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

Great. Thanks, everybody. My name is Doug Anmuth. I'm the Internet analyst at JPMorgan. Welcome to our keynote discussion with Uber CEO, Dara Khosrowshahi. So Uber's mission is to create opportunity through movement, and it's changing how people, food and things move through cities. The company has done more than 15 billion trips, and Uber is the largest global rideshare company and the biggest food delivery service outside of China. Dara joined Uber as CEO in 2017. He previously was CEO of Expedia for 12 years, where he grew that company into one of the world's largest online travel businesses. And prior to that, Dara was CFO of both IAC Travel and IAC overall. So welcome, Dara.

You just made me feel old, Doug. Thank you.

Well, I'm kind of right there with you. Because one of our first discussions many years ago was when you were CFO of IAC. So we have evolved. So first thing, just to mention to the audience, and most of you know this, there's a blue ask-a-question feature in the conference session, so conference session page. So just feel free to put questions in there. And I'll do my best to work them in the discussion.

So let's get started. Dara, there's a lot going on in your business. 1Q was your best quarter of bookings ever. Rides are ramping as the world reopens. Delivery remains very strong with accelerating triple-digit growth in 1Q. You've got a redesigned super app. You're targeting EBITDA breakeven sometime this year. So with all of that, what are you most excited about here?

Well, I think, Doug, you kind of said it. What I'm really excited about is that it feels like the company is finally hitting on all cylinders. And with our Delivery business, we were always very, very bullish on our Delivery business, but there was some debate as to how big is Delivery going to be compared to Mobility as well. And what we've seen with the pandemic, which has been incredibly difficult for so many people, us included and our company included, is it's served as a pretty incredible accelerator as it related to Delivery overall. It made the bets that we had made on our Delivery business, pre-pandemic, which I think some investors weren't sure about, it kind of solidified those bets as excellent investments. And now we have a Mobility business where we are the global leader. We're in a strong position in every single market that we operate in. Pre-pandemic, we had demonstrated our ability to deliver margins and growth in that business, 30% plus EBITDA margins. So that Mobility business is coming back, and it's coming back not just in the U.S., but it's coming back in Europe and many other geographies as well. Obviously, there's work to do. We don't take anything for granted, but we like the Mobility trends. The Delivery business now has scaled. We are in a #1 position. I'd say we were fairly late in the delivery game. We had a hypothesis, which is the Uber brand, our ops team, our geographical position, our ability to execute our technology, ML learning, et cetera, that we've got would position us to win in delivery. And we are now #1 in more markets than we ever have been. And we have a clear path to profitability as it relates to our Delivery business. And then I do think that the pandemic forced us to make some tough decisions. In hindsight, I believe that those tough decisions were the right decisions. I think we are tighter as a company in terms of our cost base. We have taken the opportunity to automate a lot more processes while improving the customer experience. And we have gone out of some businesses that you could argue have been noncore. So where we sit now is a business that is actually quite efficient operationally, a business that has very, very significant upside, both in terms of Mobility and Delivery, which have adjacencies that we've actively been investing in. So they're not a theory. They're in process right now. We have a freight business that we believe is -- has a very clear path to top line growth and profitability as well. And we're going to underlie it all with infrastructure, a technology team that's second to none and a membership program that can give access at lower cost with improved benefits to a customer base across our portfolio. So we like our position. Now it's a matter of execution.

Okay. Great. So a lot to dig into there. Let's start with Mobility. As people are returning to Ubers, what will they notice most about how the experience and service has changed? And just what features and functionality will stand out to riders here?

