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

Great. I think we're ready to go. I think we're live. Excellent. Well, good morning, everybody. My name is Itay Michaeli. I'm Citi's U.S. auto and mobility analyst, and it's my pleasure to have Uber Technologies back with us at the Citi Tech Conference this year. We are delighted to have Nelson Chai, the company's CFO, with us for a fireside chat. Lots to catch up on. So we'll get right to it. If you'd like to ask questions during the session, please just e-mail myself, itay.michaeli@citi.com. I will be starting at my other screen, and I'd be glad to get to your questions throughout the session. So with that, we'll kick things right off. Nelson, good morning. Great to see you. Hope you had some rest in the summer and thank you for being here.

Yes. Thank you for having me. I'm happy to be here. It is an interesting time as everybody knows. And so most of us are working from home. And so you would think everyone is rested, but everyone just -- it's just like nonstop. So I'm okay.

Good. Yes. It does feel like a busier summer than usual.

So let's get right maybe into the -- probably the 2 questions a lot of folks in this session are going to want an update from you on. First, maybe just at a high level, if you could talk about the latest trends you're seeing in terms of bookings and just overall trends in Mobility and Delivery thus far through Q3. Particularly now after Labor Day, curious to see kind of your latest market observation there.

Right. So we continue to see some progress in August. For the company, our total gross bookings was down less than 10% year-over-year in the month of August. Now it's a tale of 2 halves, right? And so there are some markets where we're seeing both Mobility and Delivery gross bookings up on a combined basis. So a country like France, where overall, we're up year-over-year on a combined consolidated basis. The good news for us is that we're making progress on the Mobility side. Although I would say, especially with some of the outbreaks in the U.S., the pace of the recovery has slowed a little bit. So our gross bookings for the Mobility side of the business are still down about 50% year-over-year in August. Again, that is mainly driven by the U.S. We've seen some recovery in Europe, where the marketplace is down about 32% of Mobility year-over-year in August. Latin America -- and there are a lot of cases in Latin America. But again, there, the business is down about 40%. I mean so a lot of it actually is what's going on in the U.S. And I think all of us are sort of watching the news we're seeing about what's going on. The last 2 weeks a little bit, we knew cases were going to rise with kids going back to school. The only improvements we've seen is there are a few little bright spots for us. So the West Coast has definitely been slower in terms of the recovery. New York City, for instance, is down 48% year-over-year in August on the Mobility side of the business. And so we're seeing some of that improvement. And those who are in the metro New York area know, just from a traffic perspective or if you walked around Manhattan, that there is more activity. And so we are benefiting from that. Our Delivery business continues to go and continue to bloom. So again, our business was up over 130% again year-over-year in August and improved on a month-to-month basis as well. We continue to build out that business, continue to see progress. We're very confident that as the recovery occurs, the Mobility business will recover. And at the end of the day, we're going to exit with a very strong position on the Delivery side of the business.

Right. Excellent. That's very helpful. Well, I just got an e-mail that people are struggling to hear. Is Open Exchange -- I just want to make sure we're definitely live at this point. I don't know if the operator can help us.

We are live.

Perfect. Okay. Great. We just got a -- perfect. Okay. And I'm just curious -- and I'm sure we'll get into more of the details there. But as in the markets where you are seeing Mobility recover fastest, are you seeing any pullback in Delivery bookings? Or are they sort of concurrent? Were you actually able to see both Delivery and Mobility recover concurrently?

So in a place like France is a good example. And again, our Mobility business in France was down only 25% in August, but Delivery will continue to grow over 130%. So again, these are case-by-case situations. I don't know that there's enough points that we would say that there's total correlation. But we've seen, particularly in a few spots where Mobility is coming back at a better pace than places like the U.S., we have not seen any deceleration on the Delivery side.

Interesting. Okay. That's good to hear. Great. So we'll come back to these businesses, but the other topic I wanted to kind of cover here right off the bat, Nelson, of course, is the AB5 situation. Maybe if you can provide any update there on what's happening. And I know there's a lot of things that can happen here, and I'm sure there's some sensitivity to what you're able to say. But is there any way -- a question we're getting a lot from investors is how to think about different scenarios, both through Prop 22 as well as potential other proposals in other states that we read about.

