Since the last global recession, the gig economy has transformed life around the world, shaking up transportation in cities, food delivery and even the way people think about housework. (Why hang a painting yourself when you can use TaskRabbit?)
But the gig economy startups that captured public attention over the past decade aren’t faring well in their first downturn, as people are spend less on non-essential items and travel — either across town or around the world —is extremely limited.
Uber is cutting 3,700 full-time workers, about 14% of its workforce, and its CEO will give up his base salary, according to The Associated Press.
The San Francisco company said Wednesday that the layoffs and related costs like severance will reach about $20 million.
Uber Technologies Inc. had already imposed a hiring freeze and has offered up to 14 days of financial assistance to drivers and delivery workers who were diagnosed with COVID-19, or placed in quarantine.
Chief Executive Dara Khosrowshahi will waive his base salary through year-end.
The company, which is scheduled to report quarterly financial results after the bell Thursday, said it is evaluating other cost cuts.
Airbnb, the short-term rental site that had planned to go public this year, said Tuesday that it will lay off about 25% of its workforce as the coronavirus pandemic upends the travel industry and threatens the company’s core business.
“We are collectively living through the most harrowing crisis of our lifetime, and as it began to unfold, global travel came to a standstill,” Airbnb CEO and cofounder Brian Chesky said in a letter to employees.
Airbnb’s business has been “hit hard” and revenue this year is expected to be less than half of what the company earned in 2019, he added.
Comparisons to last year will also be tough for Uber and Lyft. The ride-sharing companies had been struggling to convince investors that they were on a path toward profitability following their Wall Street debuts. The coronavirus outbreak has only fed doubts about the way forward.
Uber shares are down 30% since the middle of February, while Lyft shares have dropped 43%. The S&P 500 has shed 15% over the same period.
More details about how Uber and Lyft’s businesses are faring will be available shortly. Lyft reports earnings for the first three months of 2020 after US markets close Wednesday. Uber follows on Thursday.
Investors are bracing for tough data. Bank of America analysts predict that ridesharing could be down as much as 80% in some markets during the current quarter. Both Uber and Lyft have pulled guidance on earnings for 2020 due to uncertainty surrounding the pandemic.
Analysts think Uber could get a lift from an uptick in its food delivery business Uber Eats, but intense competition continues to affect profitability.
“Uber and Lyft face Herculean-like challenges looking ahead as the new reality will likely change the business models of these companies (and competitors) for the foreseeable future,” Daniel Ives, an analyst at Wedbush Securities, said in a recent note to clients.
He projects that up to 30% of gig economy revenue could disappear for the next one to two years, and a portion will never return as behaviors change.
Even as demand picks back up, gig economy companies will face new costs as they roll out policies to protect workers and customers. Uber, for example, plans to require drivers and riders to wear face masks or face coverings when using the platform in certain countries.