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

Good afternoon, good morning, good evening, everyone, wherever you are. Thank you for Zooming in and joining us for our next panel we have at the Life After COVID conference. And today, we're thrilled to have Andrew Macdonald, the Global Head of Rideshare from Uber with us. Before I get started, I have to read a few of the disclaimers and all of the obligatory language. First of all, this conference is intended for institutional investors only. If you are a member of the press, we would ask that you please disconnect. And any disclosures associated with any of the names said in today's keynote, disclosures associated with them can be found at the Morgan Stanley research website, www.morganstanley.com/researchdisclosures. The format of this is Andrew and I are going to have a discussion about a series of topics. There's always a lot going on within the rideshare industry so I have a sort of a fireside format. If there are any other questions that you, the audience, are interested in making sure that I bring up with Andrew, I would ask that you please do e-mail them to me at brian.nowak@morganstanley.com, and that's going to be the cleanest way to get the questions to me throughout the interview. So Andrew is the Senior Vice President of Mobility and Business Operations at Uber. He's essentially responsible for global ridesharing operations and all the public transit partnerships. Andrew oversees a lot, the customer support, safety, insurance, business development. You really have your eyes and hands on a lot of the core rides business, so we really appreciate you taking the time to spend to chat with us, Andrew.

Yes. It's great to be here with you, Brian, and happy to speak to this group.

We sat down last October, October of 2019, it feels like years and years ago. I wanted to sort of start with that a little bit. Given sort of the topic of this conference of life after shelter and life after COVID, let me just ask you sort of a big picture question of what in your mind has changed most about the long-term opportunity or the long-term TAM for ridesharing now as opposed to the start of the year or last October when we were hanging out talking?

Yes. I mean it's a great question, and it's certainly sort of the question of the day for us. Obviously, COVID has fundamentally changed the world in a whole bunch of ways. And for our mobility business, when cities stop moving, when the world stops moving, Uber slows down, of course. We are seeing a bunch of interesting trends as people start to move around again. One thing is clear to us is that as cities open up, as people start to go back to work or start to socialize to their friends and family more, start to move around, they depend on Uber more than ever. And I think we shared some information from New York City last week about as New York has opened up, gotten the virus relatively under control, our business has returned rather rapidly and actually has returned faster than other comparable modes like public transit or taxis. So for us, I think we're as excited about the TAM as ever. We expect the customers who have historically used the platform will come back very, very quickly as cities open up. And we actually think a whole bunch of new people are coming into the category as a result of COVID or are using us for New York -- new use cases. Again, another data point we shared out of New York was that our average rider engagement was up double-digits percentages over this time last year, which, to us, shows that people are not only coming back to the platform, they're using us in new ways at new times of day for new activities that perhaps they weren't before. So we think all of that is net beneficial for the TAM, for sure.

I'm sure you think about those dynamics, a lot of the frequency going up, potential for new use cases, potentially bringing in new people into the actual rideshare industry from this. One of the questions that I’m -- we sort of try to figure out, I know I'm asked a lot is sort of, what strategies do you think about that you want to make sure you're really on top of to ensure that you retain as high a percentage of those new riders and new use cases post shelter and as you are now?

