UBER - Uber Technologies Inc. (UBER) Management Presents at Morgan Stanley Technology Media & Telecom Conference (Transcript)
2023-03-06 17:29:10 ET
Uber Technologies, Inc. (UBER)
Morgan Stanley Technology, Media & Telecom Conference
March 6, 2022 01:25 AM ET
Company Participants
Dara Khosrowshahi - CEO
Conference Call Participants
Presentation
Unidentified Analyst
Okay. Good morning, everyone. Welcome to the -- the next fireside chat conversation we are having this morning at the Morgan Stanley 2023 TMT Conference. It's great to see everybody live again. We are thrilled to have Dara Khosrowshahi with us, the CEO of Uber. Let's start with the disclosures first. Please note, all important disclosures including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at www.morganstanley.com/research disclosures. They’re also at the registration desk.
Some of the statements made today by Uber may be considered forward-looking. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Any forward-looking statements made today by the company are based on assumptions as of today and Uber undertakes no obligation to update them. Please refer to Uber's Form 10-K for a discussion of the risk factors that may impact actual results.
Dara Khosrowshahi
This is a new feature?
Unidentified Analyst
Yes. Yes, we are kind of good to see you too. Thanks for coming once again.
Dara Khosrowshahi
Happy to do.
Unidentified Analyst
So let's sort of start with a high-level question about the 2024 guidance that was laid out at Analyst Day last year. You sort of laid out some targets for 2024 bookings and EBITDA. Some things have changed from a macro and micro perspectives since then. Maybe talk to us about some of the things that have sort of changed most in your mind that sort of could impact the pluses and minus of getting to the 2024 target.
Dara Khosrowshahi
Yes, definitely. So there have been both good and bad. More good than bad, thank god. But definitely more good than bad. I would say one significant change in terms of our view then versus what we are seeing is just what I think all the markets are seeing in terms of cost of capital, right. So the cost of capital has come up for every single competitor out there that has resulted in everybody pulling back in terms of incremental spend. And there being, I would say, an increasing level of discipline as it relates to return on investments, whether it's overheads or whether it's marketing spend, et cetera.
And so that change we were probably on a net basis, a bit ahead of the curve there. I’ve -- early last year, I said, hey, whatever plans we have, are good enough, we're going to have change essentially what the target is and what the definition of good is. And so we were early in making those changes, if you look at our headcount for the core business from 2022 to 2019, total headcount was up 10%, in total, during that period. So I think are being a little bit ahead of the curve.
Our experience, post pandemic, et cetera, has, for us, put us in a position where we didn't have to let it adjust as quickly as some of our competitors. And I think because we're the number one player in the world, because of the benefits of the platform that we have in terms of mobility and delivery, both on the supply side and the demand side, on a relative basis, this environment is on balance better for us.
Unidentified Analyst
Okay.
And in the mobility business we gained category position in 8 out of the top 10 markets, delivery 7 out of the top 10 markets, within the context of our improving our margins pretty significantly. So I'd say that has -- its mixed, but for us, it's been the environment is, I'd say, net-net been a positive environment.
In terms of profitability, the delivery business, we had talked about overall incremental gross bookings -- incremental EBITDA as a percentage of gross bookings improving 7%, that was a target. We've been over delivering against that target. And the majority of the over delivery as it relates to margins has been the delivery business.
And a couple of things have happened there. One is we talked about the environment getting better, the competitive environment getting better. Second for us is our tech teams have delivered very significant algorithmic improvements that have resulted in a cost per transaction for delivery coming down substantially. We talked about cost per transaction last quarter, improving 20% on a year-on-year basis. That is a -- those are big dollars that our tech team and our operations team are delivering to the bottom line of the business.
And then our advertising business is scaling net-net faster than let's say our internal targets which were already aggressive. So I'd say that that's been a positive in terms of margins. And I would say negative operationally is the freight markets and the shipping markets have gone negative pretty substantially. And that has had a negative effect as it relates to our freight business in terms of top line growth and margins as well.
Fortunately, it's something that we can, kind of take in and adjust. And I think long-term this could be a pretty good environment for Uber Freight, because during this difficult environments where you see the players who are building truly great product, truly tech, pull ahead, and I think Uber Freight certainly has that opportunity.
