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

[Presentation] Okay. Thanks, everybody, for joining us on the second day. This is the keynote session. We normally have lunch during this time. Sorry, we don't have that, consider it a virtual lunch. Thrilled to have Dara Khosrowshahi, the CEO of Uber with us today. Thank you for joining us, Dara. I'm going to ask you a series of questions in the next 45 minutes. There's also a Q&A tab at the bottom right for anybody who wants to throw in questions, so I'll do my best to filter those in.

So Dara, the first thing I want to ask you about is, we've had probable election results that, I think, starts being certified tonight, but it looks like we're going to have a probable change in administration. We're going to start high level on policy then we're going to go down to Uber. What impact do you think the results of the election will have on our country and on the economy?

Yes. I think the election going, and thank you for having me, Mark, the election going from probable to certain, I think, will be an important factor. I think you know that markets don't like uncertainty. I think that the division that we have seen as it relates to our society and the political spectrum over the past year or 2, I think it's been more damaging than people give kind of the credit for. And I think a period of a bit more calm, a bit more predictability, a bit more certainty is something that, regardless if you're on the right or the left, is desirable and I think can be a good thing. So I am rooting for certainty. I think that will be a good thing. As it relates to politics and how it would affect the economy, et cetera, I do think that a bill, a spending bill, an infrastructure spending bill, et cetera, that puts money into real assets and is a boost to the economy, has a decent chance of passing. And I think will be a very significant positive for everybody involved. For us and our business, most of the regulatory interactions that we have are on a local basis. Obviously, with Prop 22 in California, the voters spoke, and they took the side of drivers to remain flexible and remain independent. And that's a win, and it was a significant win in kind of the biggest blue state there is that we hope to take with this IC+ model that we really led on to the rest of the country. But I think most of our regulatory interactions are on a local basis. I think on a national level, certainty is a good thing for everybody involved.

Dara, do you think that with the change, with the probable change in administration from Republican to Democrat, do you think we'll have a major change in how technology is regulated or do you think that we're just generationally different than where we were 8 years ago, 12 years ago?

I think that change is going to happen regardless of whether or not you've got a Democrat or a Republican or split government. The technology companies, the platform companies are having a greater and greater effect on society at large. I think that there's a bit of a disconnect between tech and government in that as technology companies, we are trained to go fast. We're trained to make mistakes. We're operating and innovating at a scale that really the world has never known. And when you go to government, government is kind of built to go slow and not make mistakes. So the different design specs between these 2 different entities that are going to have to increasingly have a dialogue and have a constructive dialogue suffers from the structural difference, which is, one side is big, loves to make mistakes and go fast, the other side goes slow by design to avoid mistakes. So I think it's incumbent on tech companies to actually lean in. If you kind of wait and you bide your time and wait to be regulated, I think by the time that happens, it will be too late. You can have kind of reactions that are adverse. And that's why, for us, we're actually consistently taking a leadership stance. We're taking a leadership stance as it relates to flexible earnings plus benefit. We've definitely taken a leadership stance as it relates to safety, the safety of the platform. And one in terms of personal safety, now in terms of safety from COVID with the tech that we built as it relates to mask verification. And we're also now leading on sustainability, getting to essentially all-electric by 2030 in U.S., Canada, Europe and then 2040 with the rest of the world. Those are all areas where we're going to have interactions with regulators, but we want to have the interactions and the dialogue and the partnership early. Otherwise, you've got issues where you see cropping up now as it relates to the social platform. So we just don't want to get there. I think these are important dialogues and long-running dialogues that we want to have.

Dara, you may think that the difference between the public and the private sector is they both want to move fast and break things, but the private sector spells it B-R-E-A-K and the public spells it B-R-A-K-E. That's my witticism of the day, I just realized. All right.

Very strong, Mark. You're on your game.

Let's talk about Prop 22. So the implications of that for Uber, the ridesharing business, for the gig economy, how widespread do you think those impacts are? You did point out that this is the biggest blue state. So is the implication of that, that if Prop 22 can win in California, it can win anywhere?

