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Uber to chop down on costs, treat hiring as a ‘privilege’: CEO email

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Uber posted a $5.9 billion loss in the primary quarter of 2022.

Philip Pacheco | AFP via Getty Images

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

“After earnings, I spent several days meeting investors in Recent York and Boston,” Khosrowshahi said in the e-mail, which was sent out late Sunday. “It’s clear that the market is experiencing a seismic shift and we want to react accordingly.”

Tech stocks have plunged sharply from the highs of the coronavirus pandemic, as investors fret over the prospect of an end to the era of low cost money that defined a historic bull market. The Nasdaq Composite recorded its fifth consecutive week of declines last week, its longest weekly losing streak since 2012.

To handle the shift in economic sentiment, the ride-hailing firm will slash spending on marketing and incentives and treat hiring as a “privilege,” Khosrowshahi said.

“Now we have to ensure that our unit economics work before we go big,” the Uber boss wrote. “The least efficient marketing and incentive spend will likely be pulled back.”

“We’ll treat hiring as a privilege and be deliberate about when and where we add headcount,” he added. “We will likely be much more hardcore about costs across the board.”

It makes Uber the newest tech company to warn of a slowdown in hiring. Facebook parent company Meta last week told staff it could stop or slow the pace of adding midlevel or senior roles, while Robinhood is cutting about 9% of its workforce.

Uber shares sank about 2.5% in U.S. premarket trading. The stock is down greater than 40% year-to-date.

Uber will now concentrate on achieving profitability on a free money flow basis moderately than adjusted earnings before interest, taxes, depreciation, and amortization, Khosrowshahi said.

“Now we have made a ton of progress when it comes to profitability, setting a goal for $5 billion in Adjusted EBITDA in 2024, however the goalposts have modified,” Khosrowshahi said. “Now it’s about free money flow. We will (and will) get there fast.”

Uber’s revenues greater than doubled to $6.9 billion in the primary quarter, as demand for its rides business rebounded due to a calming of Covid restrictions. The corporate has relied heavily on its Eat food delivery unit to spice up sales within the pandemic.

Still, Uber also posted a $5.9 billion loss within the period, citing a slump 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.

Though investors are “completely satisfied” with the expansion of Uber Eats coming out of the pandemic, the segment “needs to be growing even faster,” Khosrowshahi said. He added the corporate’s freight business is a growth opportunity that “must get even larger.”

He ended the note with a rallying call to staff: “let’s make it legendary. GO GET IT!”

Uber’s cost-cutting strategy highlights a divergence from Lyft, its most important competitor within the U.S. and Canada. Lyft said Wednesday it could increase spending to draw more drivers as a result of surging gas prices.

Each firms have faced a shortage of drivers as demand for taxis has bounced back. But Uber says its driver base is at a post-pandemic high, meaning the firm won’t need to speculate an important deal into luring more drivers to the platform.

Read the total letter from Uber CEO Dara Khosrowshahi below:

Team Uber —

After earnings, I spent several days meeting investors in Recent York and Boston. It’s clear that the market is experiencing a seismic shift and we want to react accordingly. My meetings were super clarifying and I desired to share some thoughts with all of you. As you read them, please keep in mind that while investors don’t run the corporate, they do own the corporate—and so they’ve entrusted us with running it well. We get to set the strategy and make the selections, but we want to accomplish that in a way that ultimately serves our shareholders and their long run interests.

1. In times of uncertainty, investors search for safety. They recognize that we’re the scaled leader in our categories, but they do not understand how much that is price. Channeling Jerry Maguire, we want to point out them the cash. Now we have made a ton of progress when it comes to profitability, setting a goal for $5 billion in Adjusted EBITDA in 2024, however the goalposts have modified. Now it’s about free money flow. We will (and will) get there fast. There will likely be firms that put their heads within the sand and are slow to pivot. The tough truth is that lots of them won’t survive. The typical worker at Uber is barely over 30, which implies you’ve got spent your profession in a protracted and unprecedented bull run. This next period will likely be different, and it should require a distinct approach. Rest assured, we aren’t going to place our heads within the sand. We’ll meet the moment.

2. Investors finally understand that we’re a totally different animal than Lyft and other ridesharing-only platforms. They’re incredibly excited in regards to the pace of our innovation, how quickly we’re rebounding, and large growth opportunities like Hailables and Taxi. While they acknowledge that we’re winning, they do not yet know the “size of the prize.” Their questions run the gamut from, “Has anyone aside from you made money in on-demand transport?” to “Ridesharing has been around for awhile, why is not anyone else profitable?” They see how big the TAM is, they only don’t understand how that translates into significant profits and free money flow. Now we have to point out them.

3. Investors are completely satisfied with Delivery’s growth coming out of the pandemic and see that we’ve performed higher than many other pandemic winners. I have to admit that was a little bit of a surprise for me because I firmly consider Delivery needs to be growing even faster. The first questions were: “Is Delivery an excellent business and why?” and “What happens if we enter a recession?” We’d like to reply each of those questions with undeniably strong results.

4. Investors who asked about Freight love Freight. Nevertheless, lower than 10% of them asked about it. Freight must get even larger in order that investors recognize its value and adore it as much as I do.

5. Meeting the moment means making trade-offs. The hurdle rate for our investments has gotten higher, and that signifies that some initiatives that require substantial capital will likely be slowed. Now we have to ensure that our unit economics work before we go big. The least efficient marketing and incentive spend will likely be pulled back. We’ll treat hiring as a privilege and be deliberate about when and where we add headcount. We will likely be much more hardcore about costs across the board.

6. Now we have began to show the Power of the Platform, which is a structural advantage that sets us apart. As you understand, our strategy here is easy: usher in consumers on either Mobility or Delivery, encourage them to try the opposite, and tie the whole lot along with a compelling membership program. The advantage here is clear, but we’ve to point out the worth of the platform in real dollar terms. We’re serving multi-trillion dollar markets, but market size is irrelevant if it doesn’t translate into profit.

7. Now we have to do the entire above while continuing to deliver an impressive and differentiated experience for consumers and earners. Whether someone is booking rides for a summer trip with friends, or a latest parent counting on Uber Eats for the whole lot from groceries to dinner and diapers, it’s on us to make every interaction excellent. The identical goes for anyone who involves Uber to earn. We responded to the pandemic by becoming earner-centric in a way we would never been before. We’re innovating for earners, pondering deeply about their experience, and putting ourselves of their shoes—literally—by driving, delivering and shopping ourselves. Due to a whole lot of improvements on this area, individuals who need to earn flexibly at the moment are coming to Uber first, where they profit from our scale, diversification, and commitment to treating them with respect.

I’ve never been more certain that we’ll win. But it is going to demand the very best of our DNA: hustle, grit, and category-defining innovation. In some places we’ll need to pull back to sprint ahead. We’ll absolutely need to do more with less. This can not be easy, but it should be epic. Remember who we’re. We’re Uber, a once-in-a-generation company that became a verb and altered the world ceaselessly. Let’s write the subsequent chapter of our story, working together as #OneUber, and let’s make it legendary.  

GO GET IT!

Dara

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