Uber Technologies, Inc. (UBER) CEO Dara Khosrowshahi presents at Goldman Sachs Communacopia & Technology Conference (Transcript)

Uber Technologies, Inc. (NYSE:UBER) Goldman Sachs Communacopia & Technology Conference September 9, 2024 5:25 PM ET

Company Participants

Dara Khosrowshahi – CEO

Conference Call Participants

Eric Sheridan – Goldman Sachs

Eric Sheridan

It is my pleasure to welcome Uber Technologies’ Dara Khosrowshahi, CEO, to the stage for fireside chat. I am going to read a quick safe harbor and then Dara and I are going to get into it and we have a lot to talk about because there’s always a lot going on with Uber.

Before we start, Uber would like me to remind you that during the fireside chat today, they will make forward-looking statements which involve risks and uncertainties and may cause actual results to differ materially from those statements. The company will also discuss both GAAP and non-GAAP financial measures. Statements made today are effective only today and will not be updated to reflect subsequent events or circumstances that may arrive.

Question-and-Answer Session

Q – Eric Sheridan

Okay, to lay the foundation, Dara, why don’t — you’ve been on a tremendous journey over the last couple of years since taking over the CEO job, the platform has continued to evolve every six to 12 months on the product side and the geographic side. Why don’t you just level set for folks in the room about the journey you’ve been on since taking on this role and where the company sits here today?

Dara Khosrowshahi

Well, it’s a very, very long story since I took over. But I think from where we are as a company now, We remain the only global platform that is focused both on mobility and delivery basically anyplace you want to go, anything you want to get on a global basis. And I think those two attributes are unique, which is there aren’t that many global players, certainly no one that has the global footprint that we do. And then almost nobody who is working on multiple products the way that we are. And we think that puts us in a unique competitive position when we compete against all of the various players on a local basis, country to country to country. And then as it relates to us as a kind of financial entity and as a investable company, we think again, it puts us in a special place, so to speak. Really what we’re focused on now, now that the competitive environment is settling down generally and the competitive environment isn’t changing as much as it was like four or five years ago, really we’re kind of focused on five things, I’d say. One is, and the most important part is, always making sure that the service levels for our various businesses, mobility, delivery, freight, et cetera, continue to improve. We’re kind of in competition with ourselves as well as the other players out there. And you see that in terms of the frequency now for us, the average consumer now transacts with us almost six times per month. That’s an all-time high, up 6% a year-on-year basis. And that’s a factor of the core service, as well as membership continuing to increase in terms of penetration and multi-product usage continuing to increase in terms of penetration. So number one is always kind of the core service, making sure that the core service is better today than it was yesterday, better than it was last week, better than it was last year. That’s number one for us. Then once we take care of the core for us, we were very much focused now on growth. And we have probably since four or five years ago, we have built a number of new offerings. These are low cost offerings, two wheelers, three wheelers, taxi, scaling Uber for Business, our grocery business, our direct business, there’s a big portfolio that we have, and that portfolio now is at about a $20 billion run rate, growing close to 70%. And building that portfolio and continuing to grow it is incredibly important to make sure the growth rate of the overall business continues at a really high rate. The other importance of those growth businesses is that they tend to punch above their weight in terms of new customer usage. So there are new use cases, and they are responsible for over 20% of new customers coming into the platform. So it’s good business. It’s growing. But it’s a new reason for people to come to Uber as well. So that’s kind of the growth area. And then related to growth in a category by itself is autonomous vehicles, which we want to be the best platform for autonomous as the technology is being real. We’re the only player that has a global platform and can play with autonomous players of mobility, delivery, and the freight space. Those are the three big use cases, and we are active and leaders in all three. So that’s growth, but it’s a special category of growth. And then we want to do it with financial discipline, with a cost base that is industry-leading and continues to be industry-leading. One, because we want to keep prices low generally as a company. And two, because we want to leverage and improve our margins. So as an example, this last quarter, we grew gross bookings 21%. Our headcount year over year was down 6%. Our corporate overhead was up 1%. So I think there are very few companies that are able to drive the kind of top line growth that we’re at at scale, but then with the financial discipline that we’ve been able to affect after we learned our lessons post pandemic. And then last but not least too is the financial profile of the company. We’re an investment grade company now. I had never before issued 30 year bonds, so kudos to the team and the treasury team for getting that done. And we’re now in a process of allocating capital, both to growth, so for example, our proposed acquisition of Delivery Hero Taiwan, and at the same time reducing dilution as step one for us, but then reducing absolute share count over a long period of time, so investors get the benefit of high growth, margin, lower share count over a period of time. So that’s kind of the big picture of what we’re aiming for, and we can always get better, but I think those, all five of those kind of big picture initiatives are on track for us as a company.