Well, we believe, first of all, it should win, right? I think can is great. And this was a pretty significant win in California. But the vast majority, over 3/4 of drivers who use the platform and certainly couriers who use the platform, they do so because of the flexibility. The earnings opportunities are significant, and we have recognized that it's our responsibility not only to deliver flexible earnings opportunities, but also benefits, accident insurance, et cetera, so that it's independent. And versus, call it, the opposition view, if you want to call it that, which is, hey, let's go back to where we were 20 years ago. Like the nature of work has changed and having significant platforms like ours, like Lyft, like DoorDash, all the other gig economy companies, that create flexible work is a great complement to full-time employment, especially during a time when earnings opportunities coming out of COVID are all the more important. And especially in the time when the workforce participation rates in the U.S. are at an all-time low. So why go back to kind of a structure where workforce participation becomes even harder. So we think it should when our drivers are on our side, and we will have the proper dialogue, and it will take time with other regulators, state regulators, city regulators, and we think that the regulators over the long term will do the right thing, which is to help drivers out and create more opportunity.

Okay. Now let's switch and talk about Uber's business a little bit. And glibly, overly glibly, we've been referring to this as the vaccine conference. This is the first conference in which people and public investors and companies have been talking post what looks like very constructive news that should hopefully lead to a reopening of societies, cultures, economies within 6, 12 months, hopefully. What impact does a reopening have on Uber's business?

Well, I think it will have a substantially positive impact in our business. Obviously, as we now speak, you've got the third wave in the U.S., you've got the second wave in Europe. And what we see is, as these waves hit, our mobility business takes a hit. And obviously, we've got a very big mobility business, both in the U.S. and Europe. But on the other side, what we've seen is that as cities open up. And if you look in Asia, for example, opening is much, much faster, the Uber mobility business comes right back. All of the use cases, whether it's business use case or leisure use case, all the use cases are coming back as expected other than travel. And I think you had Glenn Fogel on earlier, and he can opine as to when he thinks travel is going to come back. I personally think that there's going to be a pretty big bounce back in terms of leisure travel because it's kind of pent-up demand. Business travel may take longer to come back. So I think that segment may take its time. And we are seeing also evidence that Uber is bouncing back faster than other modes of transportation, whether it's taxi or mass transit, et cetera. So we think, on a post-COVID world, you've got a mobility business that will bounce back very quickly. I think we have demonstrated P&L formulation as far as the variable nature of the costs that have been very attractive. And then you've got a delivery business that has had 6 years of acceleration come into 6 months. Our run rate now is $35 billion plus. And then you put Postmates on top of that, you get to $40 billion plus run rate even where we are now. And the evidence that we see as it relates to the delivery business is that as people use the product and as more restaurants come up to the platform, that use is sticky. And it's a delightful product. It's an incredibly convenient product. And while we don't expect to see the kinds of growth rates that we're seeing now as it relates to our delivery business, we do think that even in a post-COVID world, this is going to be a very big business. It's going to be growing at substantially attractive rates, and we've called out that we think we can get it to profitability next year, along with the whole business. When you step back and look at the whole thing, you'll have a mobility business that I think we've proven out as far as the efficacy of the business, our leadership position all over the world. You've got a delivery business that has been substantially accelerated, much bigger base than, frankly, we expected, and now we're getting into adjacencies such as grocery. And you have a structural cost base because of the tough actions that we've taken and because the pivot of a lot of our tech work to drive efficiency, you've got a structural cost base that has actually improved over where we were pre-COVID. And we're not going to let that go. It's hard work and pain and both that we're simply not going to let go to waste. So from a structural standpoint, you've got a bigger TAM, you've got a bigger business top line. And from a margin standpoint, you've got a more attractive margin profile going forward.

Dara, do you want to try to dare, I guess, as to when you'll get back to -- when we will see full mobility? When we asked that to Glenn Fogel earlier today, his very cautious answer was years, not quarters. Do you want to put a line in the sand on that one?