Unidentified Analyst
Okay. It's very helpful. Maybe if we could peel back the onion a little bit on the multiyear rides growth drivers. Can you just sort of talk to us about how you think about the breaking down the drivers between new users coming to the platform? Price, average price per trip and then frequency, and how can you increase frequency on your users without lowering price?
Dara Khosrowshahi
Yes, so the first thing I would say is that most of our investors in terms of our long-term growth for a mobility are very much focused on what you're talking about. We're much more focused about supply, right. So actually, I think the rate delimiting factor, in terms of the growth for mobility for us over the next five years is how many drivers can we add onto the platform? What percentage of those drivers can we hang on to how does the retention of those drivers look like? And what is the engagement of those drivers look like in terms of the supply hours per driver on our platform, whether it's driving people or delivering things. That is the more important factor.
And on driver supply, Engagement is higher in terms of suppliers, per driver, retention has been improving because actually driver earnings are really strong and we are improving our service for drivers. And then the number of drivers we have on the platform globally q4 was Up 35% in the U.S was up 30%. So very, very healthy levels. One because earnings are really good: two, because we have significantly improved our onboarding processes much more easy to sign up for Uber, much faster you can earn you can earn very, very quickly. And then the labor environment, even though it's not showing up in unemployment rates, the labor and environment feels looser for us. About 70% of drivers are saying that they're coming onto the platform, because of some of the inflationary effects that they're feeling they need to make augment their earnings. And we're very good platform for earnings, earnings augmentation.
So we're much more focused on supply. Now, to answer your question, I would say the following, which is, we expect to see growth in all three, the way we look at growth is new customers, frequency, price. If I were thinking about the past 2 to 3 years, we have had the balance between price and transaction growth has been more on price and transactions. And I think going forward, it's going to be more on transactions or trips than price.
When I break out kind of new customer acquisition for the mobility business, very, very healthy generally. People think Uber is a verb, but the fact is that in most of our developed markets, less than 30% of adults 18 or over, have ever used Uber. So there's a 70% of the population that we have yet to penetrate into. And over a period of time, we believe that we can penetrate into that 70% in terms of new customers.
Now, we can't just depend on that happening by itself. So we are aggressively going after new customers. And one of the key new customer acquisition tools for us, is actually some of the newer products that we see launching. So for example, our [indiscernible] business, these are taxis, two wheelers, three wheelers. That's part of our portfolio accounts for single digit percentages in terms of overall gross bookings.
But it's 15% of new customer acquisition, so much higher penetration of new customers, and about a third of people who come to us to get a [indiscernible] whether it's a taxi or other available, a third of us -- a third of those customers, then go on to use other Uber products as well. Our reserve product is a product that is has -- higher prices than you're getting a benefit in terms of knowing that Uber is going between be there. So consumers are willing to pay higher prices. But reserve is opening up newer use cases as well. So we think 50% of reserved use, it's early -- this is estimate 50% is you replacing a trip that you would have taken anyway, and pay more driver makes more we make more everyone's happy.
And 50% of use cases, it's actually a new use case, you might have gotten a black car to the airport, et cetera. You know that higher dependability actually increases the percentage of time that you use Uber as well. So the new products penetrate into new customer bases, and new occasions, our rental car product, for example, that's another new occasion for you to use Uber as well. And then there's pricing. And for us pricing, increases in pricing, we want to have more about personalization and occasion based pricing.
Reserve, we talked about, for example, Uber for business product, enterprise product, and generally a higher percentage of Uber for business trips are on premium product, whether it's a comfort product, et cetera. Then an X product that will improve price. So pricing will come up more because of mix, then because of let's say comparable pricing, unity and pricing. But all three of those are going to add up to healthy growth rates going forward.
All that said is [indiscernible] supply, and the supply position of the company is very, very strong right now.
Unidentified Analyst
Okay. Let me ask you about some of the innovation around upfront fair. It seems like you've seen some very good early progress around upfront fair driving, demand and supply, better matching dynamics in the marketplace. And you just remind us of the latest quantifiable benefits you're seeing from upfront fair, and how should we think about how big that could become over time?