Eric Sheridan

Okay. There’s a lot to go deeper on there. Before we do that, when you started the last earnings call, you kind of took head-on the debates out there around the consumer and around autonomous vehicles. I want to start with the consumer. I think investors continue to ask a lot of questions about the resilience in your business relative to what they perceive to be volatility around consumer demand writ large. How do you see the landscape for consumer spending and you fitting inside that landscape right now?

Dara Khosrowshahi

Yeah, absolutely. We haven’t honestly seen much change, and that means that the trends continue to be quite positive. Our growth rate top line has been 21% for three quarters running now. It’s unusual, again, to stay at those levels. Our consumer base tends to be younger and higher income. So about 40% of our US consumer base, for example, is between the ages of 18 to 34, and is making over $100,000 in income. So part of when we read third-party reports, industry reports, lower-income consumers seem to be the first who are being hit by some of these financial difficulties, our consumer, again, younger and higher income. And then it’s showing in terms of the numbers. Our retention rates are, for both mobility and delivery, continue to increase. Our — the rate of growth, actually, for lower income cohorts of consumers is growing faster than higher income cohorts of consumers, partially because generally we’re growing outside of city centers faster than we are in city centers as we expand into the suburbs with delivery, as we build our business and mobility in lower density areas and with products like Reserve. So at this point, we’re not seeing any signal whatsoever of consumer weaknesses and at — of consumer weakness, and at the same time, we are actively investing in lowering price for the consumer or building out lower price offerings for consumers, one, lower income consumers or consumers who might feel a pinch of their pocket, so to speak. So membership actively is lowering costs for us. On the delivery side, we are working with merchants to source what we call merchant-funded offers. The dollar spend of those merchant-funded offers, in other words, the dollars that are redeemed on the platform, are up 70% year-on-year. So we’re sourcing those offers, we are merchandising those offers in a targeted way to consumers based on predicted conversion, and those volumes are up 70% on a year-on-year basis. And then on mobility, for example, we continue to expand in two-wheelers, three-wheelers, and share, which is a product that, at least in the US, our competitor pulled out of. And again, that is while those products don’t have the margins of our base business, we believe that investing forward into those lower cost products increase the total addressable market for the business, but also kind of protect us to the extent that we see any consumer weakness, which at this point we’re not, but we should be prepared to be able to compete and grow and thrive in any environment, and we’re making sure that the company is prepared, so to speak.

Eric Sheridan

Okay. At your analyst day earlier this year, you threw out some medium-term targets about CAGRs for gross bookings growth. Can you unpack a little bit for us how you think about user growth, frequency growth, and the adoption of multiple products as potential drivers as the building blocks behind that multi-year view you guys shared as a company?

