Uber Technologies, Inc. (UBER) Earnings Call Transcript & Summary

Great. We're going to go ahead and get started. Thanks, everyone, for joining us virtually on the final day of our conference. Just quickly, before we get started, I just want to mention that we'll take questions from the audience via Zoom, so please go to the Q&A button to submit. I'm Doug Anmuth, JPMorgan's Internet analyst. It's our pleasure to have with us Nelson Chai, CFO of Uber. So Uber needs no introduction. The company has revolutionized personal mobility with ridesharing and is leveraging its technology platform to reshape the massive meal delivery and logistics industries as well. It has more than 100 million unique users, and 2019 gross bookings totaled more than $18 billion. Nelson joined Uber in August of 2018. He has more than a decade of experience in senior positions at some of the world's leading financial services and insurance companies. He was most recently CEO of Warranty Group; President at CIT Group; and CFO at Merrill Lynch, NYSE Euronext and Archipelago. So welcome, Nelson.

Thanks, Doug, thanks for having me. I hope everybody is home safe and healthy.

Thanks for being here.

So let's kick off by addressing what's on everybody's mind. You talked on the call last week about how you think the current environment is expanding the food delivery market. How are you thinking about food delivery consolidation in the U.S.? You've talked about being 1 or 2 in every market. Do you need to be #1 here?

So we talked on the third quarter call. And as you know, I joined in August of 2018. And as -- one of the things that we did during the course of time is we actually built out a pretty good capital allocation model. And when we went public just about a year ago, I remember being on the road, and we would talk to investors about the fact that our rideshare business was a good business. And I would tell you that I was met with a little skepticism as we went through it, based on the results and some of the investment levels that went into the business. I think, through the course of 2019 and pre-COVID, I believe we've shown people that's in fact the case. We've been very good in terms of building our institutional investor base. I spend a lot of time spending time with them as well as the rest of the IR team, and I think they would tell you we have. And as you think through them and we talked about the first quarter call, the first 2 months pre-COVID, we were generating very, very large -- very strong returns on a segment EBITDA basis. As part of that process, we also spend some time looking at our food business as well, Uber Eats, which as you know kind of grew up second to Uber inside of our business. So it's about a 4-year-old business. We are the largest food delivery player outside of China. And yes, it has been in investment mode because -- and we -- and while we compete globally against lots of different competitors, the business has grown quite quickly. And yes, we continue to invest heavily in the business. On the third quarter call, we spent time talking about the fact that we were going to be more assertive in terms of our strategy there and that our plan was to be #1 or #2 or not. And since then, I think you've seen in the third quarter of last year we exited our South Korea food business. In January this year, we took our India food business and merged it into Zomato and have a minority position there. And then even last week, you saw that we announced that we were exiting even more countries. So we're in roughly 40 countries or so. It is important from our perspective to be #1 or #2. Specifically to your question on U.S., "Do you have to be #1?" I don't know if you have to be, but certainly we see the benefits of being #1 in our Rides business globally, where we are in every market that we compete in, as you know. The business here in the U.S. is growing quite quickly. There are a number of different competitors. I am not going to comment specifically on any potential consolidation opportunities. It seems like David Faber or Jim Cramer or an Andrew Ross Sorkin seems to have a beat on that. I am not talking to them. They are not texting me. They do have my number. So again, we don't talk about anything that's in the marketplace, and I think people would know that I'm not going to comment on things. So we'll see how things play out. I think, to date, you've seen us make a lot of different moves across our portfolio. Yes, the food business in particular, we are seeing the benefits from COVID-19 as people are staying in and as people are ordering out. We've seen the benefit. And again these are things that we are working on, anyway, with the moves that we're making in terms of increasing our take rates. So in the first quarter, our take rate was up to 11.6%, which was up almost 200 basis points versus a year ago. We've talked about our long-term target of getting towards 15%. We believe that we'll continue to make progress against that. Part of it is just the fact that we're taking out businesses that we think are underperforming or have a hard time making the economics work, like in India. Part of it is the fact as -- we continue to build and increase the number of small and midsized businesses and restaurants on our platform, and what that really does is that really increases basket sizes. We have seen basket sizes increase during the COVID period. And then we work on things like courier efficiencies and get more efficient. So we -- our intention is to continue down the path like we did on Rides; and believe that we can build a very, very good business there. And so we'll see how things continue to shake out, but the business has done quite well. We continue to have, day over day, record highs for our food business. And then as you know, we announced a few quarters ago that we were -- our intention to buy Cornershop. And so that deal was -- is slated to close. We are testing food delivery, and Cornershop is actually testing food delivery in the U.S. So they're a large player in Latin America, in Dallas and Miami. And so again we think the category is getting bigger. We like our positioning today. Do we have to do any deals? I don't know if we have to do any deals, but obviously if something came across -- we were very forward saying that, if there are situations where it made sense to move on, we would. And we have and you've seen that, but if there's a situation to lean in, that we would. And so we'll see how things continue to play out.

