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

Hello, everyone, and welcome today to the Bank of America Merrill Lynch Virtual Tech Conference. Very pleased to have Dara Khosrowshahi with me today to discuss Uber. Dara, I hope everyone can see you okay. And just -- we'll try to make this somewhat informal, but very glad to have you here with us.

Thanks for having me. Happy to be here.

Great. So let's start with the first question, just high level. You did not push the easy button when you went over to Uber. A lot of challenges and probably even more than you expected when you joined in. But maybe talk about how do you change the company and some of your biggest accomplishments so far and how you feel about the state of Uber.

Yes. I think it's been quite an adventure. It's been an interesting 2.5, 3 years, always a challenge. And listen within the scope of an environment that is deeply unsettling, both from an economic and social point of view. I feel good about where we are at once. At the same time, I feel like we can do so much more. And there is a huge amount of work ahead of us as well. When I came in, obviously, Uber was in a very unstable place. We have a management team that's a combination of old and new. We've got a lot of the operators in place. Mac, who runs the Rides business, has been with the company 8 years. Pierre, who runs the Eats business, has been with the company 7.5 years, et cetera. We've got operating leadership that has been with us for many, many years and understands how the company operates. And then obviously, we've got new leadership, Tony and Nelson and others to help kind of build the company, stabilize the company, lead the company in a way that you would expect of a public company. We completed the IPO, the governance of the business is at the right spot. I think the culture of the company is a constructive culture, and the work that we've done, for example, on safety, is second to none. And I don't mean just in the rideshare space, but I mean that of pretty much any company out there. I really think that we have stepped forward in a way that really no other company has. And while the definition of safety has changed, with COVID, et cetera, we're very, very well set up to create as safe an environment as we can and really communicate to our riders that your -- that second, first trip is going to be a safe trip, spending $50 million on PPE, making sure that our drivers are wearing masks, confirmed by technology, selfie technology that we had used for other purposes pre COVID. So I think that the company is now in a place where it can execute and execute well with a team that's stable and a team that's experienced and the kind of team that you would expect from a public company. I think that now any company wants to be in a position to win, and if you're going to win, you want to be -- the kind of price to be worth it. I think in the rideshare area, we have shown that despite the competitive environment, and we compete with multiple competitors in every single market that we compete in, we're going to be the global winner. And we've proven that we can be the global winner at very constructive margins. And pre-COVID, we were on our way to drive revenue at attractive rates and increase margins. And I think as we come out of COVID, there's no reason why that can't be true going forward in the Rides business. So global winner, very big category with constructive margins as well. And then with the Eats business, now that business has become all the more important as far as our platform goes. It's a very, very significant part of the business. You've had 3 years of acquisition kind of compacted into, call it, 6 months. We're now moving into adjacent categories such as Grocery as well. And we're running the same play with our Eats business, as our Rides business, now driving both efficiency and scale. And it's a business that we're confident is going to be really big and a business that is going to have constructive margins as well. So I think we're very confident that we can keep driving this -- the transformation of the Rides business from a business that wasn't profitable to a business that is profitable, driving the transportation of a rideshare business to mobility, which is a much bigger category. And then with the Eats business, drive it to profitability, move just from Eats to delivery, Grocery and a number of adjacencies and really be one of global winners as well. There are 2 big categories that we think we can win at and I think that's a great place to be. And there's -- I think that we're -- if I look at our business, how well optimized it is, how much work do we have to do, we're still in the early innings. There are a lot of wins ahead of us from an operational basis.

Right. Obviously, COVID, and you brought that up, brought up some tough choices this year. You had to make some business rationalization that you may have wanted to do or maybe just happening ahead of schedule. But could you talk about some of those tough choices you've made? And maybe give us an update on Freight and ATG at this point?

