Uber stock rises as company cuts 3,300 jobs: here’s what investors should know

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Uber Technologies is cutting about 3,300 jobs as Chief Executive Dara Khosrowshahi moves to streamline the company’s organization, reduce costs and speed up decision-making at a time when the ride-hailing giant is preparing for a potentially disruptive shift toward autonomous vehicles.

The cuts, equivalent to roughly 10% of Uber’s workforce, sent shares (UBER) about 2% higher in premarket trading Wednesday.

The stock has nevertheless had a difficult year, falling over 9% and trailing the broader S&P 500 as investors have become increasingly concerned that autonomous ride-hailing operators such as Waymo could challenge Uber’s dominant position in the North American market.

Khosrowshahi outlined the restructuring in an email obtained by Bloomberg News, arguing that Uber’s rapid expansion had left the company with an overly complicated structure.

“more layers, more coordination, more fragmented ownership, and in some cases structures that made sense when businesses were smaller but no longer serve us well at our current scale.”

Uber had about 34,000 employees worldwide at the end of last year, according to its annual report.

Once the cuts are completed, its workforce will fall to just under 30,000 employees, roughly the same level as in 2021.

Biggest layoffs since the pandemic

The reductions will be Uber’s largest since May 2020, when the company eliminated about 6,700 positions, or nearly a quarter of its workforce, as COVID-19 restrictions brought much of the ride-hailing industry to a standstill.

The latest cuts are different in nature.

Rather than responding to an immediate collapse in demand, Uber is seeking to reshape an organization that has grown substantially in recent years.

Khosrowshahi said the changes are intended to make Uber “simpler and faster,” with fewer layers of management and less duplication between teams.

The company has reduced by 20% the number of employees positioned seven or more reporting layers below the chief executive, while the number of “micro-teams” — teams with only one or two direct reports — has been cut by nearly half, according to Bloomberg.

Uber is also consolidating parts of its engineering, science and delivery operations. Its three operations teams covering restaurants, retail and white-label delivery services will be combined as part of the restructuring.

The changes extend beyond headcount.

Uber plans to concentrate global teams in New York and San Francisco and require most remote employees to relocate.

Only about 1% of its workforce will be allowed to remain remote under the new arrangement.

Savings will help fund Uber’s next phase

The restructuring comes as Uber tries to balance efficiency with substantial investment in the next generation of its business.

Khosrowshahi said the changes will “generate savings that we intend to reinvest in growth, innovation, and the capabilities that will matter most over the coming years.”

He said more investments will be made into drivers, couriers and merchants around the world, in addition to upgrades for its core business and work being done to build an “autonomous future.”

Uber has committed to investing more than $10 billion in robotaxi partnerships over the coming years as it seeks to position itself as the platform through which consumers summon autonomous vehicles.

The company has also been reallocating capital toward the autonomous vehicle ecosystem, including investments in Avride, Lucid, Nuro and Rivian Automotive, while reducing stakes in some other companies.

That strategy could ultimately allow Uber to participate in the autonomous vehicle market without having to manufacture the vehicles itself.

Wall Street sees an autonomous vehicle opportunity

BMO Capital recently reiterated an Outperform rating and a $119 price target on Uber, reinforcing a broader bullish Wall Street view.

Analyst targets currently range from $70 to $150, with the consensus rating at Strong Buy, with $150 reflecting a 100% upside from its current trading levels of $75.

BMO argues that the investment case for Uber is increasingly moving beyond conventional ride-hailing and toward its potential role as a marketplace connecting passengers with autonomous vehicle operators.

The firm believes Uber’s expanding autonomous vehicle infrastructure and growing network of partners could position it as a preferred mobility platform for autonomous vehicle manufacturers.

The implication is important for investors.

If autonomous fleets eventually become a meaningful part of urban transportation, the economics of ride-hailing could change substantially.

Uber would face less reliance on human drivers while potentially gaining access to a larger pool of autonomous vehicles operated by different partners.

BMO said Uber’s autonomous vehicle strategy is expected to become a significant driver of revenue and profitability, and that the company could capture a disproportionate share of the value created by the commercialization of autonomous vehicles.

AI is part of the restructuring, but not the headline

Unlike many technology companies that have cited artificial intelligence as a reason for reducing headcount, Khosrowshahi did not attribute Wednesday’s layoffs directly to AI.

Uber has, however, been looking to use more AI across its operations, and the restructuring is partly aimed at creating a leaner organization capable of deploying technology more efficiently.

The distinction matters.

Uber is not simply cutting jobs to offset technology spending.

It is attempting to remove organizational complexity while freeing capital for areas it believes will determine its competitive position in the coming years.

That includes autonomous vehicles, where Uber faces both an opportunity and a threat.

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