
Uber Lays Off 400 - moltensodium
https://www.nytimes.com/2019/07/29/technology/uber-job-cuts.html
======
sambroner
Hot take: This seems like it's directly related to the IPO itself. I'm
imagining this cause and effect:

Need more users pre IPO to juice the growth story -> Hire more marketers ->
Cut costs post IPO

I'm not arguing it's effective, but it's certainly a reasonable outgrowth of
the various goals they've had over the last year or two.

~~~
cj
I mostly agree, except I'd probably frame it a bit differently:

> Need more users pre IPO to juice the growth story

Or, "VCs tell us we need to spend their investment quickly in whatever areas
will generate a hockey stick growth in valuation. We can always fix our
business model when we're ready to."

> Cut costs post IPO

Or, "We no longer answer to our VCs. Now we answer to the public market who
cares a lot more about the fundamentals of our business. Now we need to
improve our fundamentals to push our market cap upward."

~~~
MegaButts
I don't disagree with what you're saying, but I think there is a more cynical
take that Uber exemplifies.

The VCs do everything they can to drive up the valuation, except make money.
They then sell their shares to the public markets for an incredible profit and
let them deal with the problem of actually making money.

I fear venture capital (and Silicon Valley) is much more about value
extraction than value creation these days. I am still somewhat young so I have
a limited frame of reference - maybe it was always like this.

Obviously you can find examples to support either side. Amazon and Facebook
weren't the money making machines (for all the talks of Amazon not making a
profit, AWS clearly does and their free cash flow is insane) they are today
when they went public. But there are far more companies that didn't turn out
that way.

Travis Kalanick was very clear that Uber could not survive without self-
driving cars. And that doesn't seem to be panning out.

~~~
scarface74
Facebook was already profitable pre-IPO and was forced to go public because of
some security law involving the number of investors.

But the number of tech startups that go public is small. Only one YC backed
company has ever gone public - Dropbox. And it seems to be proving Steve Jobs
right. It was never a product, it was a feature. It still doesn’t have a clear
road to sustainable profitability.

Even out of the few that have gone public within the last 10 years, most of
the tech darlings still haven’t become profitable.

~~~
brandnewlow
PagerDuty (YC S10) is also a public company:
[https://www.marketwatch.com/story/pagerduty-stock-
skyrockets...](https://www.marketwatch.com/story/pagerduty-stock-skyrockets-
nearly-60-on-first-trading-day-after-ipo-2019-04-11)

~~~
scarface74
And they lost $12 million last year so just like Dropbox. They still aren’t
profitable.

------
ProAm
Profitability doubts after the IPO? Everyone in the world knew they were never
close to profitability pre-IPO, this is just the reality of being a publicly
traded not profitable company. Can't funding round yourself out of this one
anymore.

~~~
rolltiide
Well you can... the terminology is just different

They’ll say “saudi investors bought into secondary offering at X share price”
instead of “round completed at Y valuation!!!” Which is just X share price of
last purchase multiplied by total shares in existence

Public companies can do secondary offerings from treasury or from creating
brand new shares from nothing (dilution)

Liquidity is one of the benefits

~~~
askl56
> “saudi investors bought into secondary offering at X share price”

I think Beyond Meat are currently demonstrating the perils of doing a
secondary offering whilst the company is unprofitable.

~~~
rolltiide
so that was hilariously well timed with my post but very strange: its some
investors doing the share sells, but having the company announce it (and
selling just a tiny amount of shares in it too). The company doesn't make the
bulk of the money here, so why announce it at all? The investors just used the
company to advertise that they have shares to sell

so this is more of a hilarious red flag of incompetence, if one planned to add
to a position in this

but it does the prove the point that the company and shareholders have many
financing options: the issuer is unscathed here, they will create shares and
exchange it for $50,000,000 or maybe $40,000,000 due to the 20% drop from
announcing it, oh no. Those private shareholders are still planning to make 9
figures.

------
codingdave
> The marketing team had more than 1,200...