Okay. That's great, helpful. Let's turn to Rides and talk a little bit big picture here. So you talked about penetrating just 1% to 2% of the overall opportunity, but when you think about the industry, it appears to be growing in the 20s on a normalized basis. And you also have some U.S. cities implementing some congestion taxes as well. What gives you the confidence here with rideshare that you can continue to take share of miles in a post-COVID world? And how does that behavior change?

So in a pre-COVID world, we were, right? And so at our scale, where we were doing $1 billion a week of rideshare and growing, as you said -- so excluding shared rides, we were growing over 20% in January and February, and we were reaching all-times high in terms of segment EBITDA margins. We were. We rolled out a comfort product last year that grew 100% year-over-year. And so we were continuing to make the -- our progress, we believe, in terms of continuing to grow out the business. In the post-COVID world, the real answer is I don't know, all right? And so I think that our primary mode, the first thing we've been really focused on is really be responsible leaders, which we've been in our rideshare business. So as you know, we were the first to put out our safety report regarding safety in rideshare. Yesterday, you saw Dara talk about some of the safety measures that we're taking. You know that we've taken a leadership role in terms of COVID response both in terms of rides as well as of food delivery globally. And so we've been the most out-front. We are working as much as we can with all the local authorities to both bend the curve but then also make sure we're doing our part to help small and midsized restaurants or to help in terms of helping municipalities deal with transporting first responders. So in New York, for instance, as you know, they are closing down the subways in the middle of the night so they can clean them. And so we're involved in talking to the mayor. We've been very open in the fact that our relationship in New York City is a strained one. So we were actually pretty amazed that Mayor de Blasio, who does not like us, tweeted out a thanks to us. And so I think that was a showing of what we're trying to do. And that actually is first. The second part of the business is, yes, we are making sure that we're ready as the cities and as people start going back to work and movement. Yes, [ Star ], you heard last week, talked about some markets that are starting to go back, whether it be Georgia or others. We were very upfront, very candid with everybody about what we saw, and we did it on a call on March 19. And we continue to be in terms of what we're seeing. And so in its worst moments, our business in the U.S. was down 85%. And it's come off the lows as people start moving. And so we continue to watch it. We're seeing week-to-week improvement every week as people start moving around. As people potentially start going back to work, we know we'll be an important part of that process. I think the one thing that will take a little bit more time, or we believe, is probably on airport travel. And so I'm not -- everyone is watching what's going on in the travel industry. Airport trips are important trips. And so they're about 15% of the gross bookings in our Rides business and about 16% of segment EBITDA. And so we think that will take a little bit more time. And so the real answer is, what's going to happen in the post-COVID world, I think it's going to be based on what's going to happen more broadly, first, from a health perspective; and then what that means in terms of the economic recovery. And as you know, it's going to end up being region to region, city to city, location to location. I think what's going on here in the U.S., in Georgia versus Wisconsin and what happened there yesterday is very different than parts of California and parts of New York. And so I just think it's going to be much more of a localized recovery.

So with that in mind, I guess, how -- you gave some of those stats. You mentioned Georgia and Texas kind of 40% to 50% off the bottom. Hong Kong, you talked about back to 70% of prior levels. And then we can look at China numbers perhaps as well. I mean, how indicative are those markets just as you kind of continue to see week-to-week improvement?

Well, I think they're indicative of what happens once people start moving back. And even though I saw a stat that said, even though restaurants were open, I forget if it was in Texas or in Georgia, only 6% people are showing up. And so it's just indicative that, as people start moving around, people start moving around in Ubers. And so again I think, as you know, the biggest markets are still largely locked down, whether it be a New York or a London or parts of L.A.s and San Franciscos of the world, but as those cities come back in which shape and form the movement happens in those cities, we're -- we believe we'll be part of that recovery. The one nice thing for us in terms of restarting is that, because we have drivers that are also delivering food, we're not starting from a standing stop like some of our rideshare-only competitors. And so we -- and as you know, there's about 40% cross-platforming going on right now. And so we are a wonderful place for people that are looking to augment their income, earn some dollars.

Okay. Let's just go back for a minute to the 20s percent growth that you talked about for January and February, which did accelerate from 4Q levels, if you can just hit on some of the key drivers that you saw in terms of that early 1Q acceleration and then also help us understand how that played out a little bit across different geographies.