Dara Khosrowshahi
Yes, sure. So I think just a step back in terms of what was the goal of upfront fare? You know, first of all, upfront, there was the number one feature that drivers were asking for, not necessarily up from fare but upfront destination. They want to know where they are going. It makes all the sense of the world that might be at the end of the day. So you might not want to have a drive to the airport you might want to stick around to two drives that are closer to home.
The trade so we were able to build a product that delivered upfront Farren destination to drivers. What we got an exchange is typically being able to price our supply side algorithmically. So previously in many markets, driver pricing was based on time and distance. And time and distance in most routes, gets the pricing wrong. So very easy example is, if you land in SFO, and you're getting a ride into the city, versus getting a ride, let's say into the suburbs, or somewhere where there won't be another ride, after the drop off the ride into the city, if it's equal time and distance, those two rides will be priced equally to the driver, the utility to the driver for the city ride is much higher, and therefore that should go into the price, we should price the other ride at a discount going out suburbs, we should price the city ride at a discount,
With the total net price being the same. So that trade in terms of giving upfront pricing and destination, because we're actually pricing trips accurately. That is the magic that happens as it relates to upfront fare and upfront destination to drivers. What we’ve got in exchanged is typically being able to price of supply . side And all of that is made possible from very, very sophisticated algorithmic pricing,
We generally then are able to, because we're pricing right beside pricing, and we're giving riders sorry, we're pricing driver side pricing more accurately. And we're giving drivers upfront destinations, that typically is a were able to improve the throughput of the marketplace. With all other characteristics being the same at the same gross bookings level at the same margin levels, marketplace throughput is improving as a marketplace, throughput has, you know, trip throughput has probably increased by about 4%. All else being the same. And I think those increases can continue over time. But it has been a very, very significant innovation for the business and we are now expanding upfront destinations and upfront prices. And this decoupling of the pricing in markets outside of the US, for example, we just rolled it out into the UK. And we're quite optimistic about the results that we can see there.
The other part of the platform that's unique is the multi product offering across rides and eats in grocery and last mile, etc. Maybe just can you give us an update when we look at your 130 1 million rides users and eats users? What's the latest that you're seeing around overlap of people who are taking on both products? What are you seeing in the spend up list? And what are the key innovation points that take those higher? Yes, so generally, about 45% of our gross bookings come from users that use multiple products.
And about 25% of our overall gross bookings come from membership. And when you talk about cross platform or cross product use, it's really one is the product itself and up selling the products into making you offers at the right time at the right place. That drive multi product or multi platform use. You might have noticed actually the Uber app, we relaunch Uber app, smart app that has built in or mobility and delivery product in a very, very elegant way. We are then using machine learning and AI algorithms to get you in the right circumstances, the right price, the right products and at the right price to drive multi product usage. And so we expect kind of design and ML to drive that multiproduct usage higher and users who use multi products for us, they stay more engagement is higher, frequency is higher, just all the goodness happens. On top of that, we have our membership program.
And so we talked about membership being over 12 million members almost doubling on a year-on-year basis. And so the combination of platform and membership, we think are going to continue to drive, more cross product usage, higher frequency and ultimately higher lifetime value for our customers going forward. We're very, very early in the use case here. And remember, in multiproduct and multi-platform There's no such thing as a free lunch, right?
So if I am -- if you are a mobility user, and I'm promoting grocery to you, that could be taking space away from an advertisement that could be really high margin, or could be taking space away from wanted to get home. So how you tune the up sell machinery, both in terms of what the goals are, what are you trying to maximize? And making sure that whatever the business is trying to maximize its not getting in the way of the consumer desires or driver desires, that tuning is actually incremental tuning that gets smarter based on very large data sets that we're experimenting against on a global basis.
And it's like small improvements that are very, very difficult than for competitors to match that start compounding over a period of time. And I think we've been talking about the power of the platform, I'd say, for the past 2.5, 3 years. That power shows up in a couple of percentage points advantage over competition every year. And I think some of the output that you’re seeing now in terms of a business being able to deliver both top line and bottom line and category position is because of the compounding effect of the platform that keeps adding on top of itself.
Unidentified Analyst
Let me ask you, what about that tuning point? You're sort of managing the different markets. And I guess the question is really, how do you sort of balance growth versus profitability in the city by city situation on rides and eats? Are there points at which you get to a certain market share where sort of the incremental returns are lower and, so you run the market more for profitability than growth or how did the algorithms sort of work city by city?