Well, I think the biggest factor that will change is Uber is looking much broader as a service, right? We've gone from a car hire business, you now have Uber Eats available as well. You all have Reserve. You have the ability to send packages. You all have transportation and mass transits as well. We've improved our reserve functionality where you can reserve a car in advance of -- 30 days in advance and making sure that the driver is there 15 minutes early. We're introducing a car rentals feature that we're launching as well. So I think it's a much broader service. What we're seeing is that as we broaden the choices on our mainline Mobility app, the frequency of interactions that our users have to open up that app that frequency increases. And with that increase in frequency, we can create better loyalty over time. So we think that users are going to know us in all of that. Some of the not-so-good stuff that they're going to notice is ETAs are higher than we want them to be. Surge level prices have increased as we are -- as we have not seen driver supply to keep up with the demand growth in the U.S. In the rest of the world, actually we're pretty good. And in certain places in London, et cetera, we're back to 90% of pre-pandemic levels and the supply position is great. So the supply position in the U.S. is still something that we're working on. It's definitely getting better. But we're not happy with the ETAs and the price levels that we see, and that's something that we're certainly going to invest to improve on. And then the last thing that I would say is there's a lot that we work on that's actually under kind of the cover, so to speak, that consumers aren't necessarily going to notice, but it actually has the greatest impact on the service because anytime you introduce something, you kind of think about the impact area. If you think about Reserve, which is a product that we're really excited about, airport trips are about 15% of GB. They're a little bit less on trips because the airport trips tend to be high GB per trip. And so if you hypothesize that Reserve can be 60% on airport trips, et cetera, it's a nice business, but it's a single-digit portion of the business. A lot of the core technology that we work on, for example, we have -- we now power our estimated time of arrival, our ETA, models now with a true kind of global deep learning algorithms. And there's traditional mission learning, it's kind of tree-based decision-making. These deep learning algorithms now have beaten a bunch of these highly, highly trained algorithms in incredibly short amount of time. They have increased, for example, the accuracy of our ETAs by 2%. It's like a 13-year-old beating a 23-year-old in one-on-one basketball, who is -- 23-year-old is at the prime of their life, and a 13-year-old beats him. It's like the LeBron James of algorithms, right? And it's a global algorithm both for Mobility and Delivery, and it essentially can learn all around the world across 2 business segments. So you've got like a LeBron James that has the biggest gym available. And he's still 13, and he's only going to get better, and he has access to more data than anyone has access to. So like those kind of improvements in the service are not going to be visible but are fundamental not to use cases that might apply to 5% to 10% of your experiences. They're applicable to every single use case getting incrementally better. That's the kind of stuff that really sets us apart. And ultimately, you asked me like what excites need the most about the stuff we're working on, it's that stuff. It's core to every single experience, and we just have a structural advantage over anyone else in building this kind of tech.

Okay. Great. Let's talk about how that's playing into recent Mobility trends. The pace of recovery picked up in March, and you saw gross bookings accelerate in April, increasing 5% month-over-month. You also saw U.S. ride volume increase month-over-month in April. What are you seeing 3 weeks into May? And should we expect month-over-month increases in both gross bookings and trips really for several months here?

Yes. I think that's certainly our expectation. You never know what real life looks like, especially in a pandemic recovery. But we've seen pretty consistent improvements. We're seeing nice improvement as it relates to the supply situation, more drivers coming on the road, more supply hours. And most weeks are essentially best weeks ever on the Mobility side of the business. And we're tracking to a good rate so that we can exit going into the second half of the year at rates that we'll be quite happy about.

And just to clarify, most weeks are best weeks since COVID?

Correct. Yes.

Okay. Sorry. Okay. Just wanted to make sure. All right. So when you think about the recovery, kind of with that in mind, April was 68% of April '19 levels. But then you've got markets like Miami and New York, where during weekdays, you're fully recovered. Miami is growing, I think, on an overall basis. New York is back to around 70-ish percent type of levels. What are the key takeaways from those markets?

I think the key takeaway is that as markets open up, people use Uber, and usually, Uber is coming back faster than the alternatives. I think people have seen investments that we've made in safety. So even though people are feeling safer in general, they see the care that we've taken in making sure that your personal safety is taken care of in every way. And we are seeing -- it's pretty predictable, market opens up, Uber comes back and Uber comes back pretty fast. And really, the return is modulated by supply, not demand. We are seeing weekday and weekend use cases come back most quickly. Party hours, dinner hours, et cetera, trail a little bit, the weekday weekend that -- in many cities are already at 100%. And then we're seeing airport trips, again, trail, so whereas airports pre-pandemic were about 15% of bookings. They're probably closer to 10% of bookings, and it's 10% of bookings that haven't yet returned to normal. But all of the trends there for us are pretty positive. And we see the same thing, whether it's New York or Miami. London now is basically 90% recovered in a lot of these use cases weekend, weekday use cases as well. So we expect what's new is the U.S. is coming back. But now we're seeing the U.K. come back very quickly. Germany, a bunch of other European countries are coming back. And Asia ex India looks really good as well. So the portfolio is performing at pretty positive levels right now.