So look, it's a fair question. If you live in California, you will start seeing the airwaves being flooded with the campaign on Prop 22. We are confident that voters will support Prop 22 because at the end of the day, it's actually what the drivers want. So we've done our polling, and 72% of the drivers are in favor of Prop 22. We don't really understand -- if you really understand the nuance around how this all came to be, most other parts of the contractor space were exempted. If you think about what we provide as well as what some of our competitors provide as well, it's a flexible earning platform. If you think about the uncertainty in the world, if you think about the impact -- or the economic impact that COVID has had more broadly, the ability or way to take away flexibility, especially with some of the uncertainty around school, and school's a main driver in terms of people's ability to go out and work, we just don't think it makes sense. And so we've also polled drivers as well, and 2/3 of them would stop working if they lose flexibility, right? And so we've had over 100,000 drivers and couriers sign up for the Yes on 22 coalition. And so this is not something -- it is pretty important here in terms of what the impact is going to be on the drivers. I know there's a simple answer that the attorney general will say, well, they should just sign them all up as employees, and it just doesn't work like that. At Citibank, if everybody wanted to be an employee, you don't just sign them all up. And so we would run our business. And the reality is that you would hire a fraction of the number of people, and they would lose the ability to earn when they needed to earn or when they wanted to earn. And so again, I think that as you think about what we're trying to offer, I think Dara has been upfront about talking about the third way. We do it in places like France where we can offer benefits to contractors. And so again, we believe that we will win on Prop 22. Now what happens if Prop 22 fails and we're -- and we can't use independent contractors. We obviously are exploring different models. We would look at it. The likely outcome would be -- and I think you saw a Logan Green statement from Lyft last week that said that they like -- they would look to shut down in some parts of California. I don't think that's out of the reality. I think for sure, what you would find is that even if you had some level of a model, it might not be in all the cities in California. I think that riders would expect to see fares go up because it would just happen over time. And so again, we don't think that the outcome is a favorable outcome for either the riders and certainly not the drivers. In terms of what may or may not happen in other states, there are a few other states that have maybe AB5 -- ABC test like Massachusetts or New Jersey. My bet is that they're all watching closely what's going to happen in California and see how it plays out. But again, the overwhelming number of the drivers actually don't want it. And as you know, we're getting a lot of support from a number of different mayors as well as a lot of other folks around on the union side. And so again, we are hopeful that the voters will come out and vote. If they vote with the way the drivers want and what's better for the marketplace as well in the cities and the riders, again, we believe we'll win a Prop 22.

Great. And then a follow-up to that question we received is if you do prevail in Prop 22, what are the implications on the other states and proposals? Is it kind of the issue kind of goes away or maybe they apply more of that third solution that you've been advocating for?

So we'd love to sit down at the table, and we've been open to it. At least in California, there hasn't been that willingness yet. We believe the third way is the right way. And so we would continue to promote the dialogue. If the discussion went away, obviously, as the CFO of the company and someone who looks at the stock price, I would like that. I would hope that it would certainly take off some of the contagion risk that I know many investors have regarding this regulation. We'll have to see how it plays out. But again, we are confident we'll get through Prop 22. And you'll see a big outreach if you sit in California now between now and election. If you go in California, we ask you to go out and vote. And hopefully, you vote in favor of it. So thank you.

Absolutely, absolutely. Great. Maybe I'll go into, Nelson, some Mobility questions, and we'll circle back to Delivery. And so maybe on Mobility, the first question is, thank you for the update on what you're seeing in terms of demand. How about any updates with respect to driver supply in Q3 and kind of how that's progressing?

Yes. So particularly in the U.S., we were supply short in some of our markets. And so even though the recovery has been more muted versus other parts of the world, I think the expiration of the FPUC, which is the Federal Pandemic Unemployment Compensation at $600 a week, that has been a tailwind for driver growth. I think as more drivers are getting more comfortable with what life is in the COVID world and particularly the efforts that we've made. And so as you know, we've led the way on PP&E (sic) [ PPE ] and other areas to try to make sure we're safe. I'm sure you've seen our advertising about no mask, no ride. And so we -- when we think through the best way for people to get moving again, we're pretty out front in terms of making sure that the rides are as safe as possible. And so that is something that we'll continue to do. And so we've seen some -- the supply improve over time. And so again, we'll just continue to see what's going on. And even if you look at whatever city you live in right now, people are starting to get out a little bit more. People are starting to take more Ubers more. And that also means more drivers are out there as well.

Right. Absolutely. One of the interesting data points I thought that came out of Q2 was there was a slide about Hong Kong, New Zealand and Sweden and how rides there had recovered I think above pre-COVID levels for workday commute and social trips. And so airports aside for now, are you seeing other markets where commute and/or social trips are recovering either near or even above pre-COVID levels?

So again, it's still too early to call. And yes, we did call out a few kind of cities. They're smaller cities at least in the scheme of Uber, if you will, but good data points. Yes, we're seeing people are moving more. I think, like you said, airport trips are likely the one that will take a little bit more time. People are starting to definitely move more from a social perspective, and you see that across the board. And unfortunately, we're seeing it on TV when you go out and look at the different crowds, but people are definitely out there moving around. And again, it's a combination of people are starting to move within the constraints that COVID's bringing. I think people are just 6 months into this sort of realizing they want to get out. And then weather and other things contribute to it, especially things like Labor Day, so we are seeing good trends in those cities. We're seeing in certain places like in New York, if you will, so while we are recovering faster than mass transit is. And so then the question becomes, do we see longer-term trends there in terms of broadening up the use case into mass transit? So again, it's still too early to tell. Hopefully, we get a recovery. Hopefully, people are right about vaccines and other things going on there. Most of the folks on TV are talking about recovery in '21. And so that would be good. It would be really good for our business.

