Uber to reduce cost of treating hiring as a ‘privilege’: CEO email

Uber to reduce cost of treating hiring as a ‘privilege’: CEO email

Uber will cut spending and focus on becoming a leaner company to counter a “seismic shift” in investor sentiment, CEO Dara Khosrowshahi told employees in an email obtained by CNBC.

“After the gains, I spent several days meeting investors in New York and Boston,” Khosrowshahi said in the email, sent late Sunday. “It is clear that the market is undergoing a seismic shift and we must respond accordingly.”

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

To counter the shift in economic sentiment, Uber will cut marketing and incentive spending and treat hiring as a “privilege,” Khosrowshahi said.

“We need to make sure our one-size-fits-all economy works before we make it big,” the Uber boss wrote. “The least efficient marketing and incentive spend will be withdrawn.”

“We will treat hiring as a privilege and will carefully consider when and where to add staff.

This makes the ride-hailing giant the latest tech company to warn of a slowdown in hiring. Facebook told employees last week that it would halt or slow the pace of adding mid-level and senior-level positions while Robinhood is shedding about 9% of its workforce.

Uber will now focus on delivering profitability based on free cash flow rather than adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), Khosrowshahi said.

“We’ve made a lot of progress in terms of profitability and set a target of $5 billion in Adjusted EBITDA in 2024, but the target posts have changed,” Khosrowshahi 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 ride recovered thanks to an easing of Covid restrictions. The company has relied heavily on its food delivery unit, Eat, to spur sales amid the pandemic.

Still, Uber also posted a $5.9 billion loss during that period, citing a slump in its equity investments.

“We serve multi-trillion dollar markets, but market size is irrelevant unless it translates into profit,” he said.

Though investors are “happy” with Uber Eats’ post-pandemic growth, the segment should “grow even faster,” Khosrowshahi said. He added the company’s cargo business is a growth opportunity that “has yet to get bigger.”

He ended the note with a pep talk to staff: “Let’s make it legendary. GO GET IT!”

Read the full letter below:

Team Uber–

After winning, I spent several days meeting investors in New York and Boston. It is clear that the market is undergoing a seismic shift and we must respond accordingly. My meetings were super clarifying and I wanted to share some thoughts with you all. As you read, please keep in mind that investors do not run the company, but they own the company – and have trusted us to run it well. We can set the strategy and make the decisions, but we must do so in a way that ultimately serves our shareholders and their long-term interests.

1. In uncertain times, investors seek security. They recognize that we are leaders in our categories at scale, but they don’t know how much that’s worth. We channel Jerry Maguire, we gotta show them the money. We’ve made a lot of progress in terms of profitability, targeting $5 billion in Adjusted EBITDA in 2024, but the target posts have changed. Now it’s free cash flow. We can (and should) get there quickly. There will be companies that stick their heads in the sand and are slow to turn around. The hard truth is that many of them will not survive. The average employee at Uber is barely over 30, which means you’ve spent your career in a long and unprecedented bull run. This next period will be different and will require a different approach. Rest assured, we won’t bury our heads in the sand. We will meet at the moment.

2. Investors are finally realizing that we’re a very different animal from Lyft and other ride-sharing platforms. They’re incredibly excited about the pace of our innovation, how quickly we’re recovering, and the tremendous growth opportunities like hailables and taxi. While they acknowledge that we’re winning, they don’t yet know the “size of the prize.” Their questions range from “Has anyone else made money in on-demand transport besides you?” to “Carpooling has been around for a while, why isn’t another one profitable?” They see how big the TAM is, they just don’t understand how to translate that into significant profits and free cash flow. We have to show them.

3. Investors are pleased with Delivery’s post-pandemic growth and see that we have outperformed many other pandemic winners. I have to admit that this surprised me a bit because I strongly believe that Delivery should grow even faster. The main questions were: “Is the delivery a good deal and why?” and “What happens when 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 for it. Cargo needs to get bigger for investors to see their value and love them as much as I do.

5. Meeting the moment means making compromises. The hurdle for our investments has increased, and that means some initiatives that require significant capital are being slowed down. We need to make sure our one-size-fits-all economy works before we go big. The least efficient marketing and incentive spend is withdrawn. We treat hiring as a privilege and consider when and where we hire people. We’re going to be tougher on costs across the board.

6. We have started demonstrating the power of the platform, which is a structural advantage that sets us apart. As you know, our strategy here is simple: bring consumers to either Mobility or Delivery, encourage them to try the other, and tie it all together with a compelling membership program. The benefit here is obvious, but we need to show the value of the platform in real dollar terms. We serve multi-trillion dollar markets, but market size is irrelevant unless it translates into profit.

7. We must do all of this while continuing to provide a superior and differentiated experience for consumers and earners. Whether it’s someone booking rides for a summer trip with friends or new parents relying 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’ve responded to the pandemic by focusing on the earner in a way we’ve never been before. We innovate for earners, think deeply about their experiences and literally put ourselves in their shoes by driving, delivering and shopping ourselves. With hundreds of improvements in this space, people who want flexible earning are now coming to Uber first, where they benefit from our scale, diversification and commitment to treating them with respect.

I’ve never been more confident that we’re going to win. But it will challenge the best of our DNA: hustle, determination and category-defining innovations. In some places we have to retreat to sprint forward. It is imperative that we do more with less. It won’t be easy, but it will be epic. Remember who we are. We are Uber, a once-in-a-generation company that has become a verb and changed the world forever. Let’s write the next chapter of our story by working together as #OneUber and making it legendary.

GET IT!

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