Uber will be re-focusing on its core business, moving people and delivering food and groceries, said CEO Dara Khosrowshahi, in a note to employees Monday. The ride-hailing giant will be closing or consolidating 45 offices globally, and almost all departments will be affected by layoffs. The company is closing its business for developing products and services for its platform and a unit working on artificial intelligence. It will also pursue strategic alternatives for its job recruiting app, Uber Works, Khosrowshahi said.
“This is a decision I struggled with,” Khosrowshahi said. “Our balance sheet is strong, Eats is doing great, Rides looks a little better, maybe we can wait this damn virus out .... I wanted there to be a different answer ... but there simply was no good news to hear.”
Uber's rides business, the company's main profit generator, fell 80% in April compared to the same month last year. “Ultimately, I realized that hoping the world would return to normal within any predictable time frame, so we could pick up where we left off on our path to profitability, was not a viable option,” he said.
Uber lost $2.9 billion in the first quarter as the coronavirus pandemic decimated its overseas investments. Companies that rely on the sharing economy have been hit hard by the coronavirus pandemic, as people stay indoors and shy away from shared services to reduce the virus' spread.
Lyft, Uber’s main U.S. rival, laid off 982 people last month, or 17% of its workforce because of plummeting demand. Careem, Uber’s subsidiary in the Middle East, cut its workforce by 31%. Uber estimates it will incur $175 million to $220 million in charges related to the restructuring, including severance, other benefits and office closing costs, according to a federal filing. Combined with the earlier layoffs, the changes are designed to save $1 billion annually.
Uber's drivers are considered freelance or contract workers, not full-fledged employees, so despite the sharp drop in their incomes from obliterated demand, they are not eligible for severance or benefits from the company. California challenged this recently, suing Uber and Lyft and alleging they misclassified their drivers as independent contractors under the state’s new labor law. The suit seeks restitution for unpaid wages owed to drivers, among other things.
One silver lining to the pandemic is that Uber's Eats business has become more important to people staying home and restaurants, and delivery is here to stay, Khosrowshahi said. “We no longer need to look far for the next enormous growth opportunity: we are sitting right on top of one,” Khosrowshahi said.
He cautioned, however, that the growth in Eats does not come close to covering expenses. “I have every belief that the moves we are making will get Eats to profitability, just as we did with Rides, but it’s not going to happen overnight," Khosrowshahi said.
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