I fully admit that I'm not in marketing, so there are surely nuances I don't
know. But that scale of marketing department is orders of magnitude above any
other place I have worked, with the possible exception of IBM in the 90s. Just
maybe... this was a reasonable move.

~~~
aresant
Uber's marketing / customer acquisition cost is their highest non-driver line
item by a significant multiple.

They spent ~$3,200,000,000 ($3.2 billion) on sales & marketing in 2018 of
which ~$1,800,000,000 is direct media / HR cost to drive customer acquisition.

In 2019 this number, as of the first quarter, has gone up substantially to a
>$4b run rate.

With a burdened cost of $150k/yr for every single member of the 1,200
marketing team that makes up $180m of the total.

Uber operates in 600+ international major markets.

1200 employees (5% of organization total) covering and executing nuanced
marketplace approaches for a budget of that scale is not out of range.

(1) [https://qz.com/1592971/uber-ipo-filling-reveals-how-it-
spend...](https://qz.com/1592971/uber-ipo-filling-reveals-how-it-spends-its-
money/)

~~~
SilasX
Echoing twic's disbelief here. A quick googling turned up Coca-Cola's global
advertising budget as being $4 billion/year [1].

>Coca-Cola has made a yearly commitment to large ad spends. In 2017, the
beverage manufacturer spent $3.96 billion, in 2016, $4 billion, and in 2015
$3.96 billion on global advertising.

But I'm not sure if that's a comparable figure, as "advertising" is only a
subset of "marketing". Still, if the latter is basically just the former plus
salaries, it still suggests Uber is overpaying and/or has some inefficiencies
in how they operate here.

[1] [https://www.investopedia.com/articles/markets/081315/look-
co...](https://www.investopedia.com/articles/markets/081315/look-cocacolas-
advertising-expenses.asp)

~~~
nemothekid
I _think_ driver incentives falls under marketing spend at Uber. Driver
Incentives are they will pay driver $X to make $Y trips. Essentially riders
are paying $5 and drivers are making $6. I believe this is where most of the
money is burned at Lyft as well.

~~~
aresant
UBER masks this real number across many of their general line items.

EG they put ~$300,000,000 of the "Driver Incentive" cost into "Cost of
Revenue" line item that represents:

\- "Any amount paid to a driver that exceeds the revenue earned by that driver
(for instance, if a driver’s earnings from a trip exceed the fare for that
trip). Excess driver incentives jumped by about $300 million in 2018 from the
previous year, largely due to Uber Eats."

And then they stick $1,800,000,000 into "Sales & Marketing" representing:

\- "Discounts, promotions, refunds, and credits for customers,"

\- - - -

A popular criticism of UBER is that their unit economics are not sound - eg
they can't make money at scale on a per ride basis.

So this giant $2.1b glut of Driver Incentives and Customer Incentives is one
of the areas to deeply study and build a position around if you'd like to be
an UBER stock holder :)

~~~
resters
I am not a shareholder, but I think market share is the short term goal. The
incentives can be phased out as prices increase a bit after competition cools
off.

~~~
AJ007
The big question is driver retention and how much Uber subsidizing drivers is
required. Maybe Uber spends 0 extra, drivers drop out of the system, ride
prices increase, and drivers return as riders stop using Uber, bringing it to
some sort of equilibrium. Maybe not.

These retention numbers, for any business that needs returning customers or
service providers pretty much make or break all the customer/provider
acquisition economics.

~~~
sprafa
In London Uber is unravelling already. Here Citymapper is the default transit
app and Uber is just one of the options listed. The transfer cost for a
customer changing app is 0. We keep saying we’re “not sure” whether Uber will
have customer retention... no, of course it won’t! Unless they change their
model, they’re the biggest VC folly in recent times. Just proves how
overheated the market become when F/A/G acquired everything in the market that
competes with them, leaving ridiculous Vc money to flow to dumb ideas like
Uber.