Okay. And then what are you seeing in terms of market share just when you think across different geos and then also as higher-value riders reengage with the service? And is the mix skewing a little bit more toward premium?

Yes. We had expected that with higher-value consumers coming back, we would see a tailwind as it related to coming out of COVID. We actually tightened up our pricing, to some extent, going to COVID because some of the high-value users had a more of a tendency to stay home. We are seeing a tailwind there. So I would describe our category position trends as constructive. Most of the competition we're seeing in markets, certainly the competition that we're seeing in the U.S., is pretty rational competition, which is much more focused on, hey, let's take advantage of the category coming back versus focusing on one competitor or another competitor. You're seeing similar themes in many other markets. And I'd say category position trends, both in Mobility and Delivery, are positive.

Okay. Let's talk about driver supply. You've hit on it a little bit here. Certainly been a big topic in our discussions with investors. It sounds like things are improving, but if you can just give us more of an update on how things are trending. And I guess, really what gives you the confidence in having these issues mostly resolved by the third quarter?

Yes. So I think we're confident in our ability to execute. When we've surveyed our drivers, 90% of them have said that they intend to come back post-pandemic. So that's a good, healthy number. 80% have said that they're going to come back once they get vaccinated. Generally, because of demographics and maybe other factors, our driver vaccination rates trail a little bit our rider vaccination rates, but they're catching up pretty quickly. So I think it's just a matter of the population getting vaccinated. And to some extent, that's why you see us take such a bold step forward in terms of giving rides to vaccinations, et cetera. It's the right thing to do for the country, but it's also -- we want to represent the demographic that often drives, and we don't think economic opportunities should get in the way of health opportunities. So what we're seeing now is the intent is there. The earnings opportunities are there. I think the Biden administration is doing a great job in terms of continuing to drive vaccinations and information for all Americans. And as -- and then combine that with our efforts, we're very much focused on the driver funnel; easing the driver funnel, how drivers get onboard; proactively contacting drivers and getting them back on the road; resurrecting drivers as well; targeting drivers who we think are more likely to contribute more supply hours, drivers who will drive 20, 30, 40 hours a week. And when you put this all together and surge levels that are helping earnings levels, probably since we started our activity, the number of drivers that we have on the system and the amount of supply hours that we have is probably up 25%. And I think if those trends continue, by the second half of the year, our volumes are going to be quite healthy and are going to support what we see as an EBITDA profitable business.

Okay. Let's talk about some of that impact just in terms of the numbers. You talked about the $250 million investment in driver supply, which we think pretty much all of that comes in 2Q. But the incremental component here, you laid out at earnings, could reduce the Mobility take rate by about 150 basis points to about 20% in 2Q. I guess, first, how confident are you that the investment allocates actually enough dollars toward driver incentives? And then how do you offset -- what are the ways you could offset some of that take rate impact?

