Delivery Hero SE (GRAB) Earnings Call Transcript & Summary

Hello, and welcome to Uber's Acquisition of Delivery Hero Conference Call. [Operator Instructions] I would now like to turn the conference over to Alex Wang, Head of Investor Relations. Please go ahead.

Thank you, Sarah. Thank you for joining us for today's conference call regarding Uber's announced acquisition offer for Delivery Hero. Joining us today are Uber CEO, Dara Khosrowshahi; and CFO, Balaji Krishnamurthy. Dara will begin with a few brief remarks before we open the call for your questions. We expect today's call to last approximately 30 minutes. During today's call, we will discuss both GAAP and non-GAAP financial measures. Additional information regarding these measures, including reconciliation to the most directly comparable GAAP measures, is available in today's investor presentation which has been posted to investor.uber.com. Certain statements in this presentation and on this call are forward-looking statements. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we under -- do not undertake any obligation to update any forward-looking statements, except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our most recent Form 10-K and other filings made with the SEC. Finally, given the purpose of today's call, we'd ask that questions focus on the announced transaction and its strategic and financial implications. With that, let me turn the call over to Dara.

Thanks, Alex, and thanks, everyone, for joining today. Before we get to your questions, I just want to make 3 points on this combination. First, we're pursuing this transaction from a position of strength, towards delivering durable growth, expanding profitability and generating significant free cash flow. That gives us the flexibility to continue investing behind high return organic growth and AVs, while also pursuing select acquisitions, like today's, that meet our very high strategic and financial bar. Second, Delivery Hero was a natural extension of the cross-platform strategy we've been executing for years. This is far from just a strategy on a slide. We've proven the power of bringing mobility and delivery together with cross-platform users generating roughly 3x the gross bookings and profits versus single product users. This transaction allows us to scale this proven model across many more markets expanding our cross-platform opportunity by over 50 million consumers. And finally, this transaction is fully consistent with our capital allocation framework. We expect the transaction to be non-GAAP earnings per share accretive upon close, with high single-digit percentage accretion by year 3, while we continue to maintain a strong investment-grade balance sheet. In other words, this transaction strengthens our platform while preserving the financial discipline that's been central to Uber's strategy. With that, Balaji and I look forward to taking some questions. Operator, can you open it up?

[Operator Instructions] Your first question comes from Brian Nowak with Morgan Stanley.

Maybe a couple. The first one, can you just sort of walk us through some of the -- how we think about the timing of the synergies and sort of some of the executional areas from that perspective on the synergy front? And then just to get into a couple of the markets, talk to us about some of the biggest opportunities you see in the Middle East and Korea in sort of acquiring this asset potentially.

Brian, I can take the first one and Dara will take the second. So I think in terms of the time lines here, we have given some high-level guardrails. So I'll start there. What we said is that this transaction, we expect -- dependent on regulatory approvals, we expect this to close in the second half of 2027. And from there, we would start recognizing the synergies that we're talking about here. So first, right out of the gate, we expect that this will be accretive to our non-GAAP EPS modestly right at the close. Then from there on, within 18 months, we do expect that we can generate run rate synergies of $1.2 billion. We're highly confident that we can do more than that. And then by year 3, on a non-GAAP EPS basis, you should expect that the accretion here is going to be in the high single-digit percentage. So really, there's an integration plan that we have put together that will come through as we go. We'll have more details to provide you when we get to the transaction close, but we've spent time to have a clear execution timetable built out to deliver on those markers.

And Brian, we are very excited about a lot of markets, but especially the Middle East and Korea. In the Middle East, for example, we got the talabat asset that is partially public as well, which is the leading food delivery player in the market and going into grocery in other categories as well. And for example, when you look at the Middle East and compare Uber and talabat both last year grew about 30% in terms of gross bookings; Uber, a little bit above that; talabat, a little bit below that. They have a very large kind of consumer ecosystem and that they both have 8 million monthly active users. And then both have about really attractive margins as well, about 7% EBITDA margins as well. That is both businesses on a stand-alone basis. When you combine the businesses, what we've demonstrated over and over again is that cross-platform consumers spend 3 to 4x the gross bookings and single platform consumers will obviously use us to extend kind of the Uber One loyalty program as well. And really kind of this cross-platform work is one of the highest return growth levers that we run on a global basis. There's very little investment. We've already acquired these customers. All we're doing is cross-selling each other. Now it takes a lot of tech work to do so, but the returns have been proven over and over again. When you also combine our technology stack, kind of the ability of these brands to build out advertising services as they increase their audience, you get to a very, very powerful combination, we believe, as we put these assets together. Korea is a little bit different in that Baemin is, by far, again, the leader in the marketplace. We are in the mobility marketplace as well. We just got started a couple of years ago. And hopefully, in Korea, we can run a playbook like we did in Japan. We actually gone into Japan with Uber Eats. Our presence in mobility was pretty modest. Now a few years later, we believe we're the #1 player as it relates to category position in Japan with both food delivery and now mobility as well. So in that case, we use the cross-platform playbook with a very strong position in delivery to actually grow our mobility business as well, and that's certainly going to be the focus of our efforts in Korea as well, which is a very large market with lots of potential. So in the end, we think that we have a lot of these cross-platform and cross-brand opportunities. We've incorporated some revenue synergies into our financial outlook, but we think the estimates that we're presenting you with and kind of the deal estimates on the 8x adjusted EBITDA, ultimately, we're hoping are going to prove to be quite conservative.