Yes. And I want to maybe kind of follow up. You mentioned about public transportation. And it's a really interesting kind of question longer term about whether the Mobility TAM might actually increase for you over the longer term if certain habits change. And could there be a longer-term substitution away from public transport into rideshare? But it's definitely too early to tell. But are you seeing any signs of that in particular cities? And maybe to that, as folks get back to work and we're certainly just starting to think about that, maybe an update on Uber for Business as well.

Yes. So maybe, right? Now the counter, and I'm speaking against my book, but you've seen that car sales were increased a lot in the second quarter. I know you're an auto analyst, and so you've seen that. And so people have thought a lot about safety. People thought a lot about the fact that getting in an Uber or a cab versus driving yourself. And then you'd think about getting in an Uber versus getting on mass transit. So I don't know what the puts and takes are going to be in terms of it. At least right now, we're seeing that we are probably taking away from some mass transit as well. It may be in places like New York, I hear anecdotally that it's a combination of COVID and frankly, for some people, there's some safety issues going around in some of the larger cities. And so I think more people feel comfortable in an Uber than maybe taking the subway or mass transit as well. It's too early to tell long term, right? And so you're an auto analyst, and my bet is that every year, you think, okay, we're going to sell 17 million new cars in the U.S., up or down what, right? And you would have thought it went down this year. And right now, as you know, I think we're supply-constrained in cars because people weren't making them. And so all sorts of things happen. I don't know that means that's a long-term trend that, that number is going to go up forever. So similarly, in terms of the TAM for our business, we think we have a very large addressable market. We know that we'll be part of the recovery as people start moving around again. In terms of how much we eat into some mass transit, we were already. To the extent we continue to have a safe and affordable ride, which we are in most parts of the world, I think we'll continue to do quite well. Your other question was just about what we're doing for Uber for Business. So yes, there are some folks, the team is very, very busy. There are some things you can do with pooling-type product, particularly putting in technology. So if you were going to work at Granite Street at Citi, we could put together a product to say there's 6 of you leaving at a certain time, do you want to pool, even if one works in research, one works in capital market and one works in banking to go to a similar area. So we are exploring some of that. The reality is it's still small right now. The reality is, most businesses aren't really going back in full force unless you're in manufacturing in this country right now. And so -- but yes, there is opportunity for that. And people are definitely looking at that.

That's super helpful, Nelson. Maybe sticking on kind of automotive topics, but longer term, I want to ask a question about electric vehicles. Obviously, one of your competitors in the U.S. has committed to an all-electric fleet by 2030. There are, in our view, a number of benefits here, but also we think a larger profit pool being one of those benefits just from the lower cost per mile. So how is Uber approaching EVs in its future strategy? And what are the different options for your company to increase EV penetration on the platform?

So look, we are the largest, by far, mobility platform in the world. So we believe that it's our responsibility, just like we led on the safety report, right? So we're very proud of the fact that we put out the safety stats. When we did, we had some investors ask me, "Why did you do that?" And because if you want to make progress on it, you got to measure it. Similarly, we believe that we have to do our part to more aggressively tackle climate change. We are working with certain cities and involved in places like London as they think about how they're going to work towards a greener world as well. You probably will see something in a few hours on a global event fully dedicated to this from Uber coming out later today. One of the biggest barriers that we have, as you know, is that if you think about the supply side and our ability to have electric vehicles on the platform, it's -- the drivers have to want to buy them, right, because they are independent. And they are more expensive, as you know, and so for many of our drivers, they opt against. And so if you buy a Toyota Camry and you buy a Toyota Camry Hybrid, there is a price differential as you probably know. So we are going to continue to try to push it. We think it's very important. We did see our competitors' commitment. There are a lot of caveats and a lot of this and a lot of that, which lots of times happens. We will be -- we will definitely promote climate change and trying to do the right thing, if you will, to tackle it. But again, it's a shared responsibility, if you will, with our driver partners.

Absolutely. Within that is, Nelson, any thought to having your own fleet at some point maybe in particular strategic areas or in small amounts for electric vehicle?

So the company, as you know, had been in the fleet business before on something called Uber Xchange. It's not something that I'm particularly interested in as a CFO. So maybe another one comes by, and it's okay. I don't think we should be in an asset-heavy business. I don't think we should manage the working capital. Doesn't mean we wouldn't partner with fleet businesses. We already do, right? So we'll partner with the Hertz and other companies, if you will, to help provide access to cars to our drivers. And then obviously, in a place like California, depending on the rules, if, in fact, things went against, you might see kind of a fleet-type model with third-party fleets, not ours. But no, I don't think you'll see us any time that I can think of really trying to buy cars and operate cars.

