“After earnings, I spent several days meeting investors in New York and Boston,” Khosrowshahi said in the email, which was sent out late Sunday. “It’s clear that the market is experiencing a seismic shift and we need to react accordingly.”
Tech stocks have plunged sharply from the highs of the coronavirus pandemic, as investors fret over the prospect of an end to the era of cheap money that defined a historic bull market. The Nasdaq Composite last week recorded its fifth consecutive weekly decline, its longest such losing streak since 2012.
To address the shift in economic sentiment, the ride-hailing firm will slash spending on marketing and incentives and treat hiring as a “privilege,” Khosrowshahi said.
“We have to make sure our unit economics work before we go big,” the Uber boss wrote. “The least efficient marketing and incentive spend will be pulled back.”
“We will treat hiring as a privilege and be deliberate about when and where we add headcount,” he added. “We will be even more hardcore about costs across the board.”
Uber was not immediately available for comment on the email.
It makes Uber the latest tech company to warn of a slowdown in hiring. Facebook parent company Meta last week told staff it would stop or slow the pace of adding midlevel or senior roles, while Robinhood is cutting about 9% of its workforce.
Uber shares closed down more than 11% on Monday. The stock, which hit a new 52-week low earlier in the session, has fallen more than 45% year to date.
Uber will now focus on achieving profitability on a free cash flow basis rather than adjusted earnings before interest, taxes, depreciation, and amortization, Khosrowshahi said.
“We have made a ton of progress in terms of profitability, setting a target for $5 billion in Adjusted EBITDA in 2024, but the goalposts have changed,” Khosrowshahi said. “Now it’s about free cash flow. We can (and should) get there fast.”
Uber’s revenue more than doubled to $6.9 billion in the first quarter, as demand for its rides business rebounded thanks to a relaxing of Covid restrictions. The company has relied heavily on its Eats food delivery unit to boost sales in the pandemic.
Still, Uber also posted a $5.9 billion loss in the period, citing a slump in its equity investments.
“We are serving multi-trillion dollar markets, but market size is irrelevant if it doesn’t translate into profit,” he said.
Though investors are “happy” with the growth of Uber Eats coming out of the pandemic, the segment “should be growing even faster,” Khosrowshahi said. He added the company’s freight business is a growth opportunity that “needs to get even bigger.”
He ended the note with a rallying call to staff: “let’s make it legendary. GO GET IT!”
Uber’s cost-cutting strategy highlights a divergence from Lyft, its main competitor in the U.S. and Canada. Lyft said Wednesday it would increase spending to attract more drivers due to surging gas prices.
Both firms have faced a shortage of drivers as demand for taxis has bounced back. But Uber says its driver base is at a post-pandemic high, meaning the company won’t need to invest a great deal into luring more drivers to the platform.
Read the full letter from Uber CEO Dara Khosrowshahi below:
Team Uber —
After earnings, I spent several days meeting investors in New York and Boston. It’s clear that the market is experiencing a seismic shift and we need to react accordingly. My meetings were super clarifying and I wanted to share some thoughts with all of you. As you read them, please bear in mind that while investors don’t run the company, they do own the company—and they’ve entrusted us with running it well. We get to set the strategy and make the 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 look for safety. They recognize that we are the scaled leader in our categories, but they don’t know how much that’s worth. Channeling Jerry Maguire, we need to show them the money. We have made a ton of progress in terms of profitability, setting a target for $5 billion in Adjusted EBITDA in 2024, but the goalposts have changed. Now it’s about free cash flow. We can (and should) get there fast. There will be companies that put their heads in the sand and are slow to pivot. The tough 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 it will require a different approach. Rest assured, we are not going to put our heads in the sand. We will meet the moment.
2. Investors finally understand that we are a completely different animal than Lyft and other ridesharing-only platforms. They are incredibly excited about the pace of our innovation, how quickly we are rebounding, and huge growth opportunities like Hailables and Taxi. While they acknowledge that we are winning, they don’t yet know the “size of the prize.” Their questions run the gamut from, “Has anyone other than you made money in on-demand transport?” to “Ridesharing has been around for awhile, why isn’t anyone else profitable?” They see how big the TAM is, they just don’t understand how that translates into significant profits and free cash flow. We have to show them.
3. Investors are happy with Delivery’s growth coming out of the pandemic and see that we have performed better than many other pandemic winners. I must admit that was a bit of a surprise for me because I firmly believe Delivery should be growing even faster. The primary questions were: “Is Delivery a good business and why?” and “What happens if we enter a recession?” We need to answer both of these questions with undeniably strong results.
4. Investors who asked about Freight love Freight. However, less than 10% of them asked about it. Freight 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 trade-offs. The hurdle rate for our investments has gotten higher, and that means that some initiatives that require substantial capital will be slowed. We have to make sure our unit economics work before we go big. The least efficient marketing and incentive spend will be pulled back. We will treat hiring as a privilege and be deliberate about when and where we add headcount. We will be even more hardcore about costs across the board.
6. We have started to demonstrate the Power of the Platform, which is a structural advantage that sets us apart. As you know, our strategy here is simple: bring in consumers on either Mobility or Delivery, encourage them to try the other, and tie everything together with a compelling membership program. The advantage here is obvious, but we have to show the value of the platform in real dollar terms. We are serving multi-trillion dollar markets, but market size is irrelevant if it doesn’t translate into profit.
7. We have to do all of the above while continuing to deliver an outstanding and differentiated experience for consumers and earners. Whether someone is booking rides for a summer trip with friends, or a new parent relying on Uber Eats for everything from groceries to dinner and diapers, it’s on us to make every interaction excellent. The same goes for anyone who comes to Uber to earn. We responded to the pandemic by becoming earner-centric in a way we’d never been before. We are innovating for earners, thinking deeply about their experience, and putting ourselves in their shoes—literally—by driving, delivering and shopping ourselves. Because of hundreds of improvements in this area, people who want to earn flexibly 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 certain that we will win. But it’s going to demand the best of our DNA: hustle, grit, and category-defining innovation. In some places we’ll have to pull back to sprint ahead. 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 once-in-a-generation company that became a verb and changed the world forever. Let’s write the next chapter of our story, working together as #OneUber, and let’s make it legendary.
GO GET IT!