Yes, sure. In terms of the choices that we made, we removed about $1 billion plus in annual fixed costs. It was around 7,000 people in terms of headcount. It was a very, very tough decision that we made. And these are people who have been involved in building the business with you for many, many years. So these are very difficult decisions to make. And when you're dealing with as uncertain an environment as COVID, it's very difficult to say, we made a point estimate based on our predictions of where the business is going in, and we got it perfect. We did our best. I would say that we were optimizing for a world that looks more negative than the reality. In other words, we assumed not the worst, but we were -- we assumed some pretty negative scenarios and the actual reality that we're seeing in terms of the business coming back, in terms of the Eats business growing, et cetera, is probably better than our assumptions. So I think we made the right calls there on balance. We also went out and focused our efforts. So for example, we merged our JUMP business with Lime to create the global leader in terms of micromobility. We have a big stake in that business. As that business succeeds and scale, we will share in it, and we'll have the ability to bring it to consolidate back that business, if it's something that we want to do. There were other programs, so we have longer-term bets, et cetera, that we either seized or put pauses on. We exited a number of countries that we were in, in terms of Eats to make sure that we can win in the markets that we're in. And we're looking at some of the other big bets, ATG, Freight, et cetera, how can we make sure that we retain the upside there? How can we make sure that we drive innovation or do so in a reasonable manner. So listen, we've got a world that's much more uncertain. There is going to be a certain amount of consolidation in that kind of a world, and I think we will be one of the consolidators. And at the same time, we pulled back some noncore bets, which I think was the right thing to do in this kind of a marketplace.

Got it. Maybe we could follow up on the consolidation. Are there more opportunities for you out there? And are you seeing competitors kind of pull back investments or anything interesting to point out in the overall marketplace?

Yes. Listen, I think that there are always going to be consolidation opportunities. You can never predict when they're going to come up. And so you have to be in constant communication and contact with lots of players out there so that when the opportunity comes and it's attractive and you're going to get a good ROI on it, you can act quickly. And I think that, that was true in the Rides business, for example, with the Korean deal, that was true with Cornershop and Grocery. You can say that we were either lucky or good in picking that category, probably a combination of both. And I think it'll be true in the Eats category as well. And I think kind of deep uncertainty creates opportunities. We took that opportunity with Lime. I think that deal is going to be a very, very good deal for us. We'll look for other opportunities. Right now, I would say that part of the capital markets are being a little more kind than the reality that at least we see around us. So the opportunity is a little less than I would have expected, but it will be there, and we will be one of the consolidators out there.

Okay. Let's move on to the network effect of Uber. I know it was really interesting around the IPO. We talked a lot about it, probably creating some opportunities for your drivers and keeping your customers engaged. So can you talk about the network effect advantage and how that might be an advantage to keep your drivers active? And what that means on the recovery side, too, for Uber.

Yes. So in terms of our network advantage is, obviously, these are network businesses, the Rides business and the Eats business. The more supply you've got, the better service you are in terms of demand. And with Eats, it's also a 3-sided marketplace, which is the more demand you have, actually, the more restaurants you can sign up, et cetera and there's this virtuous cycle going on. In the past, we had seen competitors essentially use capital to pay for inefficient acquisition of either supply or demand out there because capital is free. And so the network effects that you saw probably weren't as pronounced as a reality when capital actually has to pay for itself. So we are seeing kind of the network effects that we see are going to be more pronounced in a marketplace where the cost of capital actually comes into play. And we're absolutely seeing that in many of the markets that we operate in. There is a -- more of a discipline in terms of incentive spend, in terms of pricing. We're seeing competitors compete in a way where actually profitability goals are real. And then because we're the biggest player out there, our average ETAs are lower than other players. Our utilization of our drivers is more effective than other players out there. We can price kind of incentives and we can price on a trip-to-trip basis in a way that's fundamentally more efficient than other players. And we have an additional network effect, which is we can share supply between our Rides and our Eats business. And that, for example, with COVID, is becoming even more of a reality, which is across dispatch rates from our Rides business to our Eats business have now doubled because we can instantly move supply back and forth. The busy windows for -- in a market where both businesses are doing well, the peak windows for Rides and Eats are different. And actually, as we develop a Grocery business, the peak windows for Rides and Grocery and Eats are also going to be different. So we think that the network effect is alive and well. And it will be -- you've had markets where people have just used money to buy share, and I think those days are largely behind us and it will translate into either higher growth rates or higher margins or both for us versus our competitors on a global basis.