Perfect. That's very helpful. And then maybe on that point of staying asset-light, a question on long-term profitability as we kind of think beyond the COVID crisis. I think Mobility was running at 30% EBITDA margin or adjusted EBITDA margin in a few months before the January, February -- before COVID really hit. Obviously, you've cut a lot of fixed costs since COVID. I think on the Q2 call, you reiterated a 45% long-term margin for Mobility. But could we see potential upside to that 45%, given that you were at 30% before. You cut a lot of fixed cost since then. What are some of the puts and takes we should be thinking about as the business comes back to that long-term operating margin kind of cadence perhaps?

So look, I think we're very proud of the fact that it was less than 1.5 years ago we were on the road, and I would sit and meet with investors. The company was still in investing or losing money even on the rideshare business. And we had investors ask us, is it ever going to be a good business. I think that those investors, and if you ask them because I do, they would tell you, we said it was going to be. Over the course of 2019, we proved it was. And I think people would give us credit for doing what we said we would on the rideshare business. And then you're right, February year-to-date, our EBITDA to net revenue margin was 30%. And we had confidence going into the year pre-COVID. I think right now, yes, we did take action on COVID. Yes, we thought it was an important thing to do in the second quarter. It was a combination of the fact that the company had built so fast so long. And so -- and thinking that you were going to go through a deceleration, if you will, of demand because of COVID, it's appropriate to take action. I think refocusing on the core platform -- and core platform could be the number of different things we are investing in as well as the geographies. And so I think you saw us take action, whether it be -- do the deal that we did with Lime on bikes and scooters or even exiting some of the countries in Eats, which we announced in the first half of the year. Those are all important. I think those who know me know that I believe path to profitability is critically important. I think that if you even look at a company like Tesla that once they achieve profitability, their ability to do things increased dramatically. And so I have the company focused on that. And so with COVID coming, our job is to make sure that we're well positioned for the future, and we had to make the moves that we made. In terms of its impact on the long-term margin, I said, once we get closer to 45%, I think it's better time to ask the question. We're really just focused on continuing to build our Delivery business, right; continuing to focus on Mobility recovery, if you will, on COVID; continuing to really try to do what we can to help in terms of PP&E and other things to help first responders, to help our drivers and others feel safe. And then candidly, I think this is a difficult time. So hopefully, making sure our employees are safe, but stay engaged because I think it's difficult 6 months into this work from home. We're going to be doing work from home for a little while longer. And so I think that's enough. And then at the appropriate time, we can update targets.

Absolutely. No, that's super helpful. I actually got an incoming question, but it relates to my next question on R&D. It was interesting to see that despite all the cost cuts in the last couple of quarters, I think R&D was only down modestly in Q2. And I think you mentioned on the Q2 call that autonomous testing had actually stepped up in the quarter. So just first, curious kind of how you're prioritizing R&D, the various puts and takes between what you're able to cut and where you're continuing to invest. And then maybe also on autonomous specifically, maybe an update there in terms of how you see the landscape shaping up.

So when I -- what I'd said earlier and just a moment ago, I mean, a lot of the focus really was on what businesses we had to be in and focus on the core and what countries we had to be in and focus on where we add leverage. R&D is a little bit different in that most of the spending is around autonomous. We do view autonomous as critical to the core over time. I think the real question is, do we really have to develop it ourselves versus make sure that when it comes, it's on our platform. I think you've heard Dara or myself or others in the company talk about the fact that we do believe that when autonomous comes to automobiles, the best use case for it really is rideshare. And because we have the largest platform, because of the costs involved in developing it, you'd want to amortize it across the largest platform, which is us. So we believe we will be part of the dialogue. It is important, at least we believe it is, to be involved in the development process. Yes, our team has been active in terms of -- been hard at work to make sure that we're hitting their milestones in terms of doing the testing and some of the work that they're doing. We do a lot of data collection, where it is not easy to do in terms of building an autonomous vehicle, especially as you think about first getting to Level 4 and then to Level 5 capability. And then as I said earlier, we will continue to look at everything we're doing, and we are committed towards our path to profitability. So over time, could the amount of spending in it change? Depends. But I said we're -- there are no sacred cows, and we are committed to path to profitability. Right now, at least based on our view of where things sit today, we think that we can continue to invest in it. Hopefully, we get the recovery that people are, at least, more expert than me are talking that's going to come. But obviously, our job is to make sure we're managing the company. I'm very much focused on doing what I tell investors I'm going to go do. Hopefully, I have in my tenure, and we will continue to review and look at all of our R&D spend on a -- we do it on a pretty regular basis.