Well, so look, I think that it was pretty good across most of the geographies, Doug, is what I would tell you. We're seeing some success in segmentation. So again, our Comfort was growing. As I mentioned, Uber Comfort was growing 100% in January and February. And so we -- and then at the same time, we continued to improve our take rates because we were focused on efficiencies as well and in terms of incentive optimization. And so I think that probably helped as well. The business was firing quite well, as you know. And you saw that if you looked at our Q4 '19 segment EBITDA of $742 million. I think that the team itself; and Andrew Macdonald, who leads the team, has been doing a great job. As you know, we made some operational changes through the course of 2019 and we consolidated marketing. And those benefits are actually paying off in terms of how we're operating. And so I think our company, since I've joined in the last 1.5 years or almost 2 years now, has really improved its operating cadence. And we're working more effectively across the business and across the company, and I just see -- you're seeing that benefit.

Okay. And then just following up on that when you think about margins and just rideshare profitability. You've -- kind of -- you've talked about 20% to kind of mid-40s percent margins on top 5 countries. And those were generating the bulk of rides, about 75% of ride volumes. How do you think about the remaining markets just from a margin profile perspective? And how do you move the overall business from 20%-plus today to mid-40s longer term?

Yes. So again, I mean, look, you know the stat. And I talked about, I think -- on the Q4 call, the 20% to 46% margins. If you looked at the first -- January and February of this year, the range was more like 27% to 60%. And so we are making it, but it's not like -- we do it on a market-to-market basis. A lot of things go into how that margin happens, right? Some of it's competitive. Some of it's things that we're doing as well, and so we believe we will continue to make progress against it. There's a few markets, like in India, for instance, on the ridesharing business that still has work to do from a margin perspective, but we're making progress there. And we're making real progress there, particularly as we think about segmentation to 2-wheelers and some other things. So I think that you'll see us continue to make margin there, but again this is all pre-COVID. And so now we're really more focused on the recovery.

Okay, understood. All right, let's switch gears and talk about Eats. So 89% growth in April and running at about $25 billion in annualized gross bookings. If you could help us think about that growth across geos; and then just primary strategic priorities in the Eats business going forward when you think about kind of share gain, regional expansion, upsell of additional products perhaps or cross-sell opportunities. How do you think about those priorities?

So while we did grow 89% in April, the range was really more like 40% to 130%. I think it depends on the region. There were some parts of the world that were impacted from COVID where restaurants were shut down completely, so where there wasn't delivery. And so what we're seeing now is the business is actually doing better, as we're into May, in terms of the year-over-year growth. Our focal point really is on continuing to drive -- for me anyway, how do we drive our take rates higher. And it's largely a question of mix, right? Mix matters a lot for us as we continue to build in more smaller, medium-sized restaurants. The other thing that's important to us is continuing to focus in on unit economics. And so we've made the improvements in terms of customer service, and we're seeing some benefits there; and courier efficiency. And so we see the courier efficiency that's happening both in the U.S. as well as other parts of the world. So in a couple countries globally, we've onshored. And that's allowed us to have career efficiency savings that are meaningful, the $0.30 to $0.50 per trip type of range. And so you'll see us continue to find opportunities to improve the unit economics of that business. And we believe, if we can get to the 15% take rate, that we can deliver the 33-type percent segment EBITDA. We know the path there is going to take some time, but we think we're making progress there. And then the last thing I would say is that we did make a change on the management side. And so Jason Droege, who did a wonderful job building the business from 0 to where we are today, has moved on. And so Pierre, who is one of our most experienced and best operational leaders and was the #2 person on the Rides business, has moved over. And I think having that fresh perspective, particularly from an operating perspective, will prove to be very beneficial as we continue to grow and build the business.

Okay. And just when you think about higher courier efficiencies, how does that kind of rank relative to like mix shift to small and medium-sized restaurants and then larger order sizes just when you think about kind of levers within that take rate change?

So they're all levers. They're all improving. And so I think it depends on what market you're in, right? And so there was one large market in Europe, for instance, where we were overweighted to one very large fast QSR that's U.S.-based. And when that business closed during COVID, you really see the impact. And so the good news is the team really focused hard on building out selection. And so that actually will mitigate. And so what ends up happening is that some of the take rates on Starbucks, for instance, which is a wonderful partnership for us, are lower. They just are. Think about the basket sizes of a Starbucks if you're ordering -- if you're ordering from your local restaurant, Doug, for your family, it's just different. And so we've been very much focused on doing that, and we're seeing the benefits.

