The CEO of Uber Technologies detailed a second wave of layoffs Monday at the ride-hailing and food delivery company, bringing its cuts this year to 25% of its workforce, along with plans to close or consolidate 45 offices globally.
In an email to employees, CEO Dara Khosrowshahi said the company will focus on core operations and consider options for other divisions, such as job recruiting app Uber Works and Uber Freight, which deals in truck deliveries. Uber was a chronic money-loser before the pandemic, but COVID-19 in April caused an 80% drop in revenue for its principal income producer, the ride-hailing division, compared with the same month last year.
In Chicago, the news raised questions about the fate of Uber’s lease of 463,000 square feet at the Old Post Office, a market-defining deal announced in September. Since then, Uber has delayed its move-in date to next year and offered about 15% of the space for sublease. It was intended as a home for Uber Freight.
The company did not respond to questions about its Chicago plans. But a source familiar with the agreement said Uber still will occupy the space. “They have other leases in Chicago and those are expiring,” the source said, allowing staff to be consolidated at the Old Post Office, 433 W. Van Buren St.
The New York-based owner of the building, 601W, said through representative Trana Freedman, “We are issuing a report in the next 48 hours. In an effort to assist Uber through Covid, we agreed to give them an extra 60 days of free rent concessions.”
In addition, Uber has been in widely reported discusssions to acquire Chicago-based Grubhub to consolidate the delivery of restaurant meals. Khosrowshahi did not address that deal in his message to employees. The Wall Street Journal reported Grubhub rejected Uber’s latest offer of 1.9 shares for each Grubhub share.
Last year, Uber promised its post office lease would allow it to add 2,000 jobs to its Chicago employment base. Khosrowshahi at the time was effusive, despite quarterly losses measured in the billions of dollars, saying, “While we are investing aggressively in growth and this Chicago investment is part of that, we are very, very confident that the balance sheet that we have, that the cash we have on our books, and our business, are going to be around for a long time. So I have no doubts in our ability to be here for the next five, 10 or the next 20 years.”
But Monday, Khosrowshahi was downcast. He said Uber has to cut 3,000 workers. Earlier this month, it laid off 3,700 people.
“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.”
He said the company is closing its business for developing products and services for its platform and a unit working on artificial intelligence.
“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.
Uber estimates it will incur between $175 million and $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. “We do not believe these cost-saving measures will impair our ability to conduct any of our key business functions,” Uber said in the filing.
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.