~~~
ddalex
no VC money anylonger, now it's stock market money, i.e. our pension funds

~~~
VRay
Wait, you guys get pension funds?

------
UberIsAnnoying
I hope it included the people responsible for sending me the most abusive SPAM
campaigns I have had in years.

1) I never subscribed to these e-mails

2) The e-mails contain a link to unsubscribe in this format:
click.uber.com/f/a/<strings>

3) You get redirected to uber.com/unsubscribe

4) They make you manually fill your e-mail

5) When you press unsubscribe:

\- It makes a request to uber.com/api/unsubscribe?email=<email-
address>&et_job_id=&et_list_id=&et_batch_id=&message_uuid=&content_identifier=

\- Response is always 404 Not Found (Tested on Firefox, Chrome, IE, Edge)

~~~
spectramax
I am no lawyer but pretty sure this violates:

[https://en.m.wikipedia.org/wiki/CAN-
SPAM_Act_of_2003](https://en.m.wikipedia.org/wiki/CAN-SPAM_Act_of_2003)

~~~
buckminster
Sure it does, but ignoring regulations is Uber's schtick. Using their services
is the moral equivalent of buying stolen goods.

------
fluxic
Love to revisit this piece every few years. Why food delivery will never be
profitable: "The Food Delivery Death Star" [https://medium.com/@review/the-
food-delivery-death-star-85f9...](https://medium.com/@review/the-food-
delivery-death-star-85f9a121313)

~~~
mevile
Pizza delivery is profitable. Pizza comes in a shape easy for transportation,
the size and value of the delivery is economical for a delivery business and
there's an established culture around ordering pizza for delivery.

The food delivery companies just need to figure out these problems, which a
hard, for non-pizza foods.

~~~
bduerst
_Is_ it though?

Most pizza delivery is an ancillary service to the restaurant itself. Are
there very many profitable pizza-delivery only businesses?

Also you could argue that for the genre of restaurants where delivery is
profitable as an ancillary service (pizza, chinese, etc.), they already offer
delivery and there isn't any profitable market for the restaurants where they
didn't have it before.

~~~
cosmodisk
It's not profitable because every single restaurant does it for itself only.A
post office service would never make a dime if it was only covering a small
town.Scale it up to the entire city and it becomes very interesting

~~~
komali2
Back in frontier west, outside US territory (and therefore not served by the
Post Office Department or the Pony Express), people _would_ set up highly
profitable transportation companies. These companies would make deliveries for
local shops but also carry mail, bringing stuff to somewhere served by the
Post Office Department or the Pony Express or the Wells Fargo freight routes.

I read all this in a book ages ago but I was skimming through some wikipedia
articles that mention some of what I'm talking about if you're interested:

[https://en.wikipedia.org/wiki/American_frontier](https://en.wikipedia.org/wiki/American_frontier)

[https://en.wikipedia.org/wiki/Pony_Express#Stations](https://en.wikipedia.org/wiki/Pony_Express#Stations)

~~~
sjg007
I mean this was how Wells Fargo started.

------
rsp1984
Can someone with insight into the matter explain, from a high level, what the
big concerns are over Ubers ability to run profitably?

In my naive view they are "just running an app" / acting as a mobility
marketplace and they make money on each transaction. Given the traction and
market dominance they have this sounds like a really attractive business. So
how do they manage to run such big losses every year and which items on the
expense side are so crucial for the business that nobody at Uber dares to cut
into them?

~~~
projektfu
The big concerns are whether drivers will continue to accept the pay they are
offered. In 2018 they spent $837 million on excess pay to get drivers to
accept certain trips. Insurance costs are also high, a large portion of their
revenue.

Assuming their chart is representative of an average booking, $1 in excess
incentives corresponds to a $10 booking. If so, 15-20% of their bookings
appear to produce no revenue and cost money through excess incentives. They
must be doing this to stay ahead of their competitors and/or encourage people
to use the app.

Once the gross revenue picture is done, you have the relatively fixed
operating costs. They are spending a fortune on marketing and consumer
incentives, as are their competitors.

Overall they lost a bunch of money but made up for it through selling off the
Russia/SEA businesses for a few billion. They also marked up their investment
in Didi (which I believe they spun off before). But that's a paper increase.

So, they could become leaner. They also may continue to grow their way out of
the hole. They do make money on most transactions. But becoming operating-
profitable is a matter of putting competitors out of business and increasing
demand for rideshare generally. They also need to get people to pay for the
currently unprofitable trips. (Personally, I wonder how often they are leaving
revenue on the table with their incentives.)