I think that we will get there faster than Glenn's business just because he's right smack in the middle of the business that was hit very, very significantly. If the vaccines are essentially available to a significant portion of the population, I see the mobility business as getting back to pre-COVID levels and then some. Obviously, travel will be a subsegment that will be negative, but we think our other segments will be positive. So if in an optimistic scenario, you can see a mobility business that's growing in the back half of the year next year. Will it happen? Won't it happen? It's very tough to tell at this point.

I want to ask you about one of the use cases, so that I wonder if it could be -- and this is an impossible thing to know, but whether it could be permanently impaired. And we had Marc Andreessen yesterday. He made the comment that his mental exercise was, if you had asked the S&P 500 CEOs at the beginning of last year what's going to happen to your productivity if your entire workforce is working from home for 9 months, all of them would have said it would be just terrible for their productivity. You ask them now, they would say it hasn't been terrible for productivity, i.e., it's possible that business travel, business commute, certainly, long-term distance business travel could be cut back materially. So how do you think about that? I don't know what percentage of your business it is, business commute, and including some of that airport, that could be 20% to 40% or something like that, so something substantial. How much of a risk is there that, that part of your demand is permanently impaired or permanently curtailed?

Yes. We definitely and I'll separate travel from, call it, commute, et cetera. We have very carefully analyzed the patterns of our business coming back even in a situation where COVID certainly isn't solved. And what we're seeing is the commute use cases essentially come back in line with the leisure use cases. It varies from city to city, but we've got such a global scope that overall work-related and nonwork-related use cases, they're coming back. And so we have not observed any kind of a structural issue. What we have observed is that Uber is coming back faster than alternative modes of transportations such as mass transit, such as taxi, because of the investments and the visibility that we have and being very forward as it relates to safety, the mask mandate, no mask, no ride, the controls that we have in place. And I think that's going to translate going forward. So I do think that you could imagine a world where we, as a transportation platform, gain share from other modes of transportation. Any of those share gains could be very significant in terms of our overall business. We are also observing that nonpeak commute use cases, for example, in New York, are coming back substantially and are actually more so than previously. What we don't know is, is that a bleed from commute? So are people kind of saying, hey, if commute used to between 8 a.m. and 9 a.m. or 7 a.m. and 9 a.m. is that a bleed so that the definition of commute now with companies being more flexible, you come in at 10:00, you can come in at 11:00? Or is it actually users finding more use cases for Uber, going shopping, picking something up, going to see family, et cetera. If it's the latter, then you actually have a bigger pie and you have a bigger TAM. So I think when we look at the whole kind of structure of this, we don't think there's going to be any kind of a permanent effect on the business. The only question in my mind is, when business travel comes back, how big it will be? And the overall travel sector for us is about 15% of our business. It's probably half leisure, half business. So you can see kind of single digits of our business will be affected by the business traveler. And I think that remains to be seen.

I want to ask you whether COVID changes the way you think about your portfolio. If you look at the numbers historically, Eats was a small part of -- I forget the numbers, it was like 1/3 of the size of mobility. I think most people like myself, who looked at Uber really spent most of our time just looking at the mobility side of the business. And you were shedding assets, your second tier, maybe third tier Eats assets. And now here we have COVID, and all of a sudden, these 2 businesses are of equal size. And it's possible that for a while, Eats is actually going to be bigger. Does that change the way you think about this portfolio? Does that make you actually want to think about instead of shedding Eats assets, actually trying to build them out?