Yes. So that's a great question. So interest -- so let's first talk about a little bit about what are those new riders or new use cases look like, right? So typically, what we're seeing, so if I think about one of our largest markets, for example, Brazil, we're seeing new users that are coming into the category. They tend to be younger. They tend to be in less and necessarily the core urban areas where our business was biggest pre COVID. I think socioeconomically, they actually tend to have sort of a bit lower earnings, et cetera and on balance are a bit more price sensitive as a result. And perhaps these are folks -- it makes sense in the context of COVID, perhaps these are folks who aren't in a job where they can work from home, and they're choosing Uber instead of public transit or they're choosing Uber instead of whatever they used to do to get to and from work. So as I think about what it's going to take to retain those types of users, I think, for us, it's continued focus on delivering value at every price point. So if they're a user who is trading off between us and other low-cost modes of transportation, we're going to need to make sure we continue to deliver price leadership. And for me and the way I run my business, that means just making sure we're keeping a keen eye on costs. And I think we've done a good job of that the last few years, for sure, and it's a core part of our strategy. But we're also going to want to deliver a reliable product, which we've done, and I think continue to do as the leader in this industry. If you're thinking about most of our major markets where we're strong category position leaders, means we're running the biggest network. It means our ETAs are the lowest. It means our completion percentages are the highest. And for customers who are depending on us to get around or depending on us to get to work, that reliability really matters. And then I think the third area and it's truly critical across all of our markets is delivering the safest platform. And so the actions we've taken through COVID to lead the industry on safety, and it shows up in our customer data. We obviously go out, we do research on this. We have made meaningful gains in terms of safety perception, both amongst riders and drivers and specifically as it relates to safety for personal hygiene. So the efforts we've done to implement things like no mask, no ride or other things that make rides feel cleaner and safer are showing up with customers. They're showing up with drivers. And we know these are the biggest barriers to usage of the platform right now. And so we think if we can establish a clear lead in the mind of consumers on safety, as we compete effectively on price and we're the most reliable product, we're going to keep those users on the other side of COVID.

That's helpful. Now to highlight that analytical approach. Let me kind of dig into one of those a little bit, the pricing point. You do have a lot of data about pricing, elasticity, what causes consumers to react one way or the other. So I guess I'd be curious if you break apart sort of the business into a U.S. versus international framework. Talk to us about sort of what you've learned about elasticity or inelasticity on the rider side. And how you think about sort of long-term pricing power for ridesharing, U.S. and international?

Yes. So this is obviously a core part of how we run the business and something that we continually are refining our approach and adjusting our thinking. We're in a unique position as the largest player. I think we have the ability to segment our user base in a way that allows us to serve a variety of different price points and user needs while balancing margin and growth, right? And I think we've demonstrated an ability the last couple of years to pull the levers we need to, to do exactly that, which is balance, hey, we want to not only be a business that delivers long-term margin but we want a business that's growing meaningfully year after year after year. And so for us, that’s -- that means taking a bit of a portfolio approach to products and to our investments. So we have high-priced premium products like Uber Black, like Uber Comfort, which deliver high margin for Uber and are dealing with a less price-sensitive customer base. And I think we are, again, as the largest player and as a player that's traditionally had strength amongst these higher-value customers, best positioned to deliver on those. On the other end of the spectrum, long-term growth is going to mean growing the share of the pyramid that we capture, i.e., capturing just a greater percentage of any mobility that happens in a city all over the world. And that's going to mean delivering products that work with sustainable economics for more price-sensitive customers, for people who are going to use us in their daily life, their daily journey and consider us versus other transportation modes. So for those folks, we've got lower-cost vehicle products like autos and motos, like 2-wheelers and 3-wheelers in emerging markets. These are really low-priced, everyday use, sustainable economics for Uber type products. We've got products that let users choose -- optimize for choice between reliability and price. So we've got a product in Brazil called Uber Promo, if a user is willing to wait a little bit longer for a ride then perhaps that we’re able to deliver a lower price for them. And for drivers, we can even allow them to choose, hey, would I rather have a quick ride at a lower price or wait a bit longer for a higher-price ride. So these types of trades within the largest network are most possible. We're also, as a large network, able to do the most sort of customization. So when you have maybe 5x the cars of your next largest competitor on the road, you're able to slice and dice your marketplace into thinner and thinner slices. So if you want to bring a pet in your car, sure, we'll just match you with drivers who've indicated they're willing to take a pet. If you want to tack a bike onto the back of your car, sure, we'll indicate drivers that have a bike rack or bringing kids or all of these different things. And again, those types of thin slices are only possible as the largest network.