~~~
freewilly1040
What sorts of trips are not profitable for them?

~~~
toast0
Trips where they pay the driver more than the customer pays.

They are constantly running promotions to encourage drivers. They are
constantly running promotions to encourage riders.

It's not clear that they make very much if riders and drivers are at the
regular rate either. They've got to pay the merchant fees for all the card not
present transactions, and maybe platform fees to apple and google, too?

------
Bootwizard
Does anyone have any idea why Uber isn't profitable? I never really understood
that. It's such a ubiquitous service in a large portion of the world.

It seems to me that they have a lot of physical growth, so what is happening
to their finances?

~~~
MiroF
You literally cannot profitably transport people at the prices they're
offering. Uber is just one big bet that the price point of transportation will
fall significantly with the advent of self driving and they'll be there to
make the money off that margin.

~~~
davinic
Why would they care about self-driving if most of their drivers are making
little more than the cost of operating their vehicle?

~~~
EpicEng
Economies of scale kick in when you own the fleet. I'm also not sure about the
statement "most of their drivers are making little more than the cost of
operating their vehicle".

~~~
toast0
If owning the fleet was valuable, there's not much (probably just labor law
and some issues with the mythos) stopping Uber et al from owning the vehicles
the drivers drive.

I think self-driving is the cold fusion of the 21st century, but the reason
unlicensed taxi companies are pursuing it is because if, by some miracle, it
comes to fruition, it might make their business viable, but it would be hard
to compete with an automaker running autonomous taxis when you have to buy
your autonomous taxis from the automaker you're competing with. If they can
build it on top of existing cars, it makes it more possible to compete; and if
they end up with an enabling patent, it means they'll probably survive in some
form.

------
dvt
When I was at Edmunds (working on a fairly profitable ad tech product), Uber
was actively poaching from our team; a few ex-coworkers (albeit mostly
engineers) moved up to SF and hopefully they didn't get axed. We can chalk
this up to "business as usual," but let's not forget people's livelihoods are
at stake.

~~~
luckylion
> but let's not forget people's livelihoods are at stake

Meh, but let's also not pretend that they didn't make a lot of money by
working for a company that treats the people that provide the actual service,
the drivers, like shit.

------
chiefalchemist
> Uber operates in 600+ international major markets.

.75 persons per market? While I'm sure that cost ads up, in terms of "human
resources" it's relatively minor at best.

------
duxup
Someone did a calculation about what they were paying drivers of they were
converted to an hourly rate if you averaged it.

IIRC, it was somewhere near minimum wage. If you can't make a profit or are
far from profitable and your front line workers are making that little
money.... how do you ever without dramatically raising prices?

I really doubt corporate office cuts can achieve it.

------
aresant
From a non-paywalled source (1):

1) These cuts appear to be exclusively in the marketing department taking
department from 1,200 to 800 - that is a BIG ASS cut of 33% [EDIT from 25%].

2) Seems like this was a warning shot by CEO Khosrowshahi who comments "[M]
any of our teams are too big, which creates overlapping work, makes for
unclear decision owners, and can lead to mediocre results." \- I'd be doing my
best work @ UBER right now or warming up the resume.

3) Uber has >25,000 FTE worldwide as of article writing.

[https://www.latimes.com/business/technology/story/2019-07-29...](https://www.latimes.com/business/technology/story/2019-07-29/uber-
layoffs-marketing-jill-hazelbaker)

~~~
tootie
That's 33% actually. And while that's a huge cut, that's also an absurdly
large marketing team. There's a reason most big companies hire agencies to do
marketing. It's not their core business and you can roll over staff willy-
nilly without affecting your head count.

~~~
aresant
In a two sided marketplace customer acquisition and marketing are absolutely
fundamental.

Uber operates in >600 major cities across the world at this point.

1200 employees would indicate about 1 person per market per side of the
market.

~~~
xmprt
Which is exactly their point. Why localize your marketing when you can build a
much more centralized message. This way they spend less on marketing and have
a better global brand identity.

~~~
aresant
I'm not going to fight this one to the death but I have direct experience in
this marketplace.

It is much more nuanced than "let's be centralized" and the idea of handing it
all over to an agency is a joke.