Dara Khosrowshahi

Yeah, absolutely. So our user growth and frequency continue to grow at very healthy levels. We’ve got over 150 million users growing double digits, frequency growing 6% on a year-on-year basis. And we think that’s going to continue from a couple of factors. One is that generally our supply base is getting stronger. We’ve got 7.4 million now earners on the platform, growing 22% on a year-on-year basis. The quality of the service in terms of ETAs, in terms of delivery times, in terms of error rates, in terms of reliability continue to improve. And as they continue to improve, the kind of underlying product gets better as the supply base improves, which is a tailwind as it relates to audience. And then with audience, we’re expanding kind of the TAM, as I told you about, one in terms of new product offerings, the two-wheelers, three-wheelers reserve, for example, is bringing many new customers, especially in the suburbs, who might not have used Uber, let’s say, for that ride to the airport. So that’s, for example, a new audience base. And at the same time, we continue to expand our audience outside of the core markets in which we operate. There are a number of markets that we invested in, again, four to five years ago, Japan, South Korea, Germany, Turkey, and Argentina. These are markets that we had not entered previously because of regulatory issues. We adjusted our business so that we could enter those markets. And those markets tend to be at probably 20% to 25% of the penetration of our mature markets and they’re entirely new audiences that we go after. So audience for us is kind of naturally the product has its own tailwind as the product improves, a bunch of new products that we’re building and then a bunch of new geographies that we’re penetrating into. That’s really the audience equation for us. Then it’s about frequency. Frequency is what we talked about service, but then membership is a very big frequency driver for us. About over 50% of our delivery gross bookings come from members now. About a third of our overall gross bookings come from members. Membership growth continues to grow at very, very high levels, and members spend 3.4 times more than non-members. And then on top of that, we have multi-product usage. And multi-product usage continues to grow very quickly as well, and multi-product users spend over three times more than single-product users. So service level, membership, and multi-product are the drivers for us of frequency. And again, we don’t see any reason why those aren’t going to continue. Price for us, we essentially want to keep price flat if we can. And price will be a mix of typically will grow faster outside of the US than inside of the US. So, kind of geographic mix will be holding price down for us. And we think that as a company we should take price as sparingly as possible. The other angle to all this is base business versus let’s say growth businesses. And our base businesses, if you look at our traditional mobility business, the UberX business or traditional online food delivery business and Uber Eats, those businesses are growing at, call it, low to mid-teens. And then on top of that, you layer the growth bets that we have is $20 billion of gross bookings that are growing at almost 70%. That part of the business is going to get bigger. And so you have kind of a higher growth part of the business becoming a higher penetration into the overall bookings mix, which again gives us relative comfort that the top line, we’re going to be able to grow at very, very attractive top line percentages compared to all of their technology companies of similar size and scale.

Eric Sheridan

Okay. I know you talked about it earlier with respect to autonomous, but I just want to come back to the topic. Share your world view with us in terms of how the AV landscape relative to what you built evolves. You’re going to be an enabler of supply and a distributor of supply by partnering with AVs but there’s also potential for competitive dynamics with more AVs on the road with your existing business model. What’s your general world view of how that structural landscape evolves?

