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

Okay. I think in order to keep us on track, we're going to get started with our next fireside chat. It's always my pleasure to host Dara Khosrowshahi, he's the CEO of Uber Technologies. Dara, thank you so much for being part of Communacopia Technology again.

Happy to be here. Thank you.

Okay. So look, to lay the foundation for our discussion, why don't you talk a little bit about the evolution that the platform has been on over the last couple of years. And I'm sure we have 1 million topics we have to get through and only 35 minutes to get through it. But why don't you set the table for us in terms of the evolution of the company, evolution of the platform?

Yes, sure. So we're very excited about where the company is and where we're going in that we continue to be the only global player that's running both mobility and a delivery marketplace. And in the early days, there was a hypothesis that the 2 would help each other in terms of moving demand from one side of the platform to the other side of the platform and then supply as well as drivers engaging on both sides of the platform. And I think as we've matured as a company, we see that hypothesis coming to life and coming to life in a way that advantages us versus our competition. And it allows us to acquire customers from mobility, move them over to delivery. 1/3 of deliveries first trips come from the mobility app and more and more we're going delivery to mobility as well. And if you open up your Uber app now, you will see it will look much more like an everything app, which is both mobility and delivery in that same app as well. So the platform is coming together really well. And if you step back and you think about kind of the overall growth drivers of the business, there's a core business for us that continues to grow really well. For example, our mobility business in our top 20 markets on a global basis, mobility trips are still growing in the teens. Delivery growth is very, very healthy as well. And one area of growth that we're seeing that is very encouraging is growth in -- from kind of the urban markets that has been our traditional strength to the less dense areas and growth in less dense markets tends to be anywhere from 1.5x to 3x faster than our core market growth. So that core business in the middle of big cities growing really, really well and then consistently expanding into these less dense markets as well, which is terrific. Then we have on top of that a set of growth bets portfolios. This is Reserve and Uber for Business and Grocery and 2-wheelers and 3-wheelers, et cetera. These are newer businesses that we've landed. That portfolio of businesses is now -- does about $30 billion in gross bookings, growing faster than the core and now is responsible for 1/4 of our first trips coming from these new businesses. So it's not just about growth, but it's actually newer customers coming on to the platform. Then there's -- once we get kind of the core and the growth bets, we mix them together with the power of the platform, so to speak, that's essentially moving riders, customers who use both Rides and Eats on a monthly basis or on a quarterly basis, spend 3x more than ones who don't. And then on top of that, we lock them in with membership as well. We've got over 36 million members growing 60% year-on-year. Members spend 3x more. So the cross-platform monetization and membership really locks in these customers. Fourth big growth area for us is AV that I'm sure we'll talk about going forward. It's a $1 trillion-plus TAM that's being released for us. And then as we have all this growth, we've proven the ability to leverage our margins as well. So we think that last quarter, we grew top line 8%, bottom line, 35%. I think we'll continue to leverage the P&L that way. And then, of course, we'll try to deploy our capital smartly now that we have a ton of free cash flow as well. So that's kind of the picture of the overall business. But the platform side, the ability for us to acquire new customers, have those customers interact across the platform is increasingly a big part of our business. We actually -- I brought on Andrew Macdonald, who has been with us for 12 years. He's one of the operational veterans of this company now as COO and President to really kind of run these operations with a single operator on top that I think is really maturing some of our platform efforts there. So I'd say so far, so good. And we've had a couple of good years, and I think we see a couple of good years ahead of us.

Okay. Lots of lines in there, but maybe picking up on a couple of those themes. With the appointment of a COO, talk a little bit about management structure inside the company and marrying vision and execution, where you want to take the platform for the longer term versus the blocking and tackling of executing every day.

Yes. Listen, vision without any execution is no good and execution without vision at some point hits the wall, right? And I think having that on top of both businesses allows us to really push this platform concept much more aggressively. So just an example for folks, only 1 in 5, less than 20% of our monthly active platform consumers use both Rides and Eats in a single month, right? So it's only 25%. Moving -- less than 20%, moving that up is enormous incremental volumes for us. So we think that our ability still to cross-sell is significant. 30% of our mobility users, these are in countries where we have both mobility, both Uber and Uber Eats. 30% of Uber users have never used Eats. So for us to introduce that population to Eats is still enormous potential and enormous potential growth for Eats. And in the past, while we're one company, kind of the P&L has gone the way, right? You have 2 totally different operating leaders and ops teams, et cetera, 2 different P&Ls. So we were constantly trying to make trade-offs with those P&Ls. Now you have one individual along with Mac and then Prashanth, our CFO, who are making the trade-offs between the 2 businesses, really going after that next dollar of growth, wherever that growth comes from, whether it's from mobility or delivery, actively trading off both. And then we have a number of the platform -- big platform businesses now like our membership business, our AV business and, for example, our advertising business, all reporting directly to Mac as well. So I think we've got the right kind of both operating setup and kind of when we step back the opportunity generally of all things on demand and AV and a bunch of the growth that we're making, I think that kind of the road map that we have and the runway that we have is pretty significant.