Certainly, COVID has changed the employment picture in the U.S. and elsewhere. I guess if -- I just wanted to ask you, if you have one message for regulators about Uber, what would it be?

Well, I think you hit it on the nose, which is we -- our independent work is an extraordinary vehicle to go out and allow the tens of millions of unemployed out there to have an on-ramp back into the workplace. The government can subsidize only so long, then real life has to take over, then markets have to take over. And actually, our platforms, and it's not just Uber, it's the Lyfts of the world, it's DoorDash, it's many of the other platforms all over the world, we are a very, very flexible on-ramp for people to start earning again and often is an on-ramp to other opportunities as well. I think ultimately, if anything, we're looking at a model or we think that a model in the U.S. is much -- is -- would be much more healthy, where you don't have a trade-off between full-time work and independent work and protection, social protections, especially in our society. We do think that there is room to have independent work and has social protections in terms of minimum earnings, health care, et cetera, based on how many hours that you work on a particular platform. The economics of our platforms are there where we can support it. It's socially responsible. It will actually attract more drivers and couriers onto our platform, for example. So we think it can be a win-win. Those are the kind of dialogues that we're trying to have with regulators and especially, with ours being an incredible labor opportunity, getting people back into earning, getting the economy back going. We think we have a decent chance of having, call it, constructive dialogue in that direction.

Got it. And maybe I'll follow up on California just because it comes up so much with investors. So certainly, there's been a suit filed. And then secondly, you did get the ballot initiative going. So maybe give us a little update there, if you can, and time line and how you're thinking about the ballot initiative?

Yes. So as far as the suit being filed, I'll start with that and get into the ballot initiative. Listen, we're confident of our legal position in California. We had actually changed the service to even make more clear, at the beginning of the year, our position as a platform, very much not an employer in an AB5 world. So I think we feel very strongly as it relates to our legal position. And then the ballot proposal, we feel really good about, especially in this environment. It's -- again, what we're proposing is not the status quo. It is not where we came from. We have -- we understand that society has changed, concerns have changed and the right way forward is independent work with protections, and we think that's what the ballot represents. And we think that it is becoming even more self-evident that, that's the best way going forward.

Got it. Maybe one more follow-up. Just finding work for drivers and of course, the Cornershop acquisition. I guess there's some talk about Grocery delivery for Uber. I think they're doing that on their own at this point. But how do you think about that and expanding kind of the Rides piece of the platform for drivers and helping them find work?

Well, I think everyone knows that the Grocery business in general is -- and the delivery portion of the Grocery business has been growing at trends that can only be described as explosive in a good way. Again, you've had huge customer acquisition, new pools of customers coming into this category and Cornershop has benefited in the same way. We have to be careful about how we work with Cornershop to make sure that we don't trigger any regulatory approvals or any trust approvals. The good news is that we have received regulatory approval in Chile. And we expect to close the deal in the next few months. And really, I think, as it relates to Cornershop, the primary target is going to be the Lat Am markets where Cornershop has a leading position in some of the important markets and building in other markets. They've got a really strong subscription offering, which is very interesting to us. And again, we have a very significant driver pool that can help essentially kind of super speed up the acquisition of labor for Cornershop to essentially turbocharge the growth in those kinds of markets. And remember, the Latin America markets are very, very attractive markets for us, both in terms of the Rides business and the Eats business, and we think they can be in Grocery as well. Cornershop is expanding beyond there. For example, they are coming into North America and Canada. That's a more competitive marketplace. So we'll be careful in that kind of expansion, but #1 priority for us is Lat Am. And then as far as finding other work for our drivers, we've introduced a work hub where drivers can find other kind of work opportunities. Over 600,000 drivers have accessed the work hub for earnings opportunities at places like Uber Freight, which is very close to us, and then partners like CareGuide as well. So our being there for our drivers constructively and my kind of writing to the White House and making sure that they're involved in relief that the government is putting forward and our cross-patching -- cross-dispatching into our other services and then actually partnering up to find drivers other opportunities is a part of what we do. And I think we really have been front and center in this thing and a leading player in making sure that a very tough environment is made a little bit less difficult through our efforts for drivers and couriers out there.

