Uber Won’t Sugar-Coat Any Sacred Cows, Makes Drastic Cuts To Survive Coronavirus Pandemic

Uber is taking decisive action to cut costs and says no one and nothing will be spared. Automologist MAC brings us more details…

You probably are not surprised that Uber will have to retrench much of their business as they try desperately to weather the storm that is the current COVID-19 crisis. Still, Uber made the announcement on Wednesday and is going to cut about 14% of their staff.

This will mean that the company could save as much as a billion dollars when put together with some other moves the company is going to make. The indication is that this will not be enough either and there will be further reductions, which prompted the Chief Financial Officer, Nelson Chai, to say that there would be “no sacred cows” with reference to what could be next to go.

Of course, the company has been slaughtered in the ride-hailing area of its business as people have been barred from taking rides anywhere, but also because passenger confidence has not gotten to the point where people will readily share a small box (a car) with a complete stranger (the driver) for just about any reason.

Up to the implementation of global lockdowns to counter the Wuhan Flu pandemic, Uber had been on a bit of a roll in terms of revenue, with a 14% increase in revenue for the first quarter of the year, reaching US$3.5 billion.  But losses also surged from US$1 billion to US$2.9 billion. A lot of the surge came from the food business in the USA and much of the increased loss was from write-downs in the worth of minority business, not the least of which was Didi Chuxing in China, in which Uber is a 20% stakeholder.

“I won’t sugar-coat it,” Uber CEO, Dara Khosrowshahi, told analysts during a conference call on Thursday. “COVID-19 has had a dramatic impact on rides, with the business down globally around 80% in April. Still, there are some green shoots driving restrained optimism.” So, Uber is not going to put any sugar-coating on sacred cows then, good to know.

Strangely, even though Uber is saying that the ride-sharing business is problematic and the company is over-valued, the market does not agree. Even with a loss of almost US$3 billion dollars, the company’s share price rose more than 11%, giving the company a valuation of US$53 billion (at my calculation). This may be due to an 86% increase in Uber Eats bookings.

Uber and Lyft have other issues as well. The state of California has started legal proceedings against them for failing to abide by a landmark ruling whereby gig workers should be classified as employees and thus be afforded proper labour protection and safety nets under the law. The new law came into effect in January and impacts any ‘new-age’ business that tries to circumvent employment law by pretending that employees are not employees. I am sure that this story will run and run for some time.