Uber wants to cut spending and focus on becoming a slimmer business to address a “seismic shift” in investor sentiment, CEO Dara Khosrowshahi told CNBC employees in an email.
“After earnings, I spent several days meeting investors in New York and Boston,” Khosrowshahi said in the email, which was sent out late Sunday. “It is clear that the market is experiencing a seismic shift and we must respond accordingly.”
Technology stocks have plunged sharply from the peaks of the coronavirus pandemic, as investors worry about the prospect of an end to the era of cheap money that defined a historic beef market. The Nasdaq Composite recorded its fifth consecutive week of decline last week, its longest weekly losing streak since 201[ads1]2.
To meet the shift in financial sentiment, Uber will cut marketing spending and incentives and treat employment as a “privilege,” Khosrowshahi said.
“We need to make sure our unit economy works before we go big,” the Uber boss wrote. “The least effective marketing and incentive expenses will be deducted.”
“We want to treat employment as a privilege and be aware of when and where we add the number of employees. We want to be even more hardcore when it comes to costs across the board.”
This makes the car giant the latest technology company to warn of a decline in employment. Facebook told employees last week that they would stop or slow down the pace of adding mid-level or senior roles, while Robinhood cuts around 9% of the workforce.
Uber will now focus on achieving profitability on a free cash flow basis instead of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), Khosrowshahi said.
“We have made a lot of progress in terms of profitability, and set a $ 5 billion target in adjusted EBITDA by 2024, but the targets have changed,” said Khosrowshahi. “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 the touring business picked up again thanks to a relaxation of Covid restrictions. The company has been heavily dependent on the Eat food delivery unit to increase sales in the pandemic.
Nevertheless, Uber also lost $ 5.9 billion during the period, citing a decline in equity investment.
“We serve multi-trillion-dollar markets, but the market size is irrelevant if it does not make a profit,” he said.
Although investors are “pleased” with the growth of Uber Eats emerging from the pandemic, the segment should “grow even faster,” Khosrowshahi said. He added that the company’s freight business is a growth opportunity that “must become even greater.”
He ended the note with a call to the staff: “let’s make it legendary. GO GET IT!”
Read the full letter below:
Team Uber –
After earning, I spent several days meeting investors in New York and Boston. It is clear that the market is experiencing a seismic shift and we must react accordingly. My meetings were very clarifying and I wanted to share some thoughts with you all. As you read them, please keep in mind that even if investors do not run the company, they own the company – and they have trusted us to run it well. We have to lay out 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 look for security. They recognize that we are the scaled leader in our categories, but they do not know how much it is worth. When we channel Jerry Maguire, we have to show them the money. We have made a lot of progress in terms of profitability, and set a goal of 5 billion dollars in adjusted EBITDA in 2024, but the goals have changed. Now it’s about 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 swing. The tough truth is that many of them will not survive. The average employee at Uber is just over 30, which means that you have spent your career in a long and unique bull run. This next period will be different, and it will require a different approach. Rest assured, we’re not going to stick our heads in the sand. We will meet the moment.
Investors finally understand that we are a completely different animal than Lyft and other equestrian sharing platforms. They are incredibly excited about the pace of our innovation, how fast we are coming back, and huge growth opportunities such as Hailables and Taxi. Although they acknowledge that we are winning, they do not yet know the “size of the prize.” Their questions are based on: “Has anyone other than you made money on order transport?” to “Ridesharing has been around for a while, why is no one else profitable?” They see how big TAM is, they just do not understand how it can lead to significant profits and free cash flow. We have to show them.
Investors are happy that Delivery has come out of the pandemic and see that we have performed better than many other pandemic winners. I have to admit that it was a bit of a surprise to me because I am convinced that delivery should grow even faster. The primary questions were: “Is delivery a good business and why?” and “What happens if we enter a recession?” We must 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. Shipping needs to be even greater so that investors recognize the value and love it as much as I do.
5. Meeting the moment means making trade-offs. The obstacle rate for our investments has become higher, and this means that some initiatives that require significant capital will be slowed down. We must make sure that our unit economy works before we go big. The least effective marketing and incentive expenses will be deducted. We will treat employment as a privilege and be aware of when and where we add the number of employees. We want to be even more hardcore when it comes to 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 is simple here: bring in consumers on either 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 must show the value of the platform in real dollars. We serve multi-trillion dollar markets, but the market size is irrelevant if it does not make a profit.
7. We must do all of the above while continuing to deliver a unique and differentiated experience for consumers and revenue. Whether someone is booking trips for a summer trip with friends, or a new parent who relies on Uber Eats for everything from groceries to dinner and diapers, it’s up to us to make each interaction excellent. The same goes for anyone who comes to Uber to earn. We responded to the pandemic by becoming revenue-centric in a way we had never been before. We innovate for servants, think deeply about their experience and put ourselves in their place – literally – by driving, delivering and shopping ourselves. Due to hundreds of improvements in this area, people who want to earn flexibly now come first to Uber, where they take advantage of our scale, diversification and commitment to treat them with respect.
I have never been more confident that we will win. But it will require the best of our DNA: hustle and bustle, and category-defining innovation. In some places we have to retreat to ask further questions. We absolutely must do more with less. This will not be easy, but it will be epic. Remember who we are. We are Uber, a once-a-generation company that became a verb and changed the world forever. Let’s write the next chapter in our story, work together as #OneUber, and let’s make it legendary.
GO AND GET IT!