Uber has lurched from existential crisis to existential crisis in its 11-year corporate history.
Now it confronts the biggest one yet. With people sheltering at home, demand for rides has plunged 80%. At the same time, it’s battling a California law that could reshape how it does business in its home state. Once a darling of investors, Uber now faces harsh scrutiny from Wall Street after a disappointing initial public offering last year.
On Monday the ride-hailing company laid off 3,000 staff, on top of 3,700 positions it cut earlier this month. It has now axed 25% of its worldwide staff in less than two weeks.
Uber also is closing some 40 offices — including its Pier 70 office in San Francisco, which focused on self-driving technology. That will be consolidated with its forthcoming Mission Bay headquarters next to Chase Center, Uber said. It will move its Asian headquarters out of Singapore to an unspecified new location.
The company is reconsidering non-core business units such as its freight service, which arranges big-rig trucks loads, and self-driving technology, according to the Wall Street Journal, which first reported the news. Uber said it will close an artifical intelligence research lab and look at new options for Uber Works, which connected gig workers to jobs.
Monday’s actions and the previous cuts will rein in Uber’s spending by about $1 billion a year, it said.
“Given the dramatic impact of the pandemic, and the unpredictable nature of any eventual recovery, we are concentrating our efforts on our core mobility and delivery platforms and resizing our company to match the realities of our business,” CEO Dara Khosrowshahi said in a statement Monday. “That’s led us to some painful decisions today.”
Bradley Tusk, a venture capitalist and an early Uber investor who has since sold all his equity in the company, worries that Khosrowshahi may not be the right person for a massive crisis forcing Uber to reexamine its business model. Khosrowshahi took the helm in fall 2017 after founding CEO Travis Kalanick was ousted after a series of scandals that included workplace cases of sexual harassment and discrimination.
“Dara was brought in to run a bureaucracy,” Tusk said. “He’s very good at that. Running a highly innovative, scrappy company fighting for its life is not really his personality. Uber needs to do some unconventional thinking to transform itself.”
The company is already going full bore on its Uber Eats restaurant delivery business, which has seen business surge during the pandemic as consumers order take-out food — but not enough to compensate for the decline in rides.
Uber is reportedly seeking to buy rival restaurant delivery business Grubhub in an all-stock deal that would give it more than 50% market share in the U.S., which Tusk said he thinks is a good direction. But some lawmakers are hostile to potential deal, which could face antitrust regulatory scrutiny.
Uber also led a $170 million investment round in scooter-rental company Lime this month. While consumers may be leery of taking rides with strangers, “scooters are poised to do well because they don’t require any interaction with anybody ever, just wipe off the handlebars,” Tusk said.
In a new age of economic austerity with millions of people unemployed, Uber may need to pitch itself as a higher-end lifestyle product, a splurge for folks who still have discretionary income and want to move around “in style and convenience,” said Max Wolff, managing parnter of Multivariate, a financial services consulting firm. That would be a return to its roots as a high-end black car service, a more expensive option that is still available for riders.
It can also focus on convincing businesses to offer it to their employees, he said, a marketing strategy both Uber and Lyft had been pursuing pre-pandemic.
A huge percentage of Uber rides were to and from airports, concerts, sporting events, nightclubs and bars, airports. Such outings may not return for many months, if not years, to come, Wolff said.
In many urban markets, the highly paid white-collar professionals who were frequent Uber riders may continue to work from home indefinitely.
When consumers return to moving around, it’s unclear how they will do so. People have deserted public transit and may not feel confident returning to it. But whether they will feel comfortable getting in the enclosed space of a car with a stranger is an open question.
Uber took steps last week to reassure customers, touting the $50 million it spent on masks, disinfectant and other sanitary supplies, and new rules that both drivers and passengers must wear masks and ideally keep windows open.
The company, which has never turned a profit, insists that it can still make money — and that the pandemic won’t massively delay that goal.
“We believe the disruption caused by COVID-19 will impact our timeline (to reach profitability) by a matter of quarters, not years,” Khosrowshahi said on its earnings call this month.
Uber remains cash-rich, thanks to all the money investors have poured into it. It said it had about $9 billion in cash and other short-term investments as of March 31.
Drivers, whom Uber classifies as independent contractors, were not included in the job cuts, but most have seen their income nosedive since consumers are not taking rides.
California’s gig-work law, AB5, could result in drivers being reclassified as employees, which would cost Uber and Lyft hundreds of millions a year to cover unemployment, disability, workers’ comp, minimum wage, overtime and business expenses. The companies say it would also remove the flexibility that both they and drivers prefer.
California, along with San Francisco, Los Angeles and San Diego, this month sued Uber and Lyft, seeking to force them to treat drivers as employees.
Uber, Lyft, DoorDash, Instacart and Postmates are mounting a $110 million ballot measure for November, hoping to convince California voters to keep drivers and couriers as independent contractors, while allowing them to receive some earnings guarantees and some benefits.
The ballot campaign on Monday released a report it commissioned saying that about 1 million Californians had logged onto those five companies’ websites to earn money in 2018, generating $6 billion in earnings. Most were part time.
The brief report said that 80% to 90% of those people would no longer have work under an employment model. It reasons: Employment would increase costs, so that rides would cost more, reducing demand; and the companies would have to discontinue flexibility, reducing driver suppy.
Requiring drivers to be employees will “significantly threaten the viability of the companies,” the report said.
The union-backed coalition opposing the gig companies’ ballot measure released a survey it comissioned of 1,000 California Uber and Lyft drivers earlier this month showing that many were already financially struggling and now are turning to public assistance since earnings have plummeted.
Among its findings: Two-thirds of respondents said they may not be able to pay their May rent or mortgage. Nearly half will need food assistance this month. Almost half (49%) have already applied for unemployment benefits and another 15% plan to apply, it said. Such benefits are now available to gig workers under federal pandemic emergency measures.
At a Friday meeting of the San Francisco Local Agency Formation Commission, Bryan Goebel, executive officer, presented ways to address similar problems discussed in another, in-person survey of 643 gig workers, such as enforcing minimum wage and health coverage for gig workers and exploring a city-run, worker-owned ride-hail and delivery cooperative.
Uber’s cuts earlier this month focused on customer service and recruiting, largely sparing the company’s engineering teams. Only 52 layoffs were in San Francisco as of May 12, according to Uber’s filing with the state Employment Development Department, which said those cuts were at 455 Market St.
Uber said laid-off workers would get at least 10 weeks pay, health benefits through year end, additional equity vesting and outplacement support.
Rival Lyft last month cut 982 jobs, or 17% of its staff, furloughed hundreds of workers and implemented pay cuts.
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