Suddenly taking expenses seriously before it’s too late.
Uber is trying to unload its new headquarters. It bought the 380,000-square-foot Sears building in Oakland in September 2015 for $123.5 million and planned to fix it up before moving its headquarters and 2,500 to 3,000 employees into it.
It remains a mystery why it bought the building – now called Uptown Station – rather than leasing it, or why it needed to move its headquarters to Oakland when it was putting together its 423,000-square-foot campus in San Francisco’s Mission Bay. But hey, Uber was Uber and money was no objective. And things didn’t need to make business sense.
The seller, Lane Partners had paid $25 million for the 90-year-old structure and another $40 million to restore it. By selling it to Uber, Lane Partners almost doubled its money in no time. But Uber was Uber and money was simply no objective.
But now the adults have taken over at Uber. And money has become an objective.
A 14-member executive committee is running the show since there’s no CEO, no CFO, no number two behind the CFO, and no COO. A gaggle of other executives and managers left or were shoved out in the wake of scandals, chaos, and lawsuits.
And the adults have decided to bring the expenses down. One of the steps is to unload Uptown Station. According to the San Francisco Business Times:
The possible sale of Uptown Station means Uber can move the asset and development costs off its books, which could put it in a better financial position. That was a key motivator for exploring the sale, spokesperson MoMo Zhou told the Business Times.
Uber was looking “to strengthen our financial position so we can better serve riders and drivers in the long term,” she said. So they’re starting to concentrate their efforts and prioritize their spending where it matters: riders and drivers.
In March already, Uber had decided to scale down its move to Uptown Station. Instead of migrating 2,500 to 3,000 employees into the building, it said it would move just a few hundred, and lease out the remaining space.
Uber has booming sales – in Q2, “adjusted net revenue” soared by 118% year-over-year to $1.75 billion – but it also has booming expenses and losses, and sooner or later something has to give. In 2016, it booked an “adjusted” loss of $3.2 billion (not including interest, tax, employee stock compensation expenses, and other items). In the first two quarters of 2017, it booked an “adjusted” loss of $1.4 billion: $4.6 billion in “adjusted” losses in six quarters. It has $6.6 billion in cash. At this pace, it’ll be gone quickly.
Uber is now trying to cut its losses and reach profitability, a “person with knowledge of the matter” told the Business Times. And given the chaos surrounding Uber, it might be a better idea to concentrate employees in one place rather than scattering them all over the landscape.
This comes after the adults have also decided to shut down Uber’s subprime auto leasing program that was started two years ago. “Xchange Leasing” put their badly paid drivers with subprime credit into new vehicles they couldn’t afford. The leases allowed drivers to put “unlimited miles” on their cars without consequences and return the cars after 30 days with two weeks’ notice.
No one in the car business would ever offer this kind of lease. But the folks at Uber simply didn’t need to do the math.
Uber invested $600 million in this program. Now the adults found out they’re losing $9,000 per car. With 40,000 cars in the fleet, it adds up in a hurry. So they decided to shut down that program.
As a privately held company, Uber isn’t obligated to report financial and operational information to the public. But it has started to disclose some information on a select basis to show that it is making progress, that revenues are booming despite the chaos, and that expenses are finally being taken seriously, and that “adjusted” losses are coming down – they fell 14% year-over-year.
The cost-cutting effort is a sea change for a company that didn’t care how many billions of investor money it blew on whatever misguided efforts it undertook. Cutting extravaganzas is easy to do. But cutting operationally integrated programs, such as Xchange Leasing, has consequences. It will save a lot of money. But it will also cut into the muscle. What are these underpaid drivers going to drive? Old beaters that look just like the taxis Uber is competing with? Or will Uber have to pay its drivers more so that they can drive newer cars that riders have come to appreciate? Will it even be able to recruit drivers with decent cars?
Rideshare companies have revolutionized ground transportation and have crushed their competition of taxis and rental cars, but they have lost countless billions doing so. There are well-calculated suspicions that this business model cannot be profitable at the current fares, and that it cannot be competitive once fares are raised enough to make the companies profitable. So the adults at Uber have their work cut out for them to prove the suspicions wrong, and whittling down some expenses at the margin – though a step in the right direction – isn’t going to do the job.
Uber wants to let everyone know that its operations have not sunk into the chaos that surrounds the company. Read… Uber Wants You to Know it’s Not Collapsing
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.