Yes. So I think we're confident in that we've done the math, right? It's -- you can have an idea of where you think volumes are, where you think demand is going to be Q3, Q4. That's a guess. But then based on that, you can estimate the number of supply hours you need, the number of drivers that you need on the road. And we're tracking, on a week-on-week basis, driver activations, driver resurrections, driver retention and supply hours on a week-to-week basis. And everything that we've seen is, hey, we got work to do. This is not a passive endeavor, but we're on track. And when we look at the rest of the world, hey, is this a problem that's going to crop up in U.K. or in France? It isn't. The driver supply is coming back. And driver supply in some of those countries tends to be more full time, more of a vocation for drivers versus the U.S. that has a lot of part-time drivers. And then I think we've seen cycles before. This is obviously a very fast cycle, and driver supply and demand tends to trail the cycles, both on the upside and on the downside. But the laws of economics, and supply and demand are going to apply in a pre-pandemic world and in a post-pandemic world. Our issue in putting in incentives right now is about accelerating the normal rate at what drivers will come into this marketplace because we want to make sure our customers have the best experience. Because we want to make sure ETAs come down. We want to make sure average surge levels come down, percentage of session surge and unfulfilled rides all of those come down. And all of those numbers, while they are not where we want to be in terms of a healthy marketplace aspiration, those numbers are all headed in the right direction. So when I put the picture together, teams are all hands on deck. They're executing day and night. But I like what I'm seeing, and mathematically, we're on a pretty good trend right now.

Okay. Great. So let's shift gears to Delivery. So 1Q gross bookings accelerated on both the reported and organic basis. How has this category just forever changed coming out of the pandemic? And what does it mean for the sustainability of growth going forward?

Well, I think the comparison that I make it is the e-commerce, right? It still surprises me that people aren't asking the question, "oh, is anyone going to order on Walmart.com or Amazon against post-pandemic?" Like, well, yes, I think so. Once people use the product, the product is a really great product, and the product is a sticky product. So when we analyze the growth rate for the Delivery, which is outsized -- listen, I don't expect us to grow at these concept rates going forward. There are 3 significant elements. One is growth in audience, people who try the product, they like it, et cetera. And the vast majority do. That growth is about 70% on a year-on-year basis. The comps get harder, so that growth will come down. But that kind of core growth rate is about 70%. Then we have double-digit growth in terms of basket size, and we have double-digit growth in terms of frequency. All of those put on top of each other get you to the kinds of growth rates that we've most recently seen, which are generally great. So what do I think is going to be sticky? I think audience is going to be sticky. I think once you use the product, you're going to use it again, just like in e-commerce. Someone uses Walmart.com or Amazon, they're going to keep using it. Anyone who sees it otherwise will probably be wrong for the vast majority of users. So I think that's going to be sticky. As it relates to basket sizes, we are seeing more families use a product. We're seeing more -- it's not just a core urban product, but it's a product that is in suburbs, et cetera. And we have launched a number of attach features that encourage people to put more into their basket. So we think the basket size increase is also going to be sticky. And I think the question is going to be frequency. Instead of ordering Uber Eats 3 times a week, are you going to order 2 times a week and then go out? That's certainly possible. And I would personally expect frequency to come down over a period of time as there are alternatives. And I think the offset for us there is our membership program and our CRM programs and targeting, et cetera, that we can drive to get frequency back up. So what I don't know is how much will the emergence of the alternative going out help frequency and how much will our membership penetration essentially help frequency because our members tend to buy significantly more than their pre-membership state and what that looks like. So I think there'll be some headwinds. But the category, the vast majority of the growth of the categories here stay. In our investor deck, we showed a couple of cities, New York, Sydney and what the shape of the curve looks like. Now we're going into summer. And I think it's an early shape of the curve. So it is something that we will update. And again, I think frequency will take a hit, but I think other areas are certainly going to be lasting.

Okay. Great. So let's talk about Delivery, the bottom line. You've said 2 of your top 5 markets are EBITDA profitable and that the profitable markets were running at 4% margin on gross bookings. What's the near-term path just when you think about Delivery profitability, which you've talked about reaching sometime this year? And then if Delivery demand softens, to what degree can you pull back on the courier base or some other areas to offset that impact and still achieve that breakeven level later this year?