I just want to add one quick point on the previous question as well, which I forgot to mention earlier. From an integration standpoint, a key attribute here that is attractive to us is that the migration here for us is moving the Delivery Hero brands onto a common technology platform rather than a multiyear replatforming effort. We already operate the entirety of our Uber Eats offering on a single global tech platform, and Delivery Hero's businesses, also with the exception of Baemin in Korea, operates on a common back-end architecture. It does materially reduce the complexity of the integration, and we do think that, that will allow us to move with speed once we have approvals here.

And to Balaji's point, we've run these integrations before so the team is quite experienced. And we've always run a single global platform. So we're kind of replatforming on the go, so to speak, and continuously reinvesting in our own platform even as we build the business.

Your next question comes from Eric Sheridan with Goldman Sachs.

With the Uber Eats asset, you've really played out the dynamic of expanding the offering on the supply side into grocery and local commerce. Can you talk to us a little bit about the current state of Delivery Hero's assets? And how much there is an ability to expand into other offerings away from core food delivery as another layer of growth post close?

Yes, absolutely. Sure, Eric. So Uber Eats for us, I think when I joined was like less than 10% of our bookings, and now is [ 50% ] of our overall bookings and growing faster than our mobility business. So ultimately, from a top line standpoint, it will be bigger. And this is quite the expansion to Uber Eats as well. Together, when you put these 2 businesses together, we're going to be well over [ 250 billion ] in gross bookings, which is pretty incredible scale. The Delivery Hero assets are -- these are leading brands in the majority of the markets in which they operate. They are profitable today. And if you see what the Delivery Hero team has done, they have increased the margins of their platform very, very significantly over the past couple of years. And we think that, that margin increase is going to continue going forward. And then on top of it, of course, we are putting the synergies that we think are going to ultimately prove conservative as well. One of the features of Delivery Hero has been that they've been expanding pretty aggressively into nonfood categories, into grocery and quick commerce. We have -- we don't have a big quick commerce category, and Delivery Hero has built out that business and gone to be adjusted EBITDA profitable, we believe, on a margin basis. So we're quite excited to learn from that. And then Delivery Hero also has built a pretty big advertising business, and their advertising business as a percentage of their gross bookings is actually higher than ours. As you know, advertising is a very, very high-margin product. So we're looking forward to hearing from them as to how they are building their advertising product as well. It's -- we think it's about 3% of GMV that they have built out their ad product, which is higher than ours. So it shows us one that our core advertising business can continue to grow and can continue to grow, and we're looking forward to kind of working with that ads team as well. And then you add all of that as a multi-platform kind of potential, both across mobility and delivery. But the multi-vertical users, kind of users that Delivery Hero who are buying food and grocery and maybe quick commerce, they actually spent 5x higher than single vertical users as well. So you see that inside of the Delivery Hero ecosystem and you're certainly going to see that continue within our ecosystem as well.

Your next question comes from Mark Mahaney with Evercore.

Two more questions on synergies. First is the biggest driver of the synergies at over $1 billion in synergies, that's the cross platform, the ability to cross-sell to create this unified platform for mobility and delivery? I just want to confirm that you think that is the biggest driver of your -- that synergy number that you put out there? And then secondly, talk about any cost synergies that you think you could discover?

Thanks, Mark. I'll take this. So I think from our -- as we think about the synergy math here, what we want to embed are items that we have high conviction line of sight to as we execute this transaction. And then we have layered in sufficient areas where we do have confidence that we can deliver on further improvements. But until we take ownership of the asset, we don't want to get ahead of ourselves. So I'll just talk through what we have baked in and what we have considered leaving out of the equation for now. So I would say the first and the biggest item that you should think through here is the impact from migrating to a common technology platform. When we think about Delivery Hero's margins versus Uber's delivery margin structure, the biggest delta in why we are able to deliver a better margin structure is because of the tech cost sort of leverage we can get on a global scale, and we can bring that power to Delivery Hero as well. So that's the first. The second area is on broader costs and think through the -- all aspects of costs, including head count, the sort of support and shared services that we have as well. And we do think there will be significant opportunities there as we go. And then finally, the cross-platform efforts we have baked in what we believe to be very conservative assumptions here, and we do think that there could be more opportunity here as well. So as we look at those items, that's the order of operations that you are thinking through in terms of the impact to that $1.2 billion number.

Your next question comes from Shweta Khajuria with Wolfe Research.