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Why Uber Stock Popped Today

By Evan Niu, CFA – May 18, 2020 at 4:19PM

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The ridesharing specialist has laid off a quarter of its workers this month.

What happened

Shares of ridesharing giant Uber (UBER -5.82%) have popped today, up by 7% as of 1:50 p.m. EDT, after the company confirmed it was laying off thousands more workers. The layoffs are in addition to the previous job reductions announced earlier this month.

So what

In a regulatory filing, Uber said it was reducing its head count by approximately 3,000, in addition to the 3,700 previously announced layoffs. That will bring total job cuts this month to 6,700, or about 25% of the 26,900 full-time employees (not including contract drivers) that the tech company had at the end of 2019. Uber is also closing 45 offices around the world.

Uber and Uber Eats app icons displayed on a smartphone

Image source: Uber.

Uber expects to recognize $175 million to $220 million in restructuring charges associated with the latest round, which will consist of $110 million to $140 million related to severance and termination benefits, $65 million to $80 million related to site closures, and another $25 million to $30 million in write-offs for leasehold improvements at offices. These are cash charges that Uber will eat in the second quarter.

Now what

"We must establish ourselves as a self-sustaining enterprise that no longer relies on new capital or investors to keep growing, expanding, and innovating," CEO Dara Khosrowshahi wrote in an internal memo announcing the cuts obtained by Business Insider. "We have to take these hard actions to stand strong on our own two feet, to secure our future, and to continue on our mission."

Combined with the earlier round of layoffs, Uber is trying to cut costs and expects to generate cost savings of $1 billion, even as Uber was reportedly considering acquiring GrubHub for $6 billion in an all-stock deal. GrubHub has reportedly rejected the initial offer.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

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