On buybacks being price-dependent, I agree with the FT newsletter “Unhedged” and Warren Buffett’s sentiment (“Is Uber’s buyback a
good idea?”, Unhedged, FT.com, February 15). Buffett is one of the world’s greatest investors — estimating fair value is what he does. Most companies and CEOs are not investors.
I’ve observed that non-professional-investor CEOs tend to be quite poor at buyback timing. They are typically overconfident when their stock has positive momentum (“of course my stock price is going to rise!”) and scared/under-confident when their stock loses momentum — and in that instance they tend to hoard cash unnecessarily. I believe Uber’s best days are ahead: we have a large, utility-like business that is still in the early days of penetrating its market. This has led us to conclude that a consistent buyback programme is the right answer for Uber.
Unhedged questioned Uber’s ability to invest more in our business. Of course we can invest more but there are generally two types of investments we can make: variable cost (marketing, incentives, etc) and fixed cost (sales heads, engineers, etc). It is true that we can invest more to hire engineers to build new features that could return 20 per cent-plus return on investment. However, engineers are a fixed cost that we have to commit to over the next five-plus years. Conversely, if a stock market investment doesn’t work out, you can just sell it.
As Uber’s CEO, I have to bet that my engineering pod cannot only return
20 per cent-plus next year, but also earn a similar 20 per cent-plus each and every year afterwards. Ship one great project, identify another, ship again, rinse and repeat.
If my engineering pod fails to return its cost of capital, I can’t sell it — I’d have to lay them off. That comes with a financial cost, but more importantly a human and organisational cost. While many other tech companies overhired during the pandemic and had to subsequently fire many of those same employees, we have been disciplined about our growth and focused on building great products versus endless restructuring.
Dara Khosrowshahi
Chief Executive, Uber Technologies,
San Francisco, CA, US
(This is a shorter version of a letter that ran in Unhedged on February 28)