Marketing / customer acquisition is literally their highest non-driver line
item by a gi-fucking-gantic amount.

Sales & Marketing represents $3 - 4billion dollar cost vs a total marketing
payroll of ~$165,000,000

There are absolute returns to pull out of each market by having localized
expertise and control.

The fact that even on HN the consensus to my thread is that this should be
outsourced indicates the degree to which UBER has masked their real DNA - this
is one of the world's largest direct response marketing agencies with a ride-
sharing platform attached!

If the CEO is taking head shots at marketing you can be absolutely sure that
under-performers in the rest of the organization are on notice.

[https://www.cbinsights.com/research/report/how-uber-makes-
mo...](https://www.cbinsights.com/research/report/how-uber-makes-money/)

[https://qz.com/1592971/uber-ipo-filling-reveals-how-it-
spend...](https://qz.com/1592971/uber-ipo-filling-reveals-how-it-spends-its-
money/)

~~~
jandrese
This makes them look closer to a MLM scheme than a traditional business. Most
of the corporate focus is on marketing to "employees" at the bottom who end up
getting kind of screwed by the system. The product is entirely secondary.

------
beefman
They overhired so badly it's an existential threat to the company, and not
even from a cost perspective. Should lay off closer to 4000, but that would
have negative cultural impact too. So they're stuck. Always slightly underhire
so you can be sure you didn't overhire.

~~~
williamDafoe
Companies that perform layoffs have underperforming stock over the next 5
years. so they are trying to lay off a small enough number of people that they
don't appear to be the weakening company that they are....

------
muzani
I had an impression that they hired lots of people at very high salaries to
build fast and establish a presence all over the world.

Now that they have something nice built and are all over the world, it's a
great time to cut costs. A lot of the people they've hired probably have some
equity and so they're probably just fine getting laid off after the IPO.

~~~
kaikai
Not if they're still in the lockup and can't sell off stock in order to cover
the taxes from exercising.

~~~
williamDafoe
The last few years both companies give out stock grants every month after 1
year so if somebody is laid off they don't lose equity because they already
own the equity outright. Lyft even allowed people to keep their vested stock
options for seven years after they leave.

------
akeck
If a public company open-sources something (as Uber has done on occasion) that
gives them a competitive advantage, could they be sued by shareholders for
giving away something valuable?

~~~
_delirium
Not successfully unless there's a smoking-gun type thing, like someone
involved in the decisions having a clear conflict of interest with a different
company they own. Courts generally won't second-guess business decisions, and
if Uber says something like "we open-sourced this to build goodwill", a court
is going to say fine, weighing the pros and cons of that strategy is their
call, and if shareholders disagree with the strategy, they can elect a
different board.

------
berg01
[http://archive.is/G3a2i](http://archive.is/G3a2i)

------
gionnierob
I bet they get to profitability before driverless cars. The alternative is
Taxis, which are an awful experience. And ubiquitous driverless cars could be
a decade away or more.

------
paxys
It was expected to happen, now that they have to scale down on aggressive
expansion and focus on making their existing markets profitable instead.

------
billpg
Uber actually employ people?

------
codesushi42
Good. I hope this is the beginning of the end for this awful tech company.
Good riddance.

------
squarite
Well if any of those 400 are in SF/NY, and are reading this, we're hiring for
a marketing manager for my team at Square! PM me or apply here:
[https://www.smartrecruiters.com/Square/743999690593237](https://www.smartrecruiters.com/Square/743999690593237)

~~~
rb808
Link says job has expired

~~~
squarite
eek thanks! replaced.

------
throwaway082729
Engineering will be next. Expect this from more companies in the valley as the
reality of being a public company looms on the newly public companies.

------
itchyouch
400 people at say 40k salaries or around 80k with benefits is around 32
million. Definitely a significant chunk of change, but barely scratching the
surface for offsetting 1B in losses.

~~~
CydeWeys
You think Uber employees are only making $40k???

~~~
phil248
In most of the country $40k/year is a very reasonable salary for a full-time,
mid-level office role.

~~~
cortesoft
But Uber is in San Francisco, which is not most of the country.

~~~
phil248
True, but "The layoffs will affect multiple offices worldwide".