Yes, absolutely. So the -- our Q1 profitability as it relates to Eats was, to some extent, affected by some of the winter storms. We had to get a bunch of couriers out there, et cetera. And actually, demand grew faster, honestly, than we anticipated. So we had to lean into courier supply a little bit more. Courier supply now, as it relates to Delivery, is at a much, much improved place, is frankly at a pretty good place. So we don't think we'll have to make those kinds of investments, again, unexpected investments, although weather could happen any time. The way I would break down the delta or the bridge for profitability is following. First of all, we're going to have about $40 million to $50 million in savings, quarterly savings as it relates to the Postmates integration. That integration is on track. The technology operations teams have done a great job. We'll recognize that benefit in the second half of the year. We've talked about our advertising model. We expect it to be at $100 million run rate in terms of revenue. By the time we exit the end of the year, we are going to be well above that. We're actually tracking well above that. Those are very high-margin dollars that accrue to the bottom line that we could use to drive to profitability. And then for a little perspective as far as the size and scale of this business, we're at easily a $50-plus billion run rate. We already talked about that at a bookings level. That's about, call it, $12.5 billion on a quarterly basis. If we take down incentives by 1% on that $12.5 billion, and it's multiples of that, we would get $125 million to the bottom line in a quarter. So when I look at natural scale, cost per transaction improvement, integration benefits, media and pulling back on incentives or driving incentive efficiency using more targeted models, I have plenty of leeway to get to a breakeven and continue to invest in this business. It's such a big business. We have so many profit pools where pulling back isn't like, "Oh my god, I'm going to fundamentally hurt growth." There's always a trade-off, but we think it's a trade-off that we're quite comfortable making.

Okay. Great. How do you think about the competitive landscape for Delivery in the U.S. and some other markets now that we've seen some degree of consolidation in the space? And then also, I just want to ask about, we've seen some recent restaurant pricing changes. Just how you're thinking about how Uber Eats is positioned?

Yes. So When I look at our category position as it relates to Uber Eats, let's say, versus 2 years ago, it's actually remarkable, the progress that we've made. We're now pretty much #1 or #2 in every single market that we operate in, and it's exactly what we promised our investors. I think we're now #1 CP in 8 out of our top 11 markets, which again is a very, very significant improvement versus where we were. We're gaining share in markets like the U.K. We're CP 1 in Spain, in France, et cetera, and in Taiwan and Japan. So our category position is in a very, very good place. When I look at the U.S., we have a very strong competitor as it relates to DoorDash. That's someone that we respect. And whereas -- and what we see with CP in the U.S. is pretty much stable CP in the U.S. We hope to improve it. But what we see is we're confident of our position in the U.S. And I think in the U.S., we're really going to lean into the structural advantages that we have in terms of essentially the free traffic that Uber is sending over to Uber Eats, the brand that we have and then the execution that we can drive on the back-end. So generally, CP on a global basis, the story keeps getting better. And we think it can continue to get better while we're driving profitability improvements going forward.

Okay. So let's talk about that. You kind of just hit on it a little bit, but it feels like with Mobility and Delivery, you have a pretty compelling opportunity to differentiate and gain share through subscriptions and through the super app. You've talked, I think, about 13% of new Eats users coming from rides. But how do you envision these products just evolving to drive greater cross-platform activity going forward?

Well, I think you've got to keep in mind the power of compounding here, right? So for perspective, I think on a daily basis now, we get more first-time eaters from our rides app and the rides volume is increasing, right? Rides is coming back even more. We get more first-time eaters from our rides business than we get from all of our paid channels. So If I were the competition, I'm competing against a player who has all paid channels for free, that -- the effect on the business in 1 year is going to be somewhat, but it's not huge. But if for 7, 10 years I have essentially all my paid channels coming for free, the compounding effect there is pretty significant. So for us, the formula is pretty simple. Use our marketing channel and our brand to circulate users amongst the different services, use essentially CRM and machine learning on different occasions such as if you're going home, you can pick something up, a new product that we're introducing, on your way back home to on an occasion basis, target users to essentially cross-shop across the services. And then have a membership model that has the most content, right? Netflix is the top entertainment subscription bundle out there because it's got the most content. Our content is delivery, grocery, alcohol, mobility. We have more content to essentially deliver in our subscriptions. We think that positions our subscription product long term with a competitive advantage over others, which drives frequency, which drives retention, which improves kind of this all of the economics of the business. So now it's about kind of we have our strategic position exactly where we want it. If we execute against it, we just think we have certain natural advantages that others are going to have a really hard time matching.

