Uber ‘re-evaluating’ non-core units like freight, WSJ reports

Uber Technologies  (NYSE: UBER) has laid off 3,000 more employees and closed 45 more offices, the Wall Street Journal reports, just after a first round of layoffs that totaled more than 3,700 employees.

CEO Dara Khosrowshahi wrote in an email to employees that Uber was “making really, really hard choices right now,” including re-evaluating non-core cashburning businesses like Uber Freight and autonomous driving. Khosrowshahi said that Uber was looking at “strategic alternatives” for its staffing business Uber Works, but did not use that language specifically for Freight.

“We remain committed to growing the Uber Freight business, innovating in the Freight industry, and supporting our partners – carriers and shippers alike,” an Uber Freight spokesperson told FreightWaves. “Today’s news does not impact our product roadmap, or our ability to provide best-in-class service to our customers.”

Uber Freight, Uber’s digital freight brokerage business, had already adjusted its growth strategy and the way it priced freight to customers as part of Uber’s new emphasis on driving toward profitability. As late as February 2020, Khosrowshahi said that Uber would be EBITDA-profitable by the end of 2020, but the coronavirus pandemic pushed that date back to 2021.

Uber’s financial reporting and channel checks across the freight brokerage industry confirmed that Uber Freight was adjusting its model earlier this year. Uber Freight raised contracted rates on several large customers by double-digit percentages. Multiple sources told FreightWaves that the digital brokerage gave back a multi-million dollar award to a Fortune 100 consumer packaged goods shipper earlier this year.

And the digital brokerage’s attitude toward growth changed – the first quarter of 2020 marked the second quarter in a row that Uber Freight’s gross revenue had declined sequentially. Still, the $199 million in gross revenue Uber Freight reported in the first quarter 2020 put it on a $796 million annual run rate, enough to place the business in the top 15 or 20 freight brokerages in the United States.

But Uber Freight is far from achieving profitability; the segment lost $64 million in ‘adjusted EBITDA’ in the first quarter of 2020, which was admittedly better than the $81 million loss in the fourth quarter of 2019. Uber’s financial reporting makes it impossible to reconstruct Freight’s gross margins – the typical measure of performance for non-asset third-party logistics providers reliant on purchased transportation – or its operating costs. Uber Freight’s operating costs are thought to be much higher than most freight brokerages because of its investments in technology, which allowed the business to move tens of thousands of touchless loads.

In January, the Chicago Tribune reported that Uber was offering some of its new Chicago space up for subleases; when FreightWaves questioned Uber Freight management earlier this month, they did not comment further on the subleasing.

The question around Uber Freight has always been how and why it fits into Uber’s overall business. Uber’s Rides business was unique because the company created capacity by convincing people to drive passengers in their own cars, but the Freight business cannot create Class 8 trucks out of thin air. That left Uber Freight subject to the supply-and-demand dynamics of a fragmented, highly competitive market with many tech-savvy brokerages already established. Freight brokerage revenue, it turns out, is more volatile – and so are its margins –  unlike the B2C marketplaces for rides and food delivery that Uber has effectively been able to create and control.

Ultimately the difficulty of acquiring non-recurring freight revenue and managing volumes in a volatile, cyclical industry makes freight brokerage a fundamentally different kind of business than Rides. And the variable performance of a digital freight brokerage could ultimately be dilutive to Uber’s valuation, if it got big enough to matter.

In July 2018, FreightWaves wrote about Uber shuttering its autonomous trucking program, which had the potential to make its freight brokerage offering something truly revolutionary: “If Uber Freight loses the benefit of selling the concept of an autonomous trucking future, investors might prefer company executive attention on protecting and building out the core business.”