Yes. I think one of the challenges I always run into in talking about the business with investors is that I think investors generally over-index to frequency. So you talked a little bit about some of those stats that I thought were super interesting about pockets of the ecosystem that under-index to frequency. When you think about level setting on frequency and behavior and driving more repeat behavior across the platform, talk a little bit about some of the initiatives that are key to that and maybe wrap it around a little bit of a conversation of how Uber One can continue to evolve as a subscription product in the years ahead.

Yes, absolutely. So when we look at frequency, first, we think the frequency now for us across our platform are all-time highs. And I think we will continue to hit all-time highs, hopefully, for the foreseeable future. But there's very, very substantial opportunity there in that while our frequency across the platform is around 6, our monthly active platform consumers use us an average of 6 times a month, about 50% of those consumers are only using our services 1 or 2 times a month versus if you think about our top 10% of frequent consumers, they're using our services an average of 15 times a month. So moving that 50% that's only using us quite infrequently now to using us 3 to 4 times a month to using us getting up to the average and then becoming the power user is a significant focus for us. How do you move that early lifestyle -- early lifetime consumer to a much more mature consumer. So the opportunity, we think, to increasing frequency is very, very significant. In terms of how we're going after that opportunity, I'd say there are 3 big angles to it. One is -- probably 4 big angles. One is just keep focusing on the core and making sure that the product gets better. And by that, I mean selection increases, the number of stores that we have on Uber Eats has increased by 14% on a year-on-year basis. The more stores you have, the more choice you have, the better conversion of your users, the more they come back, et cetera. Our error rates on Eats, the percentage of times when something goes wrong with the delivery are all-time lows. So it's very, very important. People can talk about a bunch of highfalutin things. But like first things first, which is every single year, the core product is getting better and better and better. And if the core product gets better, we see people coming back to us more. So I'd say that's one. Second for us, a real focus is affordability. I'd say one of the criticisms that we have is some people say, oh, it's an expensive product. That has never gone in the way of, let's say, our growth. But we specifically have a significant work stream on affordability. If you look at mobility, for example, our lower-cost product, our 2-wheelers, our 3-wheelers are growing at very substantial rates compared to the whole business. You're taking the cost of the vehicle down. Therefore, you can take the cost of the ride down. Our Wait & Save product, our share product, high-capacity vehicles are another way, get more than one person into the vehicle or get the person to wait a little longer, you can decrease price. Wait & Save now is expanding to 30-plus countries, saves on average of 9% per ride as well. So again, as you bring affordability down, you get more usage, and then on the Uber Eats side, we have a product called Merchant Funded Offers, which is merchants can put in offers, buy one, get one free, spend $10, get something free, et cetera. These merchant-funded offers now are being redeemed at the level of $1 billion per quarter. So these are funding that comes from our merchants, gets handed over to our customers. Merchants get kind of higher exposure in the marketplace as a result of this funding, and it's not something that comes out of our margin, so to speak. So base business gets better, affordability. Third for us is just more stuff. The more things we have on the marketplace, it goes to what we were talking about on the platform, the more services you have, the more customers use us. And so for example, with food, the addition of grocery, grocery users on Uber Eats transact substantially more for us than only online food delivery users as well. And then fourth for us is membership. We have the best membership program in the world, just like Netflix has the best content. They have more content than other players, which makes them the leading player in entertainment. Membership, for us, we have more content than any other player because you get discounts on mobility and you get discounts on delivery. Over 60% of delivery gross bookings now come from members. Focus now, we're going to keep that going, and we think we have more upside there, but we're really starting to focus on mobility benefits as well. And one of the benefits that really seems to be resonating with our mobility users is essentially surge savings, where they can -- our members can be protected against certain surge levels as well. That looks like it is a product that is resonating very, very well with our members. So I think there's a lot of upside in terms of driving additional membership for mobility product that generally has been trailing delivery, which has been doing incredibly well. We've got over 36 million members. Our revenue from membership subscriptions now is over $2 billion now on a run rate. So it's a strong business of itself. And at the same time, it really drives lock-in and use of the platform where members spend 3x more than nonmembers retain at higher rates, as you would expect as well. So I think the frequency kind of road map is a pretty strong road map for us, and you'll continue to see us kind of hit all-time highs as we progress along this road map.

