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Uber Stock Up on Further Layoffs & Non-Core Business Closure

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With Uber Technologies’ (UBER - Free Report) ride-hailing business taking a severe hit from the coronavirus pandemic, the company announced a second round of layoffs. Additionally, it plans to close operations at some of its non-core businesses. The announcement of these cost-cutting initiatives boosted Uber shares, which closed yesterday’s trading session 3.5% higher.

In a SEC filing, dated May 18, Uber revealed plans to lay off an additional 3,000 full-time employees as part of its efforts to reduce operating expenses amid challenges posed by the ongoing pandemic. Due to these job cuts, the company is expected to incur approximately $175-$220 million of charges in the second quarter.

Earlier in the month, Uber, carrying a Zacks Rank #3 (Hold), announced its first round of job cuts following the coronavirus outbreak. On May 6, the company decided to lay off approximately 3,700 full-time employees in the customer support and recruiting teams. This will cost the company approximately $35-$40 million of charges in connection with severance and other termination benefits (excluding stock-based compensation expense). Affected by the COVID-19 situation, Uber’s arch-rival Lyft (LYFT - Free Report) , carrying a Zacks Rank #3, also laid off a large number of employees and resorted to pay cuts.

Uber’s CEO Dara  Khosrowshahi stated, “Given  the  dramatic  impact  of  the  pandemic,  and the  unpredictable  nature  of  any  eventual  recovery,  we  are concentrating our efforts on our core mobility and delivery platforms and resizing our company  to match the realities of our business.” As a result, non-core business operations such as Uber Incubator, AI Labs, and Uber Works, a shift matching service for workers, will be shut down. Additionally, the company will either close or consolidate 45 of its offices globally.

These aggressive cost-cutting initiatives are a step toward the company’s goal of generating cost savings of at least $1 billion annually.

Due to the coronavirus-led downturn in the rides business, shares of Uber have declined 7.4% since the beginning of February.

Price Performance Since February


 

While coronavirus is weighing on Uber’s rides business, the company’s Eats operations are getting a significant boost as people at home are ordering food online. Notably, gross bookings from Uber Eats rose 52% year over year to $4.68 billion in the first quarter. Meanwhile, Uber Eats’ revenues jumped 53% year over year in the same period. To bolster the food delivery business, Uber is in talks to purchase Zacks #3 Ranked Grubhub (GRUB - Free Report) , in an all-stock deal. This acquisition would give Uber Eats decisive control of the food delivery market in the United States with a combined market share of 48%.

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TiVo Corporation (TIVO) - free report >>

Grubhub Inc. (GRUB) - free report >>

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Lyft, Inc. (LYFT) - free report >>

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