Uber will cut spending and focus on becoming a smaller company to address “seismic changes” in investor sentiment, CEO Dara Khosrowshahi told employees in an email to CNBC.
“After earning, I spent a few days meeting with investors in New York and Boston,” Khosrowshahi said in an email, sent late Sunday. “It is clear that the market is experiencing a seismic shift and we need to react accordingly.”
Technology stocks have fallen sharply since the highs of the coronavirus pandemic, while investors are worried about the possibility of an end to the era of cheap money that has defined the historic bull market. The Nasdaq Composite recorded its fifth consecutive week of decline last week, its longest weekly loss streak since 2012.
To address the change in economic sentiment, Uber will reduce spending on marketing and incentives and treat employment as a “privilege,” Khosrowshahi said.
“We need to make sure our unit economy is functioning before we move into the big ones,” the Uber chief wrote. “The least effective spending on marketing and incentives will be withdrawn.”
“We will treat employment as a privilege and we will think carefully about when and where we will add staff. We will be even more stubborn about costs as a whole.”
This makes the car driving diva the latest technology company to warn of a slowdown in employment. Facebook last week told staff it would stop or slow down the addition of middle or senior roles, while Robinhood cuts about 9% of its workforce.
Uber will now focus on achieving free cash flow profitability 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 tripods have changed,” Khosrowshahi said. “Now it’s about the free flow of money. 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 driving business recovered thanks to the easing of Covid’s restrictions. The company relied heavily on its Eat food delivery unit to increase sales in the pandemic.
However, Uber also recorded a loss of $ 5.9 billion during the period, citing a drop in its capital investment.
“We serve markets worth billions of dollars, but the size of the market is irrelevant if it does not turn into a profit,” he said.
Although investors are “satisfied” with the growth of Uber Eats coming out of the pandemic, the segment should “grow even faster,” Khosrowshahi said. He added that the company’s freight business is an opportunity for growth that “must become even greater”.
He ended the note with an assembly call to staff: “Let’s make it legendary. GO TAKE IT!
Read the full letter below:
Tim Uber –
After earning, I spent a few days meeting with investors in New York and Boston. It is clear that the market is experiencing a seismic shift and we need to respond to that. My meetings were great clarifying and I wanted to share some thoughts with all of you. As you read them, keep in mind that while investors don’t run a company, they own the company – and they’ve trusted us to run it well. We need to set a strategy and make decisions, but we need to 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 leader in their categories, but they do not know how much it is worth. By directing Jerry Maguire, we need to show them the money. We have made great progress in terms of profitability, setting a target of $ 5 billion in adjusted EBITDA in 2024, but the targets have changed. Now it is about the free flow of money. We can (and should) get there quickly. There will be companies that put their heads in the sand and that turn slowly. The hard truth is that many of them will not survive. The average Uber employee is barely over 30, which means you’ve spent your career in a long and unprecedented bull race. This next period will be different and will require a different approach. Rest assured, we will not bury our heads in the sand. We’ll meet in a moment.
2. Investors finally understand that we are a completely different animal from Lyft and other platforms just for sharing the ride. They are incredibly excited about the pace of our innovation, how fast we are recovering and the huge growth opportunities such as Hailables and Taxi. Although they admit that we are winning, they still do not know the “size of the prize”. Their questions range from, “Has anyone other than you made money in on-demand transportation?” on “Ridesharing has been around for a while, why isn’t anyone else profitable?” They see how much TAM is, they just don’t understand how it turns into a significant profit and free flow of money. We have to show them.
3. Investors are pleased with the growth of Delivery coming out of the pandemic and see that we have had a better performance than many other pandemic winners. I have to admit it was a bit of a surprise for me as I firmly believe that Shipping should grow even faster. The primary questions were, “Is delivery a good deal and why?” and “What happens if we go into recession?” We need to answer both of these questions with undeniably strong results.
4. Investors who have asked about Freight love Freight. However, less than 10% of them wondered about it. Freight turnover needs to get even bigger for investors to recognize its value and love it as much as I do.
5. Satisfying the moment means making compromises. The barrier rate for our investments has increased, which means that some initiatives that require significant capital will be slowed down. We need to make sure that our economic unit is functioning before we go big. The least effective marketing and incentive spending will be withdrawn. We will treat employment as a privilege and we will carefully decide when and where we will add the number of employees. We will be even more stubborn about the cost as a whole.
6. We have started to demonstrate the strength of the platform, which is a structural advantage that sets us apart. As you know, our strategy here is simple: attract consumers either through Mobility or delivery, encourage them to try something else, and connect them all together with a compelling membership program. The advantage is obvious here, but we need to show the value of the platform in real dollars. We serve markets worth billions of dollars, but the size of the market is irrelevant if it does not turn into a profit.
7. We must do all of the above while continuing to provide an outstanding and differentiated experience for consumers and those who make money. Whether someone is booking a ride 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 every interaction great. The same goes for anyone who comes to Uber to make money. We responded to the pandemic by becoming profit-oriented in a way we had never been before. We innovate for those who make money, think deeply about their experience and put ourselves in their shoes – literally – by driving, delivering and buying on our own. Due to hundreds of improvements in this area, people who want to make flexible money are now the first to come to Uber, where they benefit from our scope, diversification and commitment to treat them with respect.
I was never more certain that we would win. But it will demand the best from our DNA: the urgency, courage and innovation that define the category. In some places we will have to retreat to sprint forward. We will absolutely have to do more with less. This will not be easy, but it will be epic. Remember who we are. We are Uber, a company that appears once in a generation that has become a verb and changed the world forever. Let’s write the next chapter of our story, working together as #OneUber, and make it legendary.
GO FOR IT!