Okay. Maybe just one quick follow-up because you've been adding benefits to Uber One as membership over time, elements across a lot of different partners in that ecosystem now in different industries other than the ones you necessarily operate in. How much of a living, breathing membership is this? Like how far can it go in terms of like looking across ways to partner with other companies to create value for external parties as well as for your member base?

I think we're very, very early in terms of the development there. Our membership program has only been around for, call it, 5, 6 years. It is both relatively immature compared to its potential in terms of the features that we have and the partner ecosystem that we're developing. And the good news is because of our global scope, because of the breadth of the product that we have, we are a leading kind of partner for all these players. And the benefit of these partnerships is that they tend to convert a higher percentage of low-frequency consumers to membership. So if you have a high-frequency person who uses -- who converts over to membership, if you're already transacting 7 or 8 times a month for us and you become a member, there's incrementality in terms of your use, but the incrementality is less than, let's say, a Delta SkyMiles user who through our partnership with SkyMiles converts into a member as well. The incrementality of membership in terms of frequency, in terms of just incremental use or moving off of other platforms, we see higher in terms of some of these third-party deals that we're making.

Okay. I wanted to turn next to the delivery side of the house. This is a business that began anchored around food delivery. And now in our view, we've written about it becoming more of a local commerce business over time. So talk a little bit about the drivers of growth as you expand beyond core food delivery into areas like nonfood delivery and grocery over time.

Yes. So I'd say the first thing, again, if you start with the core, the food delivery business, if you look at the penetration of, for example, the broad retail commerce category, broad retail commerce is in the mid-20s in terms of penetration of overall e-commerce. Delivery is still substantially more immature than that. It's probably in the mid-teens. So I do think that the online food, the core food delivery business still has significant runway ahead of it. And there's no reason why it can't penetrate just like overall commerce, if not more, because we certainly think the benefits could be higher. So the OFD business is growing at very, very high rates. We're very happy about the continued penetration and the growth there. On top of that, obviously, we see our grocery business as well. Outside of the U.S., we are in a position. We're absolutely in a pole position to be the leader in terms of grocery delivery. In the U.S., we've announced we're very excited about improving our selection. Selection for grocery is up about 35% as far as number of stores, is accelerating over what we've had in the past. We've announced DICK'S Sporting Goods, Five Below, Dollar General, Family Dollar. So a lot of retail partners coming on to the platform. And again, as you improve selection, the product gets better, you get more audience, conversion goes up, it all adds up. So we're very, very happy about both grocery and retail. And then on top of that, we have our direct business, which is essentially delivery on demand for us to power retailers to build out their own front end. That's a business that is growing at very, very high rates, not profitable yet. We're not running it for profit. We're running it for growth, but we think there's substantial opportunity there of kind of delivery of everything on demand. The pattern that we see is consumers value their time. Their perceived value of time is only increasing. And any time we introduce new products and kind of the reliability and the ease of using our products, we see consumers coming on to those products. So there's a very, very long road map as it relates to grocery and delivery. Today, the grocery habits that we see are more of a top-up habit, which is, call it, $30, $40, $50 basket sizes versus the $100-plus weekly shop. So we're much more in the top-up category. But what we're seeing is 2 things. One is top-ups as a percentage of the overall grocery category are going up because it's just becoming easier. It used to be -- I used to be an appointment shopper, my wife and I would go to the grocery store once a week, once every 2 weeks and load up, where you can just kind of order -- just like with Amazon, it's like I'll order a single thing and press delivery there. With Eats, if you're a member, get 2 or 3 things. It's no big deal. So we're seeing kind of top-ups grow as a percentage of the overall category. And we think eventually, as you get more consumers embedded into our ecosystem, we can become that weekly shop, and we can increase the basket size substantially. But right now, the focus is just drive selection, just drive frequency within that top-up area and then eventually, you can become kind of the prime area for shopping.

Okay. I want to turn to the mobility business and just again talk about sort of the aspects that can compound growth. How are you thinking about elements of mature geographies versus immature geographies, the traditional product versus how the product is evolving. You talked a little bit about affordability earlier. Talk a little bit about the building blocks of growth within the mobility business as you see it over the next couple of years.