Okay, let's just talk about the 40% cross-dispatch number in April. I just want to understand. Is that the percentage just of the total drivers on the road in April, or percentage of total drivers pre-COVID? And then what gives you the confidence that you'll be able to keep that driver utilization high through cross-dispatching after the crisis?

So I would have to confirm. We'll have to confirm this with the team. I believe it's the number of folks who've driven -- who will go over from Rides to drive on Eats, but I'll -- I'll have to confirm this. In terms of why we think we can continue to do well in terms of drivers or couriers is we do have some experience here. So we built our business, particularly in a place like in Argentina and Brazil, a couple years ago. And they're going through their economic challenges, and we saw supply come on in a dramatic way. And we have a very, very good business there on the Rides side of the business. I apologize for the background, if you can hear my phone ringing in my home, so...

No. All good.

That's good. Thank you.

Absolutely. All right. So let's -- so COVID-19 is -- awful of course, as it is, there is a little bit of silver lining just in terms of diversifying the delivery business with more grocery and convenience stores. Can you help us understand the opportunity there; how you're planning to expand the categories in terms of cost per acquisition and then incentive spending, retailer onboarding; how that becomes a bigger priority going forward?

So it's actually too early to draw conclusions and say we have a big plan here. We knew in other parts of the world that grocery is going to be an important part of the platform, which is why we made the decision to do work on the Cornershop deal. And we'll have to see what happens here. Our first priority now is just to help. We're an important part of mobility in this country and we're good at moving things, and we have a supply of folks who are good at doing it. And so we're just doing our part right now to help. And then we'll see in terms of the stickiness in what it becomes over time. And then I think you have to -- we have to be mindful of the near-term recovery and what it implies, the midterm recovery. And then as we get through it -- and again, I don't know when that will be but, hopefully, sooner, but we'll see. So I think it's going to be a while.

Okay. So just in terms of overall profit. So reaching profitability clearly remains a top priority. You've taken a number of strategic steps here, including exiting unprofitable markets; shifting micromobility off the books, for example, into Lime at a lower valuation. You're taking out about $1 billion of fixed annualized costs. Do you feel like the business is rightsized to the right level at this point?

So we are taking a lot of steps. And if you kept pace with all of the announcements last week leading up into our earnings and, as you rightly mentioned, the exit of the 8 countries on Eats side and some of the announced layoffs as well as the deal with Lime -- and I think, as Dara and I both said on the call, we are continuing. So it wasn't the end with our other things that we are working through, but yes, our -- as we think through the dynamic nature of what's going on, on the health side and then the implications on the economy, as you know, what we're doing is we're trying to make the best case we can; and make -- put our best foot forward internally in terms of where we're out getting capital, where we're going to make some productivity decisions. And we're really going to push hard. We have to temper that against what we think the external world is going to be. And that's very, very challenging, as you know, just like you are at JPMorgan. And then we triangulate against the profitability which you put. And so we've put the stake in the ground. And so we are taking steps to make sure, and you heard me on the call, that we can get to profitability. To the extent the recovery happens faster, it just means we get to profitability faster. So yes, we believe we are -- I don't know if rightsizing is the wrong word, but we think we're making the right strategic choices today. We think that, when we get through, there are other levers we can do, but you'll see us continue to think through this. And so the way we think about it is we took some actions on what we'll call more the variable costs side. As you said, we are taking a hard look at our fixed cost base. And then we have what we call these other bets, and I think it's important to take a look at it. I -- hopefully, the -- folks have seen the deal we did with Lime and would view that, see something that makes a lot of sense because -- so I think we're very fortunate because we came into the crisis with very ample liquidity, and I think everybody would know. And maybe I -- because I wear the scars of the financial crisis, as you know, liquidity was key. The banks actually didn't go bankrupt. They ran out of liquidity. And so we've always made sure that -- at least that we had ample liquidity, and we are fortunate to do so. And so I think, when many -- and many good companies, frankly, were scrambling and going to the markets. It gave us the opportunity to really make sure we have the right plan. And Dara used a term on the call: We were trying to figure out where the puck was going and making sure we were skating to where the puck was going. And so it is important, though, that as we think through it, and depending on your perspective, yes, we did raise. We were fortunate because, as a high-yield issuer, we were able to do a [ strip debt ] deal. You know lots have been doing converts and all sorts of different things. I have a perspective which is that the recovery could take a lot longer. I think there are people across the street. So I'm not expert, but I speak to experts, including folks at JPMorgan. And the experts all tell me that there was a lot of liquidity in the marketplace. There was a lot of deals going on, particularly in the converts side, but others. And what you don't know is when does that change, at what point of the recovery? Where people just get tired. And so yes, we watch that our debt started trading in and we saw an opportunity. And so we did raise yesterday. We think it's the prudent thing to do to continue to have good liquidity on our balance sheet. And then to your question as would we use it, yes. Yes, we would. And so if there is an opportunity, we would. And then I'll continue to track closely the markets, along with Jen Jarrett and other folks on the team. And we think liquidity and having a strong liquidity position is a huge source of strength. And so I think that, if you think about the actions we took last week leading up to our earnings call, the time, the debt raise yesterday, we think that things played out pretty well versus kind of what we were thinking.

