Uber’s staff cuts and office closures indicate shrinking ambitions
For Silicon Valley’s unchecked ambition, Uber Technologies Inc. was once a poster child. Just this year, the company vowed to begin a self-driving revolution and popularise flying cars.
However, Uber now says it is cutting 3,000 employees, sidelining extraneous ventures and closing down dozens of offices since the coronavirus outbreak has hammered its ride-hailing business.ng cars.
The company’s latest round of staff reductions brings the total since the beginning of the pandemic to 6,700, including thousands of customer service and human resources layoffs earlier this month. The employee cuts now account for around a quarter of Uber’s workforce.
In an email to staff Monday, CEO Dara Khosrowshahi fell short of saying the latest cuts would be the last of the COVID-19 casualties.
The drastic changes represent a humbling of the ride-hailing giant, which has offices across the globe and has advertised its plans to become a one-stop-shop for global travel. Khosrowshahi said in Monday’s email, Uber will realign the company around its two primary businesses: ride-hailing and food delivery.
Khosrowshahi wrote that more speculative divisions, including the innovation generator Uber Incubator, the artificial intelligence division AI Labs and a job-matching service called Uber Works, will be closed. Uber will also shutter or consolidate 45 of the several hundred offices it operates worldwide.
“We need to establish ourselves as a self-sustaining corporation that no longer depends on new funding or investors to keep growing, expanding and innovating,” Khosrowshahi wrote to staff while rejecting the idea that the changes were made to satisfy investors.
Uber shares initially grew as much as 9 per cent after Monday’s news but were up less than 4 per cent by the end of trading in New York. According to a securities filing, the cuts and other changes the company revealed on Monday will cost between USD 175 million to USD 220 million, mainly in the second quarter.
Mandeep Singh, a technology analyst at Bloomberg Intelligence, said the pandemic had intensified Uber’s transition from a growth business to one focused on costs. As a result, he said, even this week’s firings may not be enough.
“I would not be surprised if there is a third round of cutbacks,” Singh said. “They have a pretty inflated cost structure.”
Since the pandemic started, Uber has been pushing to concentrate its efforts on a few primary regions in addition to paring back money-losing business lines.
The company shut down seven food delivery operations, dumped its cash-burning electric bike group to scooter startup Lime and closed 40 per cent of its driver stations permanently. One of the offices that will close is in Singapore, which had once served as a regional hub but was where Uber had already sold its business in Southeast Asia to local competitor Grab in 2018.
Even in locations where the business is stable, some smaller offices will merge into larger ones. Cities like San Francisco and New York, which have numerous Uber offices, will combine those spaces when employees return following the removal of lockdown orders.
Uber is far from being the only company that struggles during the pandemic. Social distancing and shelter-in-place orders have hobbled so-called sharing economy companies, as customers find themselves with few places to travel and a growing unwillingness to use the vehicles or homes of strangers.
Lyft Inc., North America’s leading alternative to Uber, is slashing about 17 per cent of jobs, furloughing more and lowering salaries. Airbnb Inc. is cutting its workforce by a quarter.
Even before the virus hit, Uber, who for years burned cash in exchange for user growth, faced challenges. Its food delivery operations, a bright adoption spot, loses money, and other bets such as autonomous vehicles and air taxis have yet to be proven.
Earlier this month, the company announced its first-ever decline in gross-ride bookings during the first quarter and pushed back a goal of being profitable to next year instead of at the end of 2020. Khosrowshahi said he plans $1 billion in cost-cutting measures to achieve that metric, including headcount, real estate and other reductions.
Bloomberg’s Singh forecasts that if Uber chooses to divest itself of self-driving group ATG and freight, Uber can slice an extra USD 500 million and USD 100 million in annual expenses, respectively. In the Monday email, Khosrowshahi did not discuss layoffs at either of those two divisions, suggesting that an evaluation could still be ongoing.
But even as the company is making efforts to cut costs, Uber is in talks to purchase Grubhub Inc., an acquisition that will make it the dominant player in the U.S. food delivery market.
On Monday, Khosrowshahi told staff that while Uber loses money on food delivery, it is “the next enormous growth opportunity”, a belief strengthened by surging demand for takeout during the lockdowns.
A tie-up with Grubhub could lead to substantial savings in an extremely competitive industry but has posed antitrust concerns among lawmakers, including Sen. Amy Klobuchar.
Uber also borrowed USD 100 million on Monday, contributing to a USD 900 million bond sale it priced last week.