Yes, absolutely. So I think, first of all, the core business is growing at very strong rates. And even if we're in our top 20 markets on a global basis, on average, are growing in the teens in terms of trips. So the core business is very, very healthy in aggregate, even in the large markets that we're in. I talked about going into small markets, less dense markets, these are the suburbs. They may be smaller cities, secondary, tertiary cities, growth rates substantially in excess to the core. So I'd say that is one area of real effort. And then we have this barbell strategy in terms of high-cost and low-cost products. The higher cost products, the premium products are the reserve products, the Uber for Business products, SUV comfort, et cetera. Those products come with higher average purchase price and higher margins. And we're using the margins of that premium product to drive our more affordable products. We talked about 2-wheeler, 3-wheeler shares, for example, one product that we're pretty excited about is our price lock product. So you can go in, lock price, and this is aimed at the commuter. And as you can tell, we can tell from trip patterns, whether you are a commuter or not when you leave in the morning, the predictability of the place that you go to. And as we identify these commuters and sell price lock to them, the commuter who buys price lock is taking 6 more trips per month than the commuter that isn't. So there's a combination of both affordability and predictability that then drives frequency and brings us kind of those incremental trips as well. And so it's kind of this barbell strategy that we're running. So overall margins are still very, very strong, but you're adding a lot more growth to the overall ecosystem. Autonomous is obviously a huge, huge growth driver for us. So between kind of the base business growing well, the barbell strategy driving margins and growth, autonomous. And then for us, as I mentioned, membership more is as we build out our membership ecosystem for mobility, I think we'll see more incrementality for mobility coming from membership as well.

Got it. I did have to smile because the app is getting quite good at predicting when I'm about to leave my apartment to head down the West Side Highway every day. So...

We measure that, which is like do you -- it's a one-click ride.

It's getting very good. I want to come back to the overall demand environment we find ourselves in. There still is a fairly robust conversation about the macroeconomic environment among investors. Can you level set what you're seeing in terms of demand across the array of products you bring to the consumer and the business lines?

I think it continues to be quite encouraging in terms of demand. Obviously, we've been growing GBs 18-plus percent every single quarter for the past 2 years. So generally, our growth is very healthy with higher margins as well. So we don't have to kind of buy our way into growth, so to speak. I think across every level of consumer demand, we continue to see encouraging trends, which is frequency is all-time highs. We're not seeing consumers trade down in terms of the product that they're buying or the stores that they're shopping in or the restaurants that they're eating for, we're not seeing any signs of trading down. We are actively driving affordability of our products. It's something we think that, obviously, gross bookings growth drives the bottom line, but high gross bookings growth with high trip growth is kind of the best solution for us. And for example, with our mobility business, grow 19% the past couple of quarters. We see pretty consistent GB growth, at least for the next couple of quarters. So everything that we look at in terms of consumer demand looks pretty consistent with what we've seen in the past, which is healthy. And remember, for us, there's -- we're kind of hedged in terms of the economic environment, which is obviously in stronger economic environment, we have more demand come in. The cost of labor tends to be pretty strong. But to the extent that the economies weaken and the labor market loosens up, that reduces the cost of our supply, so to speak. So we get more supply into the marketplace, surge comes down, pricing comes down, which then drives demand as well. So we are -- we have a pretty good hedge both in terms of strong demand markets and weaker markets. At this point, we're not seeing signs of weakness, but we're certainly looking around.

Okay. Understood. So we have to talk about AVs. Why don't I give you the floor to just level set what you've learned about the AV environment as it's built in its momentum over the last 6, 9 months? And what you see as some of the disconnects between the way outsiders think about AVs versus maybe the way you guys as a company think about AVs?

