Uber will cut costs and focus on becoming a more cost-effective business to deal with the “seismic change” in investor sentiment, CEO Dara Khosrovshahi told employees in an email received from CNBC.
“After I won, I spent a few days meeting with investors in New York and Boston,” Khosrovshahi said in an email sent late Sunday. “It is clear that the market is undergoing seismic change and we need to react accordingly.”
Technology stocks have plummeted since the peak of the coronavirus pandemic as investors worry about the prospect of ending the era of cheap money that has set a historic bullish market. Nasdaq Composite recorded its fifth consecutive week of decline last week, the longest weekly loss streak since 2012.
To cope with the change in economic sentiment, Uber will reduce marketing and incentive costs and treat hiring as a “privilege,” Khosrovshahi said.
“We need to make sure our economic unit works before we grow up,” the Uber chief wrote. “The least effective marketing costs and incentives will be withdrawn.”
“We will treat hiring as a privilege and we will be aware of when and where we will add staff. We will be even tougher on costs in general. “
This makes the vehicle giant the latest technology company to warn of rental delays. Last week, Facebook told staff it would halt or slow the pace of adding mid- or high-level roles as Robinhood cuts about 9 percent 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), Khosrovshahi 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 doorposts have changed,” Khosrovshahi 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 travel business recovered thanks to easing of Covid’s restrictions. The company relies heavily on its Eat food delivery unit to increase sales during the pandemic.
However, Uber also reported a loss of $ 5.9 billion during the period, citing a decline in its share capital investment.
“We serve markets for several trillion 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 “needs to grow even faster,” Khosrovshahi said. He added that the company’s freight business is an opportunity for growth that “needs to get even bigger”.
He concluded the note with a unifying appeal to the staff: “Let’s make it legendary. TAKE IT!”
Read the full letter below:
Uber Team –
After the profit, I spent a few days meeting with investors in New York and Boston. It is clear that the market is undergoing seismic change and we must react accordingly. My meetings were super clarifying and I wanted to share some thoughts with all of you. As you read them, please keep in mind that as long as investors do not run the company, they own the company – and they have entrusted us to run it well. We need to define the strategy and make the decisions, but we need to do it in a way that ultimately serves our shareholders and their long-term interests.
1. In times of uncertainty, investors seek security. They admit that we are the leader in our categories, but they do not know how much it costs. 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’s about free cash flow. We can (and should) get there quickly. There will be companies that put their heads in the sand and spin slowly. The hard 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 a long and unprecedented quest. This next period will be different and will require a different approach. Rest assured that we will not bury our heads in the sand. We will meet the moment.
2. Investors finally understand that we are a completely different animal from Lyft and other travel-sharing platforms. They are incredibly excited about the pace of our innovation, how fast we are recovering and the huge growth opportunities like Hailables and Taxi. Although they admit that we are winning, they still do not know the “size of the prize”. Their questions range from “Someone other than you has made money on demand?” To “Travel sharing has been around for some time, why isn’t anyone else profitable?” They see how big TAM is, they just don’t understand how it translates into significant profits and free cash flow. We have to show them.
3. Investors are pleased with the growth of Delivery that comes after the pandemic and see that we have performed better than many other pandemic winners. I must admit that this was a bit of a surprise to me, because I firmly believe that the Delivery should grow even faster. The main questions were: “Is delivery a good business and why?” and “What if we go into recession?” We need to answer both questions with undeniably strong results.
4. Investors who have asked about Freight love Freight. However, less than 10% of them asked about it. Freight transport needs to get even bigger so that investors recognize its value and love it as much as I do.
5. Meeting the moment means making compromises. The percentage of barriers to our investment has increased, which means that some initiatives that require significant capital will be delayed. We need to make sure that our unit of economy works before we become big. The least effective marketing costs and incentives will be withdrawn. We will treat hiring as a privilege and be aware of when and where we add staff. We will be even tougher on costs in general.
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 users through either mobility or delivery, encourage them to try something else, 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 markets for several trillion 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 exceptional and differentiated experience for consumers and winners. Whether someone is booking a summer trip with friends, or a new parent who relies on Uber Eats for everything from groceries to dinner and diapers, we’re here to make every interaction great. The same goes for anyone who comes to Uber to win. We responded to the pandemic by targeting the winners in a way we had never been before. We innovate for the people who earn, think deeply about their experience and put ourselves in their shoes – literally – by driving, delivering and shopping on our own. Due to hundreds of improvements in this area, people who want to earn flexibly are now the first to come to Uber, where they benefit from our scale, diversification and commitment to respect them.
I have never been more sure that we will win. But that will require the best of our DNA: clutter, toughness, and innovation that define the category. In some places we will have to step back to sprint forward. We will absolutely have to do more with less. It won’t be easy, but it will be epic. Remember who we are. We are Uber, a once-generation company 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.