Uber is no longer the poster child for unchecked ambition - TechCentral

Uber is no longer the poster child for unchecked ambition

Uber Technologies was once a poster child for Silicon Valley’s unchecked ambition. As recently as this year, the company was promising to usher in a self-driving revolution and popularise flying cars. But on Monday, Uber said it was slashing 3 000 jobs, sidelining extraneous projects and shutting dozens of offices after the coronavirus slammed its ride-hailing business.

The latest round of job cuts at the company brings the total number to 6 700 since the pandemic’s start, including thousands of layoffs earlier this month in customer support and human resources. The staff reductions now represent about a quarter of Uber’s workforce.

In an e-mail to staff on Monday, CEO Dara Khosrowshahi stopped short of saying that the jobs would be the last of the Covid-19 casualties. The company also sold US$100-million in high-yield bonds on Monday, providing it with additional cash.

The dramatic changes represent a humbling of the ride-hailing giant, which has offices all over the world and has advertised its ambitions to become a one-stop-shop for global travel. In the Monday e-mail, Khosrowshahi said Uber will reorientate the company around its two core businesses: ride hailing and food delivery. More speculative units — including the ideas generator Uber Incubator, the artificial intelligence division AI Labs and a job-matching service called Uber Works — will be closed, Khosrowshahi wrote. Uber also will close or consolidate 45 of the several hundred offices it operates globally.

“We must establish ourselves as a self-sustaining enterprise that no longer relies on new capital or investors to keep growing, expanding and innovating,” Khosrowshahi wrote to employees, while dismissing the idea that the moves were done to appease investors.

Transformation

Uber shares initially rose as much as 9% on the news on Monday, but by the end of trading in New York were up less than 4%. The cuts and other changes the company announced on Monday will cost between $175-million and $220-million, mostly in the second quarter, according to a securities filing on Monday.

Tech analyst at Bloomberg Intelligence Mandeep Singh said the pandemic has accelerated Uber’s transformation from a growth company to one focused on costs. As a result, he said, even this week’s retrenchments may not be enough.

“I wouldn’t be surprised if there’s a third round of layoffs,” Singh said. “They have a pretty bloated cost structure.”

Uber CEO Dara Khosrowshahi

Since the pandemic began, Uber has been moving to focus its efforts on a few key regions, in addition to paring back money-losing lines of business. The company closed seven food delivery operations, offloaded its cash-burning electric bike group to scooter start-up Lime and permanently closed 40% of its driver stations. One of the offices that will close is in Singapore, where Uber had already sold its Southeast Asia business to local rival Grab in 2018, and which had previously served as a regional hub.

Even in locations where business is strong, some smaller offices will be folded into larger ones. Cities including San Francisco and New York, which have multiple Uber offices, will consolidate those spaces when workers return after lockdown orders have lifted.

Uber is far from the only company struggling during the pandemic. Social distancing and shelter-in-place orders have hobbled so-called sharing economy businesses, as customers find themselves with few places to travel, and a new reticence to use the cars or homes of strangers. Lyft, the main alternative to Uber in North America, is cutting about 17% of staff, furloughing more and reducing salaries. Airbnb is cutting a quarter of its workforce.

Uber, which for years burned cash in exchange for user growth, had also faced challenges even before coronavirus hit. Its food delivery operations, a bright spot in terms of adoption, loses money, and other bets like autonomous vehicles and air taxis have yet to be proven.

Earlier this month, the company reported its first-ever decline in gross bookings rides during the first quarter, and pushed back a goal of being profitable to next year, instead of at the end of 2020. In order to achieve that metric, Khosrowshahi said he planned $1-billion in cost-cutting measures, including head count, real estate and other reductions.

Grubhub

Bloomberg’s Singh estimates that if Uber decides to divest itself of self-driving group ATG and freight, Uber could slice an additional $500-million and $100-million in annual expenses. Khosrowshahi didn’t mention cuts at either of those two divisions in the Monday e-mail, suggesting an evaluation may still be underway.

But even as the company makes efforts to cut costs, Uber is in talks to acquire Grubhub, a purchase that would make it the dominant player in the US food delivery market. Khosrowshahi told employees on Monday that although Uber loses money on food delivery, it was “the next enormous growth opportunity”, an opinion reinforced by surging demand for takeout during the lockdowns.

A tie-up with Grubhub could lead to significant savings in a highly competitive industry, but has raised antitrust concerns among lawmakers.  — Reported by Lizette Chapman, (c) 2020 Bloomberg LP

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