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

All right. We're going to get started. Thanks for everybody joining this meeting. My name is Ross Sandler. I'm in charge of Internet research here at Barclays in the U.S. Super excited to have Prashanth from Uber. This isn't Prashanth's first time at the Barclays TMT Conference, but first time in the current capacity. So welcome.

Thank you. Thank you.

I guess just to kick things off. So you've been in the role for about a year. What have you learned? What are the biggest takeaways over that year?

Yes. Yes. Thank you for having me. Last time I was here, I was in semis. Blayne was covering me, and the day before I came out, Blayne downgraded me. So I told Ross I'm only coming out if he can prove that he's got an Uber rating that's 4.7 or higher. And I'm very happy to say that he's a big tipper so -- at Barclays' expense, no doubt, but still, we appreciate it. So I've been in the job now 14 months, and I'm sure what's on everyone's mind is AV, but let me just give you a couple of comments on what I've observed since joining Uber, and they sort of influence how I think about this business. What is pretty incredible about this company compared to some of the organizations I've been at before, and this is really -- this is now my third time being a public CFO, is many companies say they are mission-driven. I have never seen a company as focused as Uber is and how quickly they adapt to taking a new hill when given a charge. And it can be when Dara points the group that says, "Hey, we need to do more for our earners," and the organization self-organizes to figure out how to improve the earner experience. It can be on the marketplace tech. It can be on what we do in our consumer app. The mission focus for the organization is pretty impressive, and I think you're seeing a little bit of that in how quickly we are adapting to the AV environment. I think the second thing that is worth everyone appreciating is we are running at about 165 billion annual gross bookings. That is made up of an average ride of like $20 and an average delivery basket, a little bit north of that, maybe $30. So it is a lot of high-volume, low trip size or low basket size, and that is part of what Uber is really excellent at is being able to do things at scale. And hopefully, we get a chance to talk more about that. And then I would say, third, is that this is an organization where I think we are really very good on our tech side, and it's almost 2 companies inside one. We've got a tech org that does a terrific job with our software and our marketplace. And then separately, we have a completely different skill set org that is really all about the operations aspect of what we do. We are not just software. We are actually the experience that we create in being able to manage all of the activities that are necessary to run a rideshare network.

So I think in talking to investors since the last quarter results, there's 2 primary issues people are flagging. One is just the pace of ride-hail gross bookings growth deceleration, and second is what's going on with robotaxi. So I'm going to skip the first one and come back to it, but a couple big news items, or I don't know if they're big, but news items overnight. Maybe could you address the Yipit report that came out that showed in the operating zone for Waymo in San Francisco, showed kind of approaching Lyft level, 20% share. And then it kind of had you guys a steady kind of like downward market share line. So just accuracy of that or not would be helpful.

Yes. Yes. So let's -- maybe the way to think about San Francisco for us is the -- our year-over-year growth rates in the City of San Francisco for Uber, gross bookings year-over-year growth rates are still above the U.S. average. And sequentially, they have been very consistent for the last several quarters. Knowing that this was a likely topic, I asked the FP&A team to pull November data. So this is inclusive of November. So November year-over-year growth rate is consistent with prior quarters. So we are seeing very steady year-over-year growth above the U.S. average and not seeing the deceleration that one would normally be attributed if there was share loss. This suggests -- and very hard to prove, this suggests that sort of that thesis that we've always had that AV expands the TAM, you're starting to see some of that. What I think is hard for us and perhaps for you as investors to delineate is we know that there is a tremendous amount of -- I don't know if you call it tourism or novelty, but there's an experimentation that is absolutely happening in SF when folks are out here to have that pretty remarkable AV experience. And so there's -- definitely that is flowing into some of the demand. I think we need enough time to pass for us to get signal from the noise. It's analogous to whenever they open up a new ride at Disney, that first year, the lines are very, very long until everyone's tried it, and then you kind of get a sense for was it worth it or not.

And the other piece of news that came out on this front was Cruise officially kind of announced they were throwing in the towel. I think most people expected that. We actually hosted a Barclays AV summit a couple of weeks ago, and some folks from these types of companies were kind of prognosticating that it looks like it's just going to be Waymo and Tesla on the pure AV at scale for maybe the next 5 years in market. I know there's other participants, but that's a little different than what Dara has described as like his vision of how all this is going to evolve. So I guess just could you -- do you agree with that kind of timeline? And if so or if not, like where does this leave you with future partnership opportunities around this Waymo? You've got 2 cities. Can you just talk about that?

