.”
Uber’s revenue more than doubled to $6.9bn in the first quarter as demand for its ride business rebounded on the easing of Covid restrictions. The company has relied heavily on its Eat food delivery unit to drive sales during the pandemic.
Still, Uber also posted a $5.9 billion loss in the period, citing a drop in its capital investments.
“We are serving multi-billion dollar markets, but the size of the market is irrelevant if it doesn’t translate into profit,” he said.
While investors are “happy” with Uber Eats’ growth in the wake of the pandemic, the segment “should grow even faster,” Khosrowshahi said. He added that the company’s cargo business is a growth opportunity that “must grow even more.”
He ended the note with a call to staff: “Let’s make it legendary. LET’S GET IT!”
Read the full letter below:
Uber Team-
After the earnings, I spent several days meeting with investors in New York and Boston. It is clear that the market is undergoing a seismic shift and we must react accordingly. My meetings were very enlightening and I wanted to share some thoughts with all of you. As you read them, keep in mind that while the investors do not run the company, they own the company and have entrusted us to manage it well. We have the opportunity to set the strategy and make the decisions, but we must do it 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 scaled leader in our categories, but they don’t know how much that is worth. Channeling Jerry Maguire, we need to show them the money. We have made tremendous progress in terms of profitability, setting a target of $5 billion in adjusted EBITDA in 2024, but the goals have changed. Now it’s about free cash flow. We can (and must) get there fast. There will be companies that sink their heads in the sand and take time to pivot. The harsh truth is that many of them will not survive. The average employee at Uber is barely over 30 years old, which means he has spent his career on an unprecedented and long bull run. This next period will be different and will require a different approach. Rest assured, we are not going to bury our heads in the sand. We will meet the moment.
2. Investors are finally understanding that we are a completely different animal than Lyft and other ride-sharing platforms. They are incredibly excited about the pace of our innovation, how fast we are bouncing back, and the tremendous growth opportunities like Hailables and Taxi. While they acknowledge that we are winning, they still don’t know the “size of the prize.” Their questions run the gamut from “Has anyone else made money from on-demand transportation?” to “Ridesharing has been around for a while, why isn’t anyone else profitable?” They see how big TAM is, they just don’t understand how that translates into significant profits and free cash flow. We have to show them.
3. Investors are happy with Delivery’s growth in the wake of the pandemic and see that we have outperformed many other pandemic winners. I must admit that I was a bit surprised because I strongly believe that Delivery should grow even faster. The main questions were: “Is delivery a good business and why?” and “What if we go into a recession?” We need to answer both questions with undeniably strong results.
4. Investors who asked about Freight love Freight. However, less than 10% of them asked about it. Freight transport needs to grow even more for investors to recognize its value and love it as much as I do.
5. Meeting the moment means making concessions. The hurdle rate of return on our investments has increased, and that means some initiatives that require substantial capital will slow down. We have to make sure our unit economy is working before we go big. Less efficient marketing and incentive spending will be removed. We will treat hiring as a privilege and be deliberate about when and where we add staff. We will be even tougher on costs across the board.
6. We have begun to demonstrate 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 either Mobility or Delivery, encourage them to try the 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 dollars. We are serving multi-billion dollar markets, but the size of the market is irrelevant if it doesn’t translate into profit.
7. We must do all of the above while continuing to deliver an outstanding and differentiated experience for consumers and earners. 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 dinner to diapers, it’s up to us to make every interaction great. The same goes for anyone who comes to Uber to earn. We responded to the pandemic by focusing on revenue like never before. We’re innovating for wage earners, thinking deeply about their experience and putting ourselves in their shoes by literally driving, delivering and shopping ourselves. Because of hundreds of improvements in this area, people who want to earn flexibly now turn to Uber first, where they benefit from our scale, diversification, and commitment to treating them with respect.
I have never been more certain that we will win. But it’s going to demand the best of our DNA: hustle, determination and category-defining innovation. In some places we will have to go back to run forward. We will absolutely 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 became a verb and changed the world forever. Let’s write the next chapter of our story, working together as #OneUber, and make it legendary.
LET’S GET IT!
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