Dara Khosrowshahi

Yeah. Listen, it’s dynamic, and we can only do as best as what we see. Generally, we want to build a marketplace, and we want to stay as pure-play marketplace as we can. So if you look back three, four years ago, a bunch of our competitors in delivery, were getting into the dark kitchen business. They were building dark grocery. I was like this is the next big thing, and they went in and invested in those heavy assets, so to speak, to some extent, going in competition with some of their own suppliers, we didn’t, right? So philosophically, generally, we want to play where we’re strong, which is we bring demand and we’re able to target that demand against supply in a way that improves earnings for suppliers, improves utilization for suppliers. And it’s the reason why in mobility, we have the biggest supply in the world in delivery. Certainly, on a global basis, we have one of the largest supply bases out there. When you look at autonomous, the first thing I would say, is we think that autonomous, actually, is going to increase the pie for everybody, right? We are a supply-led business, the more supply we add into the marketplace, supply improves the quality of the marketplace in terms of ETAs, in terms of the choice that consumers have and we think autonomous can be very, very high-quality supply that comes on to the marketplace over a period of time because it’s going to take some time to scale up and is going to increase the total addressable market, certainly in mobility and delivery and freight as well. So we think increasing supply can actually improve our marketplace overall. We’re already working with over 10 autonomous players in the mobility delivery categories. We’ve had a few. We work with Waymo, but we’ve had a few cool announcements recently in terms of announcing that we’re going to be working with Cruise. And as they expand their offerings and relaunch and, for example, a company called Wayve in the UK which is building kind of underlying newer AI-based technology, self-driving technology. We think it’s absolute best-of-breed technology. And if anyone’s in the UK, I would encourage you to take a ride in one of their vehicles. It’s pretty amazing. And I personally like I’ve been to the UK, I’ve been to China, et cetera, but I would just comment that from a software basis, we think that technically the software is going to get to a very good place over the next three to five years. Hardware and scaling and thinking the economics work is going to be a lot more work. And based on what we see, there are going to be multiple providers and multiple winners in the space, so to speak. It’s not going to be a winner take all market. In terms of what we provide, the autonomous players, we’re already seeing with autonomous players that we work with, we’re able to drive much higher utilization of those assets. And those are very expensive assets. They need to — these have been multibillion dollar investment cycles over for many of these players over 10-plus years. So with the volumes and the higher utilization that we can drive through the marketplace versus standalone, we think they can earn their capital back both on investment and earn a return on capital on the vehicles that they have. And we’re seeing it live right now in the marketplace. And specifically, some examples of higher utilization are, we have a dynamic dispatch layer where if you request an Uber, we will dispatch an autonomous vehicle to you only if that autonomous vehicle has a pickup zone or a dropoff zone that’s within a block or two of where you’re being picked up and where you’re being dropped off. So the reliability of that car is very, very high, and the ride is the exact perfect ride that you want it to be. We will dispatch an autonomous vehicle when the autonomous vehicle is close to you, right? So if you have a 15-minute ride and you have a 15-minute pickup time versus a 15-minute ride and a two-minute pickup time, the latter autonomous vehicles, utilization is much, much higher than the former. That can make a huge difference, especially if you’re buying tens of thousands of these vehicles, especially if you have leverage on these vehicles, the return on investment of the car with a two-minute pickup, average two-minute pickup is much higher than the other cars. And then we can shape demand and supply in that we are — we position our drivers, et cetera. So during peak times, you can have a hybrid network that’s partially autonomous, partially manned, so to speak. And we pay our drivers only when essentially those drivers are utilized versus an autonomous system where you have to pay for the vehicle 100% of time. So an autonomous player who is playing with us can essentially build up their fleet to perfect utilization and we can move up demand — we can move up supply in a dynamic basis based on whether it’s a concert or whether it’s rush hour, et cetera, and make sure that during rush hour, you can get your Uber, but it doesn’t cost you too much to kind of overbuild in terms of hard assets. So the increase in utilization, the increase in ETAs and reliability and demand and supply shaping are something that we bring uniquely, we bring it at scale, we bring it all over the world. And we think it’s a reason why many, many autonomous players are choosing to work with us, including the leading players. And we will have more announcements over the next weeks and months in terms of the expansion of this autonomous marketplace. But we’re very optimistic about the technology like it is coming. We want to help it scale and we especially wanted to help it scale in an economic manner.

Eric Sheridan

Okay. Very clear. Let’s turn to Uber One. You’ve got two dynamics Uber One has been in the marketplace now for quite a while in more mature markets like the US, but it’s also rolling out more extensively globally. I guess, first question, when you think about where Uber One is rolling out in a more new manner, what are some of the key learnings? Are they any different than what you might have learned from Uber One in more mature markets as you expand it globally?

