Uber will cut back on spending and focus on becoming a leaner business to address a “seismic shift” in investor sentiment, CEO Dara Khosrowshahi told employees in an email obtained by CNBC.
“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 recorded its fifth consecutive week of declines last week, its longest weekly 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.”
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 sank about 2.5% in U.S. premarket trading. The stock is down more than 40% 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 revenues 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 Eat 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 firm won’t need to invest a great deal into luring more drivers to the platform.