Makes a lot of sense. All right. I have a few questions on Prop 22. I'll just go all the way and say, congratulations. That was a win, in my book, a win. So let me say, first one on Prop 22, maybe talk to us about how you see Uber working with other states across the United States to really increase benefits for gig workers. And philosophically, do you see a scenario where Uber could proactively roll out Prop 22 like offerings to other states or areas?

So first off, thank you very much. I mean Prop 22, I think, is a big victory for the industry and most importantly, for drivers. This is what they wanted. And I think we prevailed in California because -- not because it was good for Uber, but because it was what drivers wanted and voters saw that. And so when voters and drivers are on the same page, I think you end up with the Prop 22 victory. And so it's a really important moment for our industry. We're going to go out and spend time talking to policymakers in states across the country about why we think a Prop 22 like model makes sense for their state. We're going to emphasize that this is in the interest of drivers. We're going to emphasize that preserving the flexibility of independent work, which is what drivers want while adding benefits is the best outcome for the future of work in their states. And I think we're going to get a lot of enthusiasm around that. So whether or not we'll proactively roll out the benefits, we'll have to take that on a state-by-state benefit or basis. But I think at the end of the day, Prop 22 or something like it is what drivers want. So we're hopeful that we'll end up with that type of solution in markets across the country and really markets across the world that are looking at, hey, how do we adapt and evolve our own approach to the emerging and changing nature of work.

That makes sense. And I guess, one -- so 2 follow-ups on Prop 22. The first one just on rider demand. I guess I'd be curious to hear about how you are thinking about sort of go-to-market pricing strategies in the Prop 22 areas within California specifically? And then maybe give us some case studies or examples or what you look at that sort of makes you think, you know what, a 5%, 6% or some single-digit percentage price increase because of Prop 22 is not going to have a material impact on overall rider demand for the product.

Sure. So look, as I said, we are constantly looking at how to optimize prices and serve riders at all price points. Prop 22 does have specific clauses as it relates to a minimum floor for earnings. And the good news is that in the vast majority of times and places, drivers are above that floor. And so while there will be some spend on our side to address the cases where that isn't true. I think for the majority of times of day and use cases and geographies, drivers are already earning above that floor. And so we don't actually expect there to be a massive change to pricing in California as a result of Prop 22. But what you have for drivers is that certainty of the floor, which is certainly valuable. So I don't expect you'll see us meaningful rider side prices in California or meaningful rider side price changes in California as a result of Price 22 -- or Prop 22. So we don't think we'll see a ton of change in rider behavior. We're also going to be, as you know, rolling out benefits to drivers. We hope that drivers will choose to spend more of their time on the Uber platform as a result of those benefits. Drivers are going to be able to accrue hours towards earning, things like the health care benefit, working across Uber Eats and Uber rideshare. And we think that's another attractive way to keep drivers on the platform. We're going to continue to lean in and differentiate on safety, which is super critical to drivers. So if we have an advantage on earnings, if we have an advantage on safety and we're continuing to provide the flexibility drivers want, I think drivers will choose our platform first. And as we lead on the driver side of the equation, we're going to deliver better service on the rider side, and I think that will result in us winning share there as well. So overall, it's a net positive, and I don't think any major changes to user side pricing are coming. And so we're not thinking too much about that right now.

Sort of the scale and the portfolio advantage and approach really play out. I wanted to kind of go back to one of those comments you just made about compensation for drivers, if you will, because this has been a hot topic over the course of the last week or so. Now it’s our understanding that the benefits that the drivers are going to earn to Prop 22 is in part tied to weekly hours worked. And so when you're sort of talking about Prop 22 potentially helping you bring more drivers in or sort of retain more drivers, is that sort of the mindset where you may have fewer dual app-ing drivers because drivers are going to want to consolidate their hours? Or talk to us about why you think Prop 22 could be an advantage of driver acquisition.