Uber Clips Its Own Unicorn Wings
(Bloomberg Opinion) -- Uber Technologies Inc. CEO Dara Khosrowshahi told investors on a call in November that his goal was for the ride-hailing giant to be one of the world’s “magical” companies that can grow its revenue at “massive scale.” But now, the business challenges created by the Covid-19 pandemic are forcing the onetime unicorn to pull back on grand ambitions that once included disrupting vast swaths of the economy. Perhaps Uber isn’t so magical after all. But that is fine.
In a Monday filing, Uber announced it will be laying off an additional 3,000 employees on top of the 3,700 job cuts it had already announced on May 6. The combined reductions are equivalent to about 25% of its workforce. Bloomberg News also reported Monday that Khosrowshahi sent an email to his staff, saying the company plans to shut down some non-core projects such as its Incubator and AI Labs. Further, the Wall Street Journal said Uber is reevaluating its money-losing freight and autonomous-driving businesses.
Decisions to shut down some of its pie-in-the-sky bets and focus on its core businesses – ride-hailing and food delivery – are a prudent course of the action. While the company had $9 billion in cash at the end of March, it still generated a $1.3 billion operating loss for its first quarter. That’s a level that is unsustainable over time.
If Uber does exit all of its non-core businesses, it can save a ton of money. In its March quarter alone, its freight segment lost $64 million in adjusted Ebitda (a measure of profitability); its advanced technologies group segment, which includes its autonomous driving bets, lost $108 million. Shuttering these units or at least putting them on pause makes sense, as the payoffs are many years away.
News of the cost-cutting comes as Uber pushes for a merger its food-delivery business with Grubhub Inc. Last week, I wrote that a deal between Uber Eats and Grubhub made sense as it would benefit both companies, as well as the rest of the loss-ridden industry, and could potentially generate hundreds of millions of annual cost synergies due to overlap in marketing and operating expenses. It looks as if the deal negotiations are still alive as the Journal reported the two companies were still talking as of Sunday.
Expense rationalization through business restructuring and mergers may not be the most magical in terms of business strategies, but they are needed to create a sustainable business model for the long run. With its stock price up some 10% already this month, Uber management seems to be getting the message that no magic is needed — just smart discipline.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.
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