Dara Khosrowshahi

Yeah, Eric, honestly, the story is kind of boring. Like it’s a good product everywhere in the world. So we’re in 28 countries now. We’ll be in over 30 countries on a global basis. And really, what we’re focused on with Uber One is increasing the member count, making sure that retention stays at healthy levels and retention improves and then improving the experience of the Uber One member. So in terms of increasing the member count, we’re continuing to expand in a bunch of different countries. Again, we’re at about a third of total gross bookings and over 50% of delivery. Those numbers are going to continue to increase. Those numbers, for example, in the US, which is one of our more mature markets, is higher in the US than it is overall globally because we have a number of markets that are much less mature. They’ve only had Uber One for six months or 12 months. In terms of retention for us, we are really focused on driving annual passes. So we essentially offer a significant discount for an annual pass, but the retention for annual pass members is much better than the retention for monthly pass members. So that’s been a really nice driver of our retention and then we’re looking to especially improve the experience, especially on the mobility side. That’s an area, I would say that we haven’t yet improved as much as I personally would have liked to, partially because there’s so much else to do. That’s really, really high value. So it’s like we’re finally getting to it but those are areas like providing accelerators or exclusive deals for mobility members, get 50% off your rides if you have — if you take three rides in the next week, for example. They’re like special accelerators that we’re putting on for mobility members. And then one area that I’m pretty excited about is Uber One student pass. So it’s half the price in terms of cost per month, and we’re actually doing a tour around colleges all around with little pop-up stores, giving students a bunch of free stuff as they sign up for Uber One. So that’s a pretty exciting growth opportunity for us. But it’s kind of the business, it’s all of the metrics, generally, look the same with different maturity levels in terms of penetration. The only outlier, I would say, is Taiwan, where the frequency and the penetration of Uber One is at very, very high levels because the delivery business is so big, the spaces, the delivery kind of — the delivery times, ETAs are so good that Uber One makes all the sense in the world.

Eric Sheridan

Okay. You talked a little bit before about products and innovation and how we can drive frequency and cross-product usage. How does that all feed back into your priorities for market share across mobility and delivery. You’re in very different positions between mobility and delivery. If you look at different geographies. How do you think about some of what you’re trying to build product and platform and how we can think about bringing that back to what might change or market share dynamics?

Dara Khosrowshahi

So I think, first of all, in terms of our category position, mobility were the majority player and probably 10 out of 10 of our top markets, delivery is 7 out of 10, generally, we have been consistently growing faster than the category in both mobility and delivery, especially more recently. But for us, category position is really an output. I think that if you think back to the mobility and delivery wars five to six years ago, players will kind of spend a bunch of capital in order to get to a certain category position one way or the other. And I think that all of that effort to buy share versus earn share took a lot of energy away from earning category position. So we are much more focused on earning category position. And for us, the formula is pretty simple, which is like make sure that the service itself is the best service available in your markets. And for example, mobility, we absolutely are that in terms of we have the most liquidity in the marketplace. We have the greatest portfolio of products in terms of premium products or lower-cost products depending on whatever you need, and then we can target those products in a way that other players can’t because we have so many products to offer you. And then delivery, same thing, but really the focus there is on selection. And for example, in delivery, one of the areas that we’re focused on is improving selection outside of city centers in the US, for example. So the average customer now in the suburbs for Uber Eats now sees 50% more selection per search than they just did last year, right? And that selection leads to higher conversion. It leads to better customer satisfaction, higher retention, all of which are kind of happening on the delivery side. So first kind of this is base business and making sure that the technology that we invest in, the platform that we have, drives improvement in the base business and puts us in a leading position versus competition. And then on top of that, you have multiproduct usage and then you have membership. Other players have membership programs, but we believe ours are growing faster than the other players, partially because we offer — our membership program has programming that no one else has, so to speak. We’re kind of like Netflix competing against all the other streamers because we have exclusive content, which are discounts on mobility. No one else has that content. So over a long period of time, we think our membership program is going to grow faster than our competition. And then on top of that, we have multiproduct usage which is about 34% of our monthly active platform consumers are multiproduct users. That’s up about 4 basis points on a year-on-year basis. There’s a team that we have that is very, very focused on driving, multi-product users. They spent three times more both on mobility and delivery than a single product user as well. And for example, 50% of our members spend — use multiple products as well. So you kind of have a situation where we’re the leading player in the majority of the markets. We have a membership program that just structurally, we believe, is better than anyone else’s and then we have multiproduct which is kind of a mathematical winner and a program that we’re driving very, very aggressively. And I think effectively, all of that leads to an output, which is we have been growing faster than the category while improving margins pretty significantly on a year-on-year basis. And at this point, there’s no reason to think that, that won’t be true going forward.