Dara Khosrowshahi
Yes, so generally, the algos are tuning against supply balance in a particular market, demand supply balance. And then we have a capital allocation framework overall in terms of geography and product as far as how we allocate our capital. And the marketplace balance kind of the algos that are driving marketplace balance and improved throughput in a marketplace based on everything else being the same. The output of that is better competitive position for us. So we don't really I think a lot of investors are really focused on competitive position.
We are focused on it as an output, every week, every month every quarter, but the algos aren't tuned to try to maximize [indiscernible] competitive position. They're tuned to balance the market at the lowest cost possible, aggregate cost possible while driving the highest throughput possible. That's what the algos are doing. The CPUs output and I think that our algos can operate at bigger scale and over larger data sets than anyone else. One of the newer features over models now is then typically you have to train a model on a city by city by city basis. And so the data vantage you had might be in a city, if you're let's say 70% of the category, position city versus 30 on a number two player, that's a nice advantage.
But now the newer models that that we are we build train against global data sets. And those models will find similarities in terms of customers and occasions, and cities or neighborhoods, at particular times, the human beings would never find, right. And so the -- with larger models, these transformer models that you read about, the chap GPT is kind of the thing that's taken, captured everyone's imagination. These are -- it's all they're all models and larger models give us a bigger advantage as it relates to our database than we were before the advantage used to be local.
Now the vantage is global. The more products we throw in the occasion, the more GIOS we have, and the fact that we are multi product, that's just more data for algos to train again -- against that creates a bigger competitive advantage over any of the other players. Then as it relates to kind of margins and the tradeoff between growth and margins, we have this capital allocation framework we're generally --, generalizing but, if we have margin to play with, we will typically then over invest in geographies that have lower margins. Japan for example, we want to grow there or a Germany or Spain or in Italy.
And that will kind of improve our TAM over a long period, improve our long-term growth rate and the same can be said for certain products. Our [indiscernible] product is a lower margin product than Uber X product when we see room in the business and generally we've seen margin improvement in the business, we'll lean into grocery, we lean into a direct business. we'll lean into Halo doubles or will lean into taxi et cetera. So the capital allocation framework changes based on it's really based on Geo and based on product mix, okay?
Unidentified Analyst
Yes, what about the U.S competitive intensity a little bit. Recently your biggest U.S rideshare. Pierre announced the intention to remove its insurance fee and essentially bring their pricing more in line with Ubers. Anything you can update us on what you're seeing as a result of those changes and competitive intensity or the pricing dynamics and some of these markets, nothing to report significant at this point.
We've -- I think, generally we have been able to we've been fortunate enough. And I think this is the result of a great team that we have, as it relates to insurance costs. And insurance costs have been inflationary, generally. And if you look at insurance costs, there are three components. There's the rate of issues that you deal with. So there's rate, there's a cost per event. And then there's how you run your marketplace. Do you outsource the risk to third parties or do you take the risk internal and we have a big captive insurance company. We have been able to do really good work in terms of reducing the rate of incidence.
I think because we have a captive insurance company, we have been able to negotiate pretty effectively where it makes sense, we take risks, where it makes sense to write off risk against the third-party will do so. And rate has been a headwind for the whole industry. I think generally based on what we can tell it's been a bigger headwind for lifts than it has been for us. And so any adjustments that they've had to make in their model on a relative basis, we haven't had to make significant adjustments as it relates to pricing. So I think we feel pretty good about where we stand.
And it certainly seems like they've taken the necessary steps to adjust to the realities of the marketplace going forward. And I think the Uber insurance, reset they, they come in March, so we're sort of about to come in to new potential insurance clauses. Anyway, we should think about philosophically how you would manage through any significant changes in those terms. I mean, all those while the terms haven't maybe technically rolled over.
We know exactly what those terms are going to be. And we dynamically price insurance into the marketplace. And so whatever changes are happening, they're happening kind of on a live basis. And we will price insurance differently based on location. We will price insurance, we're actually now working on improving our pricing to be more insurance aware. So there may be certain trips in terms of trip length trip place, that may have a higher projected insurance cost versus other trips. And so building our pricing to be insurance aware is something that we think has real potential in terms of optimizing insurance costs going forward.