Well, I think we continue to see AVs as it's just a terrific product. It is -- we continue to see the development of the entire AI ecosystem and AV is a flavor of AI in the real world. These technologies are getting more mature. There's a ton of investment going into all these technologies. The sophistication of these models is getting more and more powerful. So in terms of kind of the development of the core tech, I'm more encouraged in terms of the velocity of the development of the core tech than I ever have been. It is happening, and it's happening in multiple places in China, here in the U.S., in Europe, it's -- companies are absolutely getting to the finish line. The product that we see, and we're working with Waymo, who is, I think, best-of-breed in the world there, it's a product that consumers love. So in the markets in which we have developed AV, the consumer willingness to pay a premium for the product has been a nice surprise. These are nicer cars. I think consumers are willing to pay a premium for the safety that they have. Consumers rate the product at very, very high rates. And we're seeing the demand that we expected for the product, which are the Waymos that we have in market now in Atlanta and Austin, they're busier than 99% of our human drivers as well. So we're able to drive really, really high utilization of the product. And one of our core thesis was if you put your product on the Uber marketplace, your utilization is going to be excellent and the utilization that we see in the field certainly supports that assumption. The results that we're seeing are even better than our expectations as well. And then the real question for us is the cost of the vehicles, the cost of hardware coming down. And again, we're seeing very encouraging trends there. LiDAR, which used to cost $20,000, $30,000 a pop, now solid-state LiDAR coming out of some of the Chinese manufacturers is costing $300, $400 per LiDAR as well. So the affordability of hardware is moving absolutely in the right direction. We have over 20 partnerships now with various AV partners. We just announced a new one, Momenta, which is a player out of China, actually in Munich. So Europe is certainly open to this technology as well. And I think even this year, you're going to see 4 to 5 deployments, both in the U.S., 2 in the U.S. in Texas, Avride and May Mobility and then 2 deployments outside of the U.S. as well. So you're seeing this technology in the street. It's technology that our users love, and we're quite confident that it's going to be a significant TAM expander for us.

Okay. We only have a few minutes left. When you take all of the growth initiatives you've talked about so far, how do you, as a management team, think about balancing incremental margins and delivering on the margin targets you've talked to investors about against making sure you're getting the balance right in support of all of these growth initiatives?

Well, listen, I think to some extent, it's an art and not a science, right? There's always a debate as to how much growth can we drive, how much margins can we drive. And there's always a trade-off between the 2. I think we have largely got it right as a company. And I think the good news for us is we are in a position because of the leadership position that we have in most of the markets that we operate in, in both Mobility and Delivery because of the platform advantages that we have in a unique business model and the global scope and the scale that we have, we're in a position to be able to drive both top line and bottom line, very healthy top line and leverage our margin as well. So we haven't gone to that point of, let's say, painful trade-offs where you have to kind of choose one or the other. We're able to deliver both, and we gave our investors kind of a 3-year growth formula that we talked about, and we're well on our way to hit those targets as well. And I think that now Andrew Macdonald coming in as President and COO, is actively -- we are making active trade-offs between Mobility and Delivery, which was harder to do in the past because, again, we had those businesses separate. So I think we can continue to grow the business and grow our margins for the foreseeable future. I don't see an end to that.

Okay. Last topic before we close out, just capital allocation. You've been on a bit of a journey in returning more capital to shareholders. When you look at the balance sheet you have, the scope for the potential return of capital to shareholders, the scope to invest in growth initiatives, what are the right priorities that are your focus points? And how might those priorities shift in the years ahead?

Well, I think growth initiatives are always going to be -- organic growth initiatives are always going to be top priority for us. We are actively investing in the business. There are many new initiatives that we're taking on where we're losing substantial sums of money. And I consider that a good thing, right? So it is -- we're constantly having pockets where we're leveraging on profitability and plowing it back into newer businesses that we're trying to grow. So organic growth comes first in terms of our priority. Second area that we're looking at is the AV space, right, in terms of funding new and promising players in the AV ecosystem, making commitments, let's say, to a Lucid for thousands of vehicles. And again, we've got the balance sheet and cash flows to continue to make those commitments. And I do think that as the AV economics and the ecosystem matures, many -- much of those balance sheet investments that we have made have the opportunity to be financed by third parties going off balance sheet. But in the short term and medium term, where appropriate, where we can get an advantage, where we can drive growth, we'll be aggressive with our balance sheet because we have substantial cash flows to fund these operations. Third, I'd say is M&A, opportunistic M&A, and these will be more, I would say, tuck-in type acquisitions. For example, the acquisition of Trendyol Go in Turkey that so far has been an absolute terrific success for us. And then fourth, of course, is buybacks. And because of the cash flow generation of the company, and we're growing, we're going to grow margins. So cash flow, free cash flow is only going to improve over the next couple of years that gave us the confidence to announce a $20 billion buyback. When we announced buybacks, we actually follow through on those buybacks. But it gave us the confidence to announce that buyback knowing that our free cash flow generation would be able to get through that kind of a buyback, but at the same time, have plenty of capital left over for organic and inorganic opportunities as well. So I think the company is in a good place. And we think the stock is a great opportunity as an investor. We know the company really well. And I think that effective capital allocation over the long term can be a real booster in terms of stock price value, and we think we can definitely deliver that boost.

Okay. Well, Dara, thank you again for coming and being part of the conference. Please join me in thanking Uber.

Thank you very much. Appreciate it.