Sure. Sure. I think there's a lot in that. So maybe let me start with our view has not changed, that we believe the introduction of autonomous vehicles is going to be critical for us to be able to bring on supply to grow the business. If you think about what is one of the largest constraints to our business today, it is adding supply. You look historically, our gross bookings growth is largely correlated to our ability to continue to add supply. We've also shared that if you look at our top 20 or so markets, the penetration into those markets for adults sort of 18 and over is still at a relatively low number of 20%. So to really be able to serve the developed and developing markets more completely through a rideshare service, you need more supply, and we think AVs are going to be a key element of that. Now what is Uber's role as that ecosystem develops? I think it's a couple of things that sort of come together. The first is today, we have hundreds of millions of consumers who use the Uber app, and that population of consumers continues to grow. If you look at our audience growth rates, we're growing that sort of in the mid-teens. So continuing to have significant growth on that consumer population, and that allows us to play this role as demand aggregator to bring all of those consumers to the various AV providers out there. The second is that our tech teams over the last several years have built very sophisticated algorithms that help really drive routing, matching and what you need to make utilization of the vehicles as high as possible. I think that is a very critical element for AV operators, and by that, I mean the owners of the car. If you want to maximize your earnings, you need to have passengers in your car as much as possible, and you need the most efficient way to operate that vehicle through that routing and that matching. And that is something that we really can bring to everyone who wants to put their vehicle on the Uber platform. Third is, and no disrespect to the Uber ops teams, we do a lot of unsexy work. It is identifying and confirming that the rider getting in the vehicle is the person who ordered the vehicle. It is handling all the payments activities. Again, high-volume payments at relatively low transaction value. It is the fraud prevention that goes with that. It is returning lost items. It is customer service, with all the numerous questions and complaints and opportunities to improve service that come with that. It's a very big ops function that we do at scale at an incredibly efficient cost. You put all of that together and then look at how does Uber operate at scale? Let's put this in context. I think Dara might have tweeted this recently. Last week, we hit a new milestone for the company, where, I think it was on Friday of last week, we concurrently had over 1 million trips running at the same time across our 70-plus countries that we operate in. So there is a scale of operation here that allows us to run the network at an incredibly low cost point. And because we're able to do so, we can provide all of those services to prospective owners of AVs at a very modest take rate. And really, it's no different than what we do for drivers or fleet operators today is you put your car or your fleet onto the Uber network, you pay us a modest fee for that service and there's a substantial amount of the payments from consumers that you keep for yourself. So in a world as this moves to, we need AVs to be economical and run for profit. We think that we're very clearly the answer to help companies do that.

And just kind of going a little deeper on that last point. You've got the Austin, Atlanta partnership with Waymo. What are your goals there? I guess how does that differ from the Phoenix setup? And when you're pricing out this fleet management ground operation, like do you make money on these trips? How do we think about that?

Sure. Sure. So let's start with Phoenix. Phoenix for us is relatively small scale, and Phoenix for us was an opportunity for our tech team to really start learning how do you optimize the marketplace for autonomous vehicles. And I think one thing we have proved in Phoenix is we have the ability to drive much higher utilization than our partner was expecting. So that is really what opened the door for them to say, "All right. Let's see where else we can do this." And that gave us Austin and Atlanta. And as you know, sort of Austin was originally going to be on a [ one PF, ] and now both cities will be exclusively on Uber. In Austin and Atlanta, beyond sort of proving out at scale, these -- both cities will be in the hundreds of vehicles in comparison to Phoenix, which was meaningfully smaller. In Austin and Atlanta, we are also learning and providing the fleet operations. And the way to think about that is today, about 15% of Uber's global supply comes through fleets. We have hundreds of thousands of fleet partners. These can be owners who operate a very small number of vehicles up to partners like in Spain, where they operate vehicles in the thousands. So we have a pretty wide spectrum of fleet partners who work with us. One of the features that we provide for those fleet operators is we have a software solution that allows them to optimize how they run their fleet. So the term I've used is it's almost an ERP system, but that's really more to help investors sort of understand the breadth of its capabilities. It allows fleet operators to see where their vehicles are, what is the charge status of their vehicle, what is the earning, how much each vehicle has earned, is going to earn. It's basically the dashboard and dials that you need to be able to run a fleet on the Uber system. With Austin and Atlanta now, we're able to -- with our active involvement in that, we're going to be able to continue to adapt that fleet software to be able to deliver the best experience for fleet owners who want to run AV vehicles. And we're going to -- we won't be running Austin and Atlanta ourselves. We're using one of our fleet operators to kind of do the more labor-intensive work. But I think we're going to prove and deepen the partnership with Waymo by proving our ability to run the fleet operations at a great level of efficiency and also drive utilization of the vehicles at scale, which is critical to get to positive unit economics.