Talk about the cloud. Cloud migration., you recently announced your plans to move your IT from your own to Google or alphabet and Oracle, pretty big switch, previously, you know, 95% of the system right now runs through your own data centers So I guess two questions first, anyway, you could talk to us about, sizing the OpEx or CapEx savings from the change. And then as you sort of move into these clouds, are there new types of tools or analytics or AI tools that you're gaining that you previously didn't have [indiscernible]?
Dara Khosrowshahi
Yes, so I think generally, if we look at the cloud, and we look at our over the long-term, we believe that moving on to the cloud is going to drive significant savings in terms of overall free cash flow, okay. The geography of Africa, cash flow is going to change, and that cloud costs tend to hit operating costs. But we don't have to take on capital costs.
Noticeable to anyone other than our free cash flow generation as a percentage of EBITDA should improve over time. We have built a pretty sophisticated provisioning layer in terms of provisioning compute and storage on top of the cloud layer so that we essentially have put ourselves in a position to not be dependent on any cloud provider going forward. It's a little bit like our strategy and insurance and taking risk or not taking risk depending on what the opportunity is. So this layer that we built, will be able to dynamically kind of move volume between data centers, really helps with the transition to cloud, but also puts us in a pretty strong negotiating position going forward on Cloud provisioning going forward, both on the data side, the storage side on the compute side.
So we will look to use certain tools that our partners provide. And Google, for example, we use lots of map -- mapping tools from Google. They've have some pretty sophisticated data technology with Spanner that gets you like all of the -- all the benefits of a relational database without the cost at higher reliability, et cetera. So there are value added tools that we will use with these providers. And we do think that overall, it's going to allow us to focus our engineers on value add work versus recreating what has already been built by a lot of these cloud providers.
Unidentified Analyst
Okay. One of the areas of value add work, you've done a good job has been the advertising business. Yes. Yes, the $500 million annual run rate on the ad business. And that's what only I think, 25% of the merchants actually participating in the auction market. So I guess the two part question, really. Where have you made the most progress to sort of get to that point? And if we want to make this into a multibillion dollar annual business, what's the innovation, you still need to get more dollars? Yes, which we certainly do. So first of all, those 25% of merchants are getting a great deal. The return on ad sales for those merchants, on average is about 7x to 9x spend. So it's a very, very healthy marketplace. And frankly, we want to keep it as a healthy marketplace. So we continue increasing merchant penetration. The vast majority of our advertising dollars now come from auctions, right, which is merchants essentially, paying to get higher placement in an auction and getting more business, more business, which gets to that 7x to 9x. What we're seeing the -- that business is going to continue to grow. Some of the newer businesses that we see potential with mobility, for example, journey ads/. Our mobility customer is a very high demographic customer. We know a lot about them in terms for potential personalization. So we're seeing our journey as kind of our mobility ad business grow very, very healthy rates and very healthy CPMs.
Our generally our tool set for enterprise customers is not as mature as it needs to be. Some enterprise customers they will may want to focus on new customers, or customers are given highest incrementality factors, we think we can improve our toolset and get more engagement from our enterprise customers. And then the grocery business generally, which is one of our fastest growing segments, it has very high potential in terms of advertising penetration, and we are quite low as it relates to again, the maturity of those tool sets and the relationships that we built with CPG companies. So I think there's a ton of improvement that we can see on the grocery side on the advertising business, as well. So lots of potential there.
Unidentified Analyst
Okay. We're going short. We have so many topics to cover. I'm going to squeeze one more in there.
Dara Khosrowshahi
Every year, we have some regulation. I hate to end that. But I know there's a couple things going on with regulations. The first thing with DC WP in New York food delivery regulation, we're sort of waiting to hear any day. I think the second one being prop 22 and sort of potential jury decision around prop 22. I guess the question is, how should we think about next steps for each of those when we do hear the appellate process and sort of your response to when we do get headlines?
Unidentified Analyst
Yes, sure, in 30 seconds or less, I'll start with Prop 22, which is whatever the decision for Prop 22 is, it's going to be appealed. We think we believe we have a strong decision. We're hoping that the court kind of retains the will of the people. And also we're hoping that drivers and couriers win, the vast majority drivers and couriers want to be independent contractor. So we're hoping for the best knowing that any