Well, I think, it certainly does make us look differently as it relates to our portfolio because the delivery business, the Eats business just got a whole lot bigger faster. When we look at Uber, we want to be one of those 15-year compounding companies, right? And so we're always thinking about what's the near-term opportunity, the medium-term opportunity and then the long-term opportunity as well. And in a world, like you said, where Eats is, call it, near term, 25%, 30% of the business, we have to invest in, call it, adjacencies that are a bit more exogenous to our core business in order to make sure we've got that kind of 10-year compounding machine with increasing margins. We found the great growth opportunity right around the corner and it's called Eats. And so as a result, that allows us to focus more on our core businesses just because they've proven to be much bigger than even what we expected. And by the way, we were pretty optimistic about the Eats business. We've invested pretty aggressively. So that does allow us to focus more on the core, really drive the transformation of our Rides business, going to mobility, going after mass transit, going after hail-ables and taxis, bringing on scooters, bikes, et cetera. Any way you go from point A to B in a city. And then on the delivery side, moving from just food to grocery and adjacencies, essentially local commerce of any kind. And we have a freight business, which has proven to be very interesting. We raised some external capital for freight to allow it to get to profitability as well. That core portfolio to us looks complete at this stage and looks like a portfolio that can drive compounded growth really for the next 5 to 10 years at very attractive rates. Our shedding some of the assets with Eats was really based on a different factor, which is where can we win. We want to be #1 or #2 in every market that we operate in. We want to be #1 in the majority of markets that we operate in. And if we're #2, we want to be a profitable #2, and that usually requires big population, big sizes and also a pretty big mobility segment for us. So we would have undergone some of those dispositions anyway because we want to focus our efforts and our capital against the markets that really matter. And I think the portfolio that we have on the delivery side is the right portfolio at this point. And the potential, obviously, is enormous.

Okay. We have got a lot of questions coming in and I'm trying to parallel process here. Let me just ask you to just focus on the delivery business for a bit. Do you want to set expectations for when non-Eats delivery could be a material part of that segment and how difficult, what are the challenges involved in branching out into non-Eats delivery?

So non-Eats delivery, it's already $1 billion-plus run rate business, and we believe it will be multiples of that next year. We went out and we acquired a majority of Cornershop. It's a very entrepreneurial team, built their business in Chile, built it in a low capital-intensive way. And really now we have the benefit of 6 to 7 years of an entrepreneurial, aggressive team building out that grocery business. Now we're taking what they've built and now scaling it on a global basis, the way that Uber knows how to scale. Remember, we were one of the late entrants into the food business. We're now the largest player on a global basis, ex China. And we think with grocery, taking what the Cornershop team started. And by the way, grocery, if you look at Chile, Cornershop is in grocery and all other kinds of local commerce. We can take that. We can extend it all around the world. And it's not something that is going to happen overnight. But I think that Uber has demonstrated the ability to go after sectors, the ability to build global services and compound them over a period of time and get them to profitability. We think grocery, non-food, non-restaurant kind of commerce is another one of those categories. And then you put kind of above that and below that a membership model, a subscription business that serves all the businesses, infrastructure, loyalty program that serves all these businesses, that allows us to have an advantage both on the cost side and on the customer acquisition and retention side versus any of the other competitors. These advantages, they're not like 1-year advantages, they're not like 30% advantages. They're single-digit percentage efficiencies that as you compound them year after year after year, what seems like a small advantage in 1 year becomes a very large advantage over 30 years, and that's really the game plan that we're running.

Dara, there's been some interesting public disclosures in the last week or 2 about the food order delivery business. And the question that would come up is, there's disclosure that suggests that the #2 global player, ex China, has actually reached profitability. And so the question that's come up here is well, if they did it, why isn't Uber Eats -- why isn't Uber Delivery profitable? And is your response going to be that on a geographic apples-to-apples basis, actually, the profitability is similar?

Well, we've already said that we're profitable in 10 countries around the world, and we expect that number to increase next year. We expect the overall Eats business to be profitable next year as well. Remember, we were one of the late entrants 4 years ago, where Eats was essentially nonexistent. It was a couple of billion in run rate 3 years ago when I joined. And now obviously, it's a very, very large part of the business. So we're building global scope. That is more expensive. And we have grown at rates that exceed that of the competition. And that investment certainly looks like it's paying off. I think that's DoorDash who filed their S-1. They've done a great job in the U.S. And I think that we can be a global leader and intend to execute behind that.

Did you say whether 1 of those 10 countries was the U.S.?

We have not talked about which countries those 10 countries are.