And not to like overly confuse everybody, including myself, but you guys are an investee in Moove, and recent news there was that they're actually going to be doing fleet management for Waymo in Miami and Phoenix. So I guess what are they providing that you guys are providing? Or are you involved with them at all on the plan?

Yes. Good. So as I spoke about those hundreds of thousands of fleet operators that we work with, Moove is one of those fleet operators. They happen to be a company that we own a pretty large stake in. We have a couple seats on the Board. We use them in a number of countries and continue to work with them in expanding where they can help us add more supply to the network in the more traditional ICE and EV space, and they will be providing sort of that garage fleet operation service for Waymo in Miami. That was the announcement that was made. We will have had several months through 2025, where we're able to continue evolving our fleet OS that I mentioned, that ERP system. So when they start up in Miami, where I think they should be able to use that, as we've improved that product to help them manage that fleet as well.

Understood. Okay. And if we just kind of step up a level from the minutia and we look at the way that the international robotaxi market is evolving compared to the U.S., which is the greater opportunity for Uber? And what are some of the differences?

Yes. Yes. I think -- the 2 trade-offs, I think, you have to think about is there are multiple players who have made pretty substantial advancements in AV technology, many of them in China, who are ready to deploy their technologies in other countries. So you have a lot -- and they're well funded, as you can imagine. So that is sort of on the side of being able to deploy quickly, because they have the solution, which includes the vehicle supply, right? That's a critical element, is getting access to the vehicles. I think the harder problem for them to solve is where is the regulatory environment, make it clear on how do you deploy. Europe has already got some existing sort of rules in place, so it's going to be a -- probably a slower rollout in Europe. I think we are expecting possibly one city to go live in -- or sorry, one country to go live in Europe towards the second half of next year, but more likely to see more cities lit up in the Middle East, where it's been more conducive to that. You contrast that with the U.S., and clearly, you have 2 companies that are both building out their capabilities. One has a well-proven software solution that they're ready to scale. They need access to vehicles. So that is something that they are working through and I think will be a little bit of a delay in sort of the widespread adoption that we would like to see in the U.S. is because access to those vehicles will take a little bit longer. And the other one is a vehicle manufacturer, but their technology still has to be proven to be able to kind of go at the same level of safety that I think all of us are expecting. So U.S. is probably better from a regulatory environment, but you have folks a little further behind either because of manufacturing or technology challenges. And outside the U.S., you've got the tech ready to go. You've got the vehicle ready to go. You've just got a little more cumbersome regulatory environment.

Okay. And moving on from robotaxi, finally. Sorry about that.

That's all right.

So the other issue was the pace of the ride-hail gross bookings decel. So are there any items you'd flag that are kind of driving this decel as we kind of leave 3Q, head into 4Q? And Lyft talked about more of a consistent growth rate, so just anything that you're seeing near term.

Sure. So let me kind of take a step back and remind everyone that in February of this year, we set out a multiyear framework that said over a 3-year period, we would have a gross bookings CAGR somewhere between mid- to high teens. We would create meaningful operating leverage off of that to drive EBITDA growth high 30s to 40%. We are remaining an asset-light company, so that EBITDA converts to meaningful free cash flow. And then because we don't have a lot of call on capital, we'll be using that cash to return to shareholders and reduce our share count. In the third quarter of this year, we had gross bookings growth for Mobility, going from memory here, I think it was around 24%, which was a slight decel from what we saw in the first half. And then we guided, for the fourth quarter, that gross bookings growth would sort of be in that similar low 20s range. Part of the reason for that decel sort of versus what you saw in the first half is second half of last year was a pretty tough comp. We had growth in the second half of 2023 in the high 20s, low 30% as we introduced a number of products. We had expansion of the 2-wheeler product. We had expansion in some regions with more hail-ables coming on. So we had a substantial uptick in the second half of last year, which makes comps a little tough year-over-year. And the other item to probably highlight is that in select markets in the U.S. where we passed through some more insurance costs, particularly where we had some tighter insurance markets, think New Jersey, parts of Florida, Southern California, that also impacted a little bit. But from what we see today, the trajectory of Q4 and sort of looking forward into 2025, we feel very comfortable that our Mobility business is going to continue to be sort of a high teens, low 20s grower for at least the first few quarters of 2025. I'm reluctant to give a full year guide, so I wouldn't take this as guidance, but that's sort of where our view is on how Mobility is going to run out in '25. So at our size and scale, to continue to be able to seek high teens, low 20s is pretty impressive.

Yes. That's great. And you just touched on this one other point that came up on the last call around some price elasticity that's showing up in the business as we kind of pass through insurance costs. You guys haven't talked about this much in the past, but it's not that surprising. I guess how are we offsetting that? Is this an issue? What do we feel about pricing in general?

