Uber: Misaligned Priorities

By now you must have heard about Uber laying off 3,500 employees over a 3-minute Zoom call. Uber operates in ride-hailing and mobility space, which is adversely affected by the impact of Covid-19, hence this was an expected move. But what astonishes me is that on one side it is laying off thousands of employees to cut costs, on the other side it is on multi-billion dollar deal-making spree.

The Lay-offs:

Uber announced that it will layoff 3,500 employees, representing 14% of its workforce. In a sign of the times, with employees working from home, Uber informed the job-loss casualties via an online Zoom call. The way in which a company downsizes its staff says a lot about the organization.  (Forbes)

Rob Chevaleau, who heads Uber’s Phoenix Center of Excellence, informed the staff that the rides business is down by more than half and there is not enough work for many frontline customer support employees. “[As a result] we are eliminating 3,500 frontline customer support roles. Your role is impacted and today will be your last working day with Uber. You will remain on the payroll until the date noted in your severance package,” Chevaleau said. (Firstpost)

Deal Making Spree:

Amidst all the uncertainty and the drop in demand for rides, Uber is on a deal-making spree. In nearly three years at the helm of Uber Technologies Inc., Dara Khosrowshahi has focused mostly on cutting costs. Now he’s seeking a return to what defined his career before Uber: buying things.

Khosrowshahi, 50, cultivated a reputation as an effective dealmaker when he ran Expedia Group Inc. for more than a decade. He completed 41 transactions there with a total value of $12.7 billion, according to data compiled by Bloomberg.

Uber is negotiating a potential acquisition of Grubhub Inc. as the coronavirus pandemic drives a surge in demand for food delivery, people familiar with the negotiations said. If a deal is reached, Grubhub, with a market value of $5.3 billion, would be the biggest Khosrowshahi has ever done. The plan for Grubhub follows the same playbook of Khosrowshahi. (Economic Times)

Uber is also in talks to invest $170 million into electric scooter company LimeBike Inc. with an acquisition option, according to a report in The Information. The investment would value Lime at $510 million, down 79% from its $2.4 billion valuation as of the company’s last venture capital round of $310 million in February 2019. Uber is already an investor in the company alongside Alphabet Inc., GV, Bain Capital, Andreessen Horowitz, Fidelity Ventures, and IVP. (siliconANGLE)

The recent slump in the valuations of companies worldwide has provided an opportunity for Global PE firms (that were sitting on large amounts of dry powder) and large companies like Uber to invest in these companies at attractive multiples.  

Misaligned Priorities:

Self-made Billionaire, Marc Cuban recently said that how companies treat workers during a pandemic could define their brand ‘for decades’. “Not only is it a safety issue, but it’s also a business issue,” Cuban said on CNBC’s “Markets in Turmoil” special.

But it is not during this turmoil, Uber’s policies have always been predatory towards drivers and employees. In early 2017, as a part of the MBA, I got a chance to work on a project which involved direct interaction with Uber/Ola drivers. In India, the companies first lured drivers on their respective platforms offering incentives as high as Rs. 5000 (~$70) and later reduced the same by almost 60-70%. Many of these drivers had left jobs to get into the high earning business but later regretted the same.    

This is true across geographies. One of the drivers in Nevada, Rob Mead has worked as an Uber driver, to supplement his income as a public sector worker. Now he’s wondering if it is worth it. “After gas, added monthly rideshare insurance, wear-and-tear, constant oil changes, and taxes that $300 for 30 hours of work I thought I made in a week actually averages down to about $90 after expenses,” said Mead. Mead’s wages contrast sharply with the fortunes that the executives at the rideshare companies reap. (The Guardian)

Uber has constantly opposed the forming of unions and the drivers are not categorized as employees preventing them from availing any added benefits that may come along. Drivers are categorized as contractors shedding them from any basic benefits like health insurance, provident fund, etc.

Uber in its 11 years of existence has faced multiple charges of sexual harassment, employee mistreatment, evasion of law enforcement operations, sabotage among others. At the same time, its market capitalization reached from zero to $56 billion.   

In the recent past, we have frequently noticed these PE-backed buffed up companies rose to stardom overnight with little or no corporate governance at play. Many of these companies have gone bust and employees are the ones who lose the most as investors knew what were they getting into. The question is, do we want such companies to lead the corporate world? Interestingly, if one opens Uber’s Wikipedia page, you will find 22 sections under Criticism and only one section under Awards.  

- Gautam Chhabra