Let's talk about some of those nonfood verticals a little bit. Grocery, alcohol and convenience have, obviously, a lot of similarities, but then there's kind of these differences in terms of frequency and basket size and regulatory environment. I guess how does that -- how does all that play out into -- in terms of what you're really prioritizing most here and going after just big opportunities going forward?

Well, I think that -- the design that we have is that it's exactly like you said, each of these products actually, when you get into the detail, is quite distinctive. It's -- you can kind of step back and say, well, we're delivering stuff from a box that you call a store and a restaurant isn't that different from a store. But it's much more complicated than that as far as inventory goes, the nature of the delivery, what the package sizes are, the timing demands of that delivery, et cetera. So that we essentially have a team, Cornershop. We own 51% of Cornershop. It's run by a group of entrepreneurs that are absolutely second to none that have been optimizing the grocery model in Latin America. And Latin America is a super-competitive market, super kind of conscious market as well. And we're going to take all of their learnings and essentially -- and their service and expose it to the Uber audience. And hopefully, when our Drizly deal closes, same thing, alcohol, I think from an operational standpoint, is a little bit simpler, but from a regulatory standpoint is very, very complex. And again, we have a team there, a Korean team that really have done the operations, the merchant relationships and the regulatory part together and are just running on all cylinders with a great brand. So that kind of these teams that are completely focused, the Mobility team completely focused on Mobility and adjacencies, the Delivery team completely focused on food. And then exposing these adjacencies to an ever-increasing audience, we think that essentially is a formula for success.

Okay. Great. So we have about 4 more minutes left. I want to hit on one more topic, a big topic, which is regulatory, and then also do a quick word association at the end. You can't get away without that. So first, just on regulatory. What's your view versus kind of 9 to 12 months ago? How do we interpret the various comments from the labor department over the last few weeks? And I'm bundling all this together here. And then if you move -- if the industry moves more on a state-by-state basis, will the administration have less appetite, in your view, for legislation at the federal level?

Well, I think we need to have engagement, both at the federal and local level. And I do think that most of our regulation tends to be local, because we're cars and couriers on the ground, city-by-city, state-by-state. And the fact is that every state has different needs. So I think anything that's optimized at a federal level is just not going to get the needs on a state-by-state basis. And the fact is we need to have both dialogues. So we are having, obviously, post Prop 22, what is common to every single one of these states is that our drivers want to retain flexibility, and they want the marriage of flexibility and some of the benefits that Prop 22 brought. Now a state like New York or Massachusetts, they're going to want different things. And it's a dialogue that has to be held by us, lawmakers and labor as well. And we think if we bring all those together, we can get to solutions that preserve what drivers want the most, which is flexibility, and marry that with some of kind of the protections that you associate with employment. And we think that's the right way to go. That's the model that we have with the worker model in the U.K. as well. So we think the push is going to be in that direction. I can't tell you what's going to happen locally or federally. We were in active dialogue with both. But as long as the voice of the driver is heard, I think we're all going to be fine.

And do you think that future costs will be able to be managed in a similar way to what you've seen in California over the last several months?

Yes. Listen, there's real costs associated with this because we're getting benefits to drivers and couriers. But we think that our model has pricing power. And we think that the costs actually get us a return because driving becomes more attractive, it becomes a bit more stable. We expect to see retention for drivers come up. So while there's a cost, there's a return here. It's a more stable model going forward, and we think it's certainly worth investment.

Okay. Cool. Quick word association. I'm going to be saying words, you just say the first thing that comes to mind.

I'd love to.

Reopening.

A beautiful thing.

Driver supply.

Moving in the right direction.

San Francisco.

Moving in the right direction, I hope. Needs some work.

Delivery landscape.

Big and getting bigger, lots of competition, but we're confident.

Car shortages.

Will take some time to resolve.

Super app.

A beautiful thing.

Regulatory.

A fact of life and appropriately so.

Germany.

Opportunity.

EBITDA profit.

Entering the second inning.

All right. Last one, go get.

Our future.

All right. Cool. We're going to leave it there. Thank you, Dara.

Thank you.

Thanks, everyone, for joining.

All right.

Have a good night.