Okay. Sure. Here's a question that a lot of people want me to ask out there. And just give you an opportunity if you want to provide any updates on your business. Obviously, you had the Lyft filing last night. Certainly, people are tracking DiDi. And I think they were on CNBC a couple of weeks ago and gave an update on recovery. And then there's some data out there. But just -- do you want to give us any updates on what you're seeing out there in Rides or Eats at this point?

Yes, I'm sure it's a common question. And we did see the Lyft filing. From our standpoint, I don't want to kind of do a direct comp, but our Rides business globally now is down about 70% year-on-year, and it's an improvement where we were. We were down about 80% year-on-year previously. Week-on-week, the Rides business continues to get better and better. And the growth rates or the rate of being down continues to be constructive pretty consistently. The business is definitely coming back. The -- how fast the business comes back and what level the business is back at very much depends on what's going on locally. So we'll have a market like Hong Kong, which is back up to 80-plus percent of, let's say, pre-COVID levels, a market like Taiwan or similar markets. You've got markets in Europe, for example, where the opening has been more constructive than in the U.S. and you're seeing ridership come up as well. So the return changes market by market. Australia, for example, is opening up as well. It's interesting. Actually, our early hypothesis was that the use case of people going back to work will be the leading use case and we saw some signal there. But actually, the return is pretty broad. Party hours in a lot of these markets. People want to get out again safely, but they want to get out again, they want to socialize again and kind of get, as much as they can, their prior lives back. So the growth rates continue to be constructive. We're hoping that if these trends continue, it will mean obviously good things for the business going forward. And then we talked about Eats as an area of strength for us. I think the last kind of update that we gave was the April bookings growth for Eats being 80-plus percent. And frankly, we're seeing an acceleration of those trends. So the Eats business is now growing over 100% year-on-year going into May. We don't see signs of that slowing down. And what's interesting about our platform is that there's -- we have a decent hedge in our platform, which is as the world opens up again, you could have a hypothesis that maybe delivery growth rates come back down to some level, although I think that there's a whole host of new customers of delivery who are going to stay with us, but you could imagine that delivery growth rates [ meet our bit ]. As those delivery growth rates [ meet our bit ], our Rides business is actually going to do better as well. If the Rides' return is delayed, than our Eats business is going to continue to do well at these kinds of accelerated rates. So we like what we're seeing generally. Again, it's within the context of a very, very difficult environment and a very, very difficult world.

Got it. Maybe we could follow-up a little bit on Eats. Is this surge coming at the right time? I know getting Eats to profitability was obviously a big goal at the beginning of the year. So is this helping that effort just getting the extra volumes? Or are there other factors we should be thinking about?

It's -- listen, I think the -- there's always a trade-off between profitability and volumes. So we could, for example, take -- there's latent demand. There's clearly demand that's coming in, and we could use some of that demand to increase prices, which would accelerate profitability that would hurt top line to some extent but would accelerate profitability for us. We're taking a balanced approach. We have talked about a 15% ANR, adjusted net revenue, target for the Eats business. We're on track for that. We think that we can get to those targets over a period of time. And really, the best way to get to those targets are structural efficiencies that we can achieve, for example, as it relates to courier costs. As you increase the network density, your drop-offs per -- pickups and drop-offs per courier increases. We can use increased batch frequency to improve our cost per transaction as well. We're taking -- in the past 2 years, we have been working very hard to take contact rates for our Rides business down to more constructive levels. It helps actually the customer experience, but it also helps on the cost side. We're running the same exact play on the Eats side as well. So we're writing kind of a balanced playbook, and we're very confident that the Eats business long term can be profitable just as we've proven that the Rides business can be profitable. But we're not looking at this point to push that profitably too soon at the cost of the kind of growth and the kind of new customer acquisition that we're seeing. We think we should take advantage of it and then do the hard work as it relates to the efficiency of our network, the efficiency of transactions, the efficiency of our technology to get Eats to a profitable basis.

