For years, Uber (UBER) has prided itself on not only being a disruptor of the century-old taxi business, but, more importantly, a pioneer in cutting-edge technologies. Aside from its core ride-sharing service, Uber has in recent years invested generously in yet-to-be-commercialized efforts, including flying cabs, self-driving vehicles (via Uber Advanced Technologies Group) and innovative ideas in general, all through the newly formed Uber Incubator.
But as the coronavirus pandemic ravages ride-hailing globally and depletes Uber’s main source of revenue, the company has to put those futuristic dreams on hold for now, placing its focus back on the labor-intensive, less sexy yet money-making businesses of ride-hailing and food delivery. (Ironically, though, the first and foremost workers in these services, drivers, are still not recognized as employees.)
On Monday, Uber said it would close 45 offices globally, including Uber Incubator and the artificial intelligence division Uber AI Labs, as part of its latest cost-cutting plan. The move would also involve slashing 3,000 jobs across the organization, adding to the 3,700 positions to be eliminated announced just two weeks ago. Altogether, Uber has laid off 6,700 employees, or 25 percent of its workforce, in less than a month.
In a memo to employees on Monday, Uber CEO Dara Khosrowshahi said the drastic downsizing was not to protect the company’s stock price (although Uber shares jumped as much as 9 percent Monday morning on the layoff news) or to please the board.
“I had to make this decision because our very future as an essential service for the cities of the world—our being there for millions of people and businesses who rely on us—demands it,” Khosrowshahi said in the memo, first reported by The Wall Street Journal. “We must establish ourselves as a self-sustaining enterprise that no longer relies on new capital or investors to keep growing, expanding, and innovating.”
In its first-quarter earnings release earlier this month, Uber reported the first-ever decline in quarterly ride bookings, partly due to shelter-in-place orders taking effect across the U.S. in March. Expecting a worse revenue slump in the second quarter, Khosrowshahi pushed back Uber’s profitability timeline from the end of 2020 to next year and said the company would need to cut $1 billion in fixed costs in order to achieve that.
“I wouldn’t be surprised if there’s a third round of layoffs. [Uber] has a pretty bloated cost structure,” said Mandeep Singh, a tech analyst at Bloomberg Intelligence. Singh suggests that Uber could quickly save half a billion dollars by closing its self-driving unit. The company hasn’t mentioned such a plan yet, but shuttering research on artificial intelligence, central technology behind self-driving, could be a signal.
“We’re seeing some signs of a recovery, but it comes off of a deep hole, with limited visibility as to its speed and shape…The business today doesn’t come close to covering our expenses,” Khosrowshahi said in Monday’s memo.
Meanwhile, Uber is doubling down on ride-sharing and food delivery.
Two weeks ago, shortly after announcing the plan to lay off 3,700 employees, Uber led a $170 million investment in electric scooter startup Lime to merge with its existing scooter-sharing service, Jump.
Uber is also reportedly in talks to buy Uber Eats’ rival, Grubhub, to expand its presence in the U.S. food delivery market. The two companies haven’t been able to agree on an acquisition price, per The Wall Street Journal. The deal, should there be one, could value Grubhub at over $6 billion and save Uber hundreds of millions in building out its own food delivery infrastructure.