Yes. So the -- I'm going to -- let's take that from the angle of a few things to remember in how we run the network. One, the goal for us is to drive our take rate as low as possible. There's a few reasons for that. One, a low take rate creates a meaningful barrier to entry. Second, a low take rate helps create internal pressure on the organization to constantly be driving out costs and ensuring that we are running the network as efficiently as possible. You see that in every quarter, we report sort of a few basis points of incremental margin that we are able to extract from our cost structure by continuing to grind down those costs. Again, that reflects Uber's -- sort of that operational part of the org. And with that low take rate, then we also need to -- we need to reflect in that our insurance cost, which has been some headwind for us over the last couple of quarters. So if you look at 2024, insurance costs at an industry level looking at CPI data would have been sort of in the high teens, low 20s. We've seen that continue to improve. I think most recent data is going to be sort of in the mid- to high teens. And as we think about 2025, the headwind that we will see from insurance will be meaningfully less than we've had for quite a while. And that comes from a couple of items. On the first side, overall industry environment is getting better. Second is in this last political cycle, you will have seen Uber make really significant investments in certain markets to get folks into positions where they are more business-friendly, and we're expecting to see some pretty good movement on the regulatory front in a number of states. And some of this is in the press, so it's easy for you to sort of follow where we're being vocal and where folks are pushing back on us. And then third and I think probably what I'm most excited about is our tech team has come up with a product that we are -- or a feature that we're now releasing to drivers. And I may not get the name exactly right, but I believe it's called the driver Insight dashboard. And what this does is it collects telemetry data from the driver's phone along with our normal network data, and we're able to arrive algorithmically at a safety driving score for our drivers. And with this data, we're doing a few things. First, we're making our drivers aware of what their driver safety score is, which is something they weren't sort of conscious of their driving patterns before. And then second, we are incenting them to improve their driver safety score, which, based on the back testing we've done, we know how that helps our insurance costs, and we're able to pass those savings -- some of those savings on to the drivers. And with all of those items coming together, our best view today is that in 2025, look for insurance costs for Uber to be up closer to high single digits, maybe low double digits, and for a business that is growing at the rate that we are in the high teens, low 20s, that then starts to really create operating leverage that we've not seen before.

Yes. Sounds great. Okay. Shifting gears to Uber One. So we've got over 25 million subscribers, a big differentiator for you guys. Could you just talk about how adoption has been in different markets, either U.S. or international? And is the adoption curve contingent on like category position, breadth of offering in those markets? Like what are some of the key factors driving that adoption?

Yes. Yes. So Uber One is our membership program. We have 25 million active members now. I think that growth rate is up 70% year-over-year. Uber One is only available in about 20 or low 20 number of countries. Uber operates -- in the Mobility side, operates in over 70 countries, and the Delivery business operates in over 30 countries. So we still have plenty of room to continue expanding out the Uber One program. And some of the innovations that we are doing there to continue to drive that adoption of Uber One include things like just this past school season, we launched in the U.S. and Canada an Uber One for Students program, with targeted sign-ups and marketing at the university campuses to sort of bring people into the ecosystem sort of earlier in their career and then knowing that as they graduate from college, they're likely to continue as Uber One members. The benefits for us on the membership program really relate to -- it helps drive frequency. It helps drive more use of the Uber platform. Our Uber One members use Uber, I think it's 3x more than non-members. Our Uber One members are more likely to be multiproduct users. I think about half, 50% of our Uber One members hit multiple products, so that could be multiple products within Mobility or could be across between Mobility, Delivery and Grocery. So for us, it's an excellent way to bring someone into the ecosystem. And then when they're there, they're sort of moving between the products very well. And the benefits are pretty compelling. If any of you are not Uber One members -- I suspect you're all Uber users, but if you're not Uber One members, then you're probably leaving some money on the table.

Okay. Just in the last few minutes -- few seconds here. On Delivery, can we just talk about the CAGR between core restaurant and new verticals like grocery and convenience going over the next couple of years? And then has the Instacart partnership allowed you to gain market share in some of those overlap markets with DoorDash in the suburbs?

Sure. We'll do this quick. So Delivery is on its fourth quarter now of 17% growth. The grocery business is growing at meaningfully faster rate. Grocery business has about 1 out of every 6 delivery -- or food restaurant users actually use delivery. We know in our best markets, that can be 1 out of every 3. So there's still plenty of room for us to continue converting our restaurant orders into grocery customers. And then specifically for Instacart, it has been a really good way for us to drive more business into the merchants in some of those suburban areas where we capture that Instacart user base and are directing them towards driving more same-store sales for the merchants that we have in areas of the market where Instacart has great positions.

All right. We're out of time. This is great, Prashanth.

All right. Good to see you, man.