Everyone out there, I really appreciate all the questions I'm getting. I have another screen open and I'm looking at them. I'm going to have to summarize to try to get them in. The number one was May data point. So I think we checked that box, Dara. The number two is probably consolidation of the Eats market just because of Grubhub, and I know it's a very sensitive subject. So I'll just -- I'll open-end it. And if you can address it at all, please do. It's coming in -- a question on that.

Yes. I don't want to be specific about any one market or the other. News networks or channels are going to speculate whatever they speculate. We do think this is a big category. It's an important category. We are one of the global leaders, and being global is a very big advantage in terms of the technology that you build and the extensibility of that technology over the many countries in which we operate. We're very focused on getting to #1 or #2 in the markets that we operate in. And that is going to include consolidation in a number of markets. We'll take our time doing it. The deal has to be right. Obviously, regulatory issues have to be dealt with carefully, and we have to make sure that our restaurant partners are winners and couriers are winners and society benefits as a result of it. But we do think that this is an area that's going to consolidate just like the Rides business consolidated over a period of time.

Got it. There has been a lot of interest in DiDi and what's going on in London. And on the competitive front -- now we'll see about the access to capital going forward, but maybe give us an update on your competitive position. I do know, being 1 or 2 is very important to the company and defending your markets is important. So can you talk about what you're seeing in London, Paris, maybe Mexico City and what trends you're seeing right now?

This is on the Rides' side, right?

Rides' side, yes.

Yes. So on the Rides' side, listen, we're -- we've got competitive markets in every single market out there and I'd say, at least 2 competitors, sometimes more. One of the interesting factors that we're seeing in the markets that have multiple competitors is that the multiple competitors often tend to fight over the very price-sensitive, let's say, service-insensitive customers out there. And there's a segment, but they tend to split that segment out there. So with the Rides business, we're very confident that we're going to be #1 everywhere that we operate. And we can be a #1 with a very strong market position, we're talking 70-plus percent competitive position, and very constructive margins as well. We will see battles in every single market that we operate in, they are very competitive. But where we see our competitor just try to buy share, what we've done and we'll continue to do is we react instantly. We're not going to let any competitor outspend us. We've got $9 billion of cash in the bank. We have over -- a similar amount in security value. We have a very, very strong balance sheet. And we think, ultimately, competition should be about the service and efficiency of the network and your pricing levers, everything, your matching efficiency, et cetera. We're very confident if we compete on that basis. And if a competitor wants to compete with us on price, we'll do that as well. But generally, on a global basis, it is competitive. Generally, the competition is getting constructive. It's not purely price-based, and we're very confident competing on that front.

Got it. I think when we do our competitive surveys and our customer surveys, they really highlight the convenience of Uber and they really like it. But the cost versus car ownership is something I've thought a lot about. And obviously, Uber, depending on where you live, can be more. How do you bring that cost down over time? And how are you thinking about converting people to Uber versus car ownership over kind of the 3- to 5-year period?

Well, I think that you see the trend, which is that car ownership in general is becoming less of, let's say, a cultural right, so to speak, it's a very American thing. But it comes with incredible inconveniences and especially, in urban markets where we're very strong, you've seen car ownership suffer at -- kind of in competition with Uber. So we think the long-term trends are in our favor. Now we do think that building a commute kind of a product, UberPOOL, which was safe in a pre-COVID world, and we have to figure out what it does in a post-COVID world, having consumers share transportation one way or the other, is a very important mechanism for us to do be environmentally friendly to reduce costs and increase our TAM. And when you look at our mobility segment, we're really going beyond rides, we're offering transit on our app, we're offering line bikes on our app as well, we're offering taxi, we're offering 2-wheelers, we're offering 3-wheelers as well. So expanding the category so that if you're going from point A to B, and there are some people who are going to choose a private car and a private driver to take them. There are some people who may want to hire a driver for a number of hours, which is, for example, a new feature that we've launched or some people who want to make a trade-off in cost, we're going to have the solution for them as we open up the marketplace and as we innovate in order to build new products going forward.

All right. Let's move on to the 6 growth markets that you talked about that had different regulatory challenges. I won't name them all, but anything to call out that is going to be making some progress that we could look forward to in the next year or 2?