Eric Sheridan

Okay. We only have a few minutes left. I want to hit two more topics before I lose you. Advertising. We’ve talked about it a lot on earnings calls over the last year. But frame up for us what you’re most intrigued by as an opportunity set for the advertising business in delivery and mobility when you look at those two separate potential advertising business model.

Dara Khosrowshahi

Yeah. So with — advertising is now at $1 billion — over $1 billion run rate. We think our targets are to get to multiples of that. So we’re very, very excited about the advertising opportunity. For us, the main engine of advertising is cost per click advertising, so to speak, by our restaurant partners who want more exposure to the consumer base. That business continues to increase, and we’re — there’s still a ton of work to do in that business in terms of custom creative, better measurement in terms of incrementality or targeting of customers. We think there’s a lot of room to improve CPCs and pricing in that business. The biggest area of growth for us is sponsor listings. This is more on the grocery side of the business. We’ve launched that product in the US. We are now actively launching it in markets outside of the US. It’s a proven product, so to speak. Our grocery partners have been selling that kind of product. Instacart has been selling that kind of product. It’s a product that CPG advertisers already know and use and love, so to speak. And for us, it’s just about expanding the scope of that business. As you know, it’s highly profitable. It can be — we think actually a higher percentage of groceries bookings and online food delivery bookings, probably 3% to 5%, if not more. And we’re in the very, very early growth kind of time frame of that business. On mobility, it continues to be Journey Ads. And the click-through rates for Journey ads for us in mobility are about 2.5 times the kinds of click-through rates of similar ads. And as I started with, the Uber customer tends to be younger and tends to be higher income, which is a perfect profile for brand advertisers out there.

Eric Sheridan

Okay. Last topic. At the Analyst Day, you introduced a buyback program, you talked about the leverage target for the company. As you sit here today, what are the key messages you want to leave investors with about your priorities for capital allocation and what they can expect from the company in the years ahead?

Dara Khosrowshahi

Yeah, absolutely. And just to review for folks who don’t know, we introduced a two times gross debt to EBITDA leverage target. We are now investment grade, and we intend to stay so. It’s very, very important to us, having that kind of access to quality capital. I think in terms of the prioritization of capital spend is, first of all, as a company, we want to — we want the majority of our growth going forward to be organic. Every company should allocate capital smartly. Part of that capital allocation is M&A as we demonstrated with the proposed deal in Taiwan. But I think the way to get to attractive deals is, first of all, not to have to do a deal in the first place. So there’s a lot of energy that goes into organic growth of the company because it allows us then to be picky in terms of inorganic growth. And I do think inorganic growth will be a part of the formula going forward, especially as capital markets become more difficult for smaller companies who can’t scale. But I do think that the majority of our incremental capital going forward is going to go into buybacks. I’ll start with — I’ll end with kind of what I started, which is we are a marketplace business. We want to be capital light as much as possible. We — the business has had free cash flow conversion of, call it, 90% of EBITDA. So the free cash flow conversion of the company is going to be significant. And we’re very, very excited to finally start buying back stock. And our goal is to, as I said before, to reduce the share base of the company going forward. And I think we’re on our way.

Eric Sheridan

Okay. Dara, I always appreciate the opportunity to talk. Please join me in thanking Uber and the team for being part of the conference this year.

Dara Khosrowshahi

Thank you very much.