Okay. Two things I want to hit on, a bit of this coming from audience questions as well. But just from a regulatory perspective, just how are you thinking about AB5 currently and the range of outcomes there; and then also certainly hearing more noise just around potentially capping take rates, for example, in the food delivery business? If you could talk about those 2 things.

Sure. So with respect to AB5, we've been pretty upfront about the fact that we're pursuing multiple avenues. Do -- would we like to have a negotiated settlement? Probably. We think, if anything, what's going on right now broadly, we've been a big proponent of a third way. So in the U.S. today, you actually can't provide independent contractors with benefits in parts like -- in places like France, we actually do today. And so if you look at what we are proposing: We are proposing that we are allowed to offer benefits to contractors, to our drivers and couriers. And so we believe that actually is the right path. We also think that, in the time when people are looking for work -- and remember only about 10% of our drivers, if we're talking drivers, drive for 40 hours a week. And so they are -- many people are augmenting income and like the freedom to be able to pick their hours. And so what we're doing is, while we would like to have a negotiated solution, as you know, we were also funding a ballot initiative in the fall. And we made some tweaks to our system because, if in fact the test gets harder, if you will, we just -- we want to make sure that we -- our system can pass it. And so we are taking a multiple-pronged approach. I think that you would suggest that's prudent given we are the market leader. And so we'll see. We're going to continue to have the dialogue. You probably saw the California AG had a press conference to talk about things. And so I would say that, at least to date, that's all it's been, is a press conference. And hopefully, we will come out to a right solution. It is funny during this time, though, where you would want to make restrictions on who could actually come on the platform and earn. You'd think that you'd want to make the platform as open as you can be so anybody could come in and choose to earn. With regard to what's going on, on the caps on the food side, I think that we'll see how that continues to play out. I think that everybody is doing their part, and we are as well, and I think most of the industry players are as well, to try to both help small business, restaurants continue to operate and continue to help families be fed. So we'll see what happens there. I think, the rules, the one in particular that I'm sure your investors are thinking through is actually in New York where they came out with this temporary rule. I believe it's roughly a 20% type cap on a -- on 3P businesses and a much lower cap on a 2P business. So we'll see how things play out. I don't want to get ahead of myself over my skis on this one because it's going to play out and we'll make adjustments. We're used to them. We don't typically like caps, but we understand during these times that municipalities make these calls.

Okay. I wanted to ask you quickly just about your subscription strategy across both Rides and Eats and some of the KPIs that you're thinking about. And just how do you feel about that since you've rolled out those products?

So when you look at subscriptions, you have to be mindful and careful how you do it. They've worked well for some. On the Rides side of the business, it is a harder thing to actually work well because if -- because, assuming you let people move in and out of it easily, what you end up doing is you just allow your best users to get a bigger discount. And then the ones who you're hoping to get increased activation with will just stop doing it. And so we continue to toggle around it. And we make some headway, but I would say that it's something that we continue to test on.

Okay, all right. Real quick, we're going to wrap up with word association. So I'm going to give you 10 words or phrases, and you just give me the first thing that comes to mind. So first one is safety.

Uber. And we...

Drivers.

Partners.

Hong Kong recovery.

Hopeful.

Subscription program.

Testing.

Food delivery.

Growing.

Transportation as a service.

Essential.

Grocery.

Necessary.

U.S. in the back half.

This is a broader question I'm more concerned, right? I have one who's about going to be a junior in college and one who's going to start, and so we are definitely watching what's going on. And you saw yesterday Harvard Medical School is going online. You saw where the California state schools are going -- so I'm a -- it's more from a -- it's as much a personal level than it is a business level, but I'm certainly concerned with what the back half of this year holds. We can all hold that hope on a vaccine, but at least the people that I speak to would suggest it's not -- it's like -- you shouldn't count on it this year. And so short of a vaccine, I think it's going to be -- I'm concerned.

Okay. All right, we're going to wrap it up there. Thank you, Nelson, I appreciate it.

Thank you so much. I hope you're safe. Be safe. Thank you, guys. Take care.

Sure. Thanks, everyone.