Yes. I think, obviously, COVID is the most important theme right now that we are dealing with. But the 2 markets that I would absolutely point out are Germany and Argentina. Germany, we're growing at in excess of 100% pre COVID. Germany is coming back generally well. So we're pretty optimistic about the German market to get to those kinds of pre-COVID levels and then start to grow. And Argentina was a terrific market as well. It was -- pre COVID, it was actually the biggest of those 6 target markets. It was growing 80-plus percent year-on-year. And again, the question is, when are we going to get back to those levels. But if you, call it, fast-forward a year from now or whenever there's a vaccine that's widely available, Argentina and Germany are going to be very big markets and successful markets for us. Korea, we're seeing some regulatory momentum. It's a little bit too early to tell, but there's promise there on the regulatory front. And in Italy, we actually had a constitutional court win that was pretty interesting. Japan is a market that is going to be a taxi market. And I'd say in Japan, actually, the real focus for us is Eats. The Eats business has been incredibly successful in Japan, and we're really leaning into that market, and we'll build the taxi product in Japan behind Eats, so to speak. And then Spain continues to be an interesting market as a license market for us. It was, again, pre COVID growing at very attractive rates, and we'll see how things settle out there. But there's no expectation that the future will be different again after vaccine, et cetera, than the trends that we saw pre-COVID in Spain.

All right. If you were to add them all up, could they be needle-moving in the models at some point, do you think?

Yes. Listen, I think that they are going to be incrementally positive factors. And I think these markets -- Japan is the largest single taxi market in the world. Germany is the largest GDP in Europe, and Europe is an incredibly important market for us. If you look at Spain and Italy, again, you can compare those GDPs to France's GDPs as well. So these are big markets that are ultimately, if you add them all up, are going to be double digits of our business at a future. And getting there is really, I think, a matter of time. It's not a question of if, it's a question of when.

Got it. And I think we have time for one more. And what I've noticed in talking to you over the last year and working through and thinking about the stock, real confidence in the margins and where Uber can be. So I guess maybe just to walk us through what is your reference point on that, what you're seeing in markets that you really like and just remind us how you think Uber can look long term.

Yes, sure. I mean, listen, the margins in the end, they come down to math, right? And you have to understand where it came from. I came from an online travel agency business where your take rate for air and hotels together was, call it, 12%, 13%. In our Rides business, our take rate is closer to 25%. 75% goes to the driver, but 25%, generally, if I were to generalize, goes to us. There's some incentive spend that goes in to smooth out demand and supply during various times, but a 25-type percent revenue margin business is a spectacular business. And we don't have to pay -- in my old job, you had to pay the Google tax over and over again. Our business is a business that is high frequency, habit-forming, high utility, incredibly easy to use in everyday kind of a use case. So we're just -- from a structural standpoint, we are very, very confident of the margins here and we've proven them out. And we've had -- we talked about -- if you look early in the year, even pre COVID, we had Rides segment EBITDA as a percentage of ANR in excess of 25%. So these are very, very strong margins. And in the Eats business, again, when we talk about having a 15% revenue margin, one, we think that's a fair take rate as far as restaurants go. We think that's a healthy business. That's before even our developing new businesses like advertising revenue, et cetera, that can even improve that margin. We'll see if -- how we're able to build those businesses. But again, with the Eats business, at a 15% margin, we're very, very confident that you can create a healthy EBITDA margin business going on. And then I do think that we have displayed, call it, a cost decisiveness and a cost discipline certainly with the latest crisis that shows that we're serious when we say that we can build a business that grows top line, that has a very significant TAM but also is delivering EBITDA as well. Obviously, with COVID, our Q4 profitability target is going to be delayed, but it's not going to be a matter of years. It's going to be a matter of quarters. And I think, hopefully, we've shown from an executive team that we're a team that means what they say and then is able to execute behind those promises. That's our full intention going forward.

Great. Dara, thanks so much for joining us, we're a little overtime, and making this virtual conference work for us. Next year, I plan to shake your hand and I'll give you a fist bump, too. So I look forward to seeing you soon.

Elbow bumps. Elbow bumps, no more shaking hands.

Excellent. See you next year, hopefully.

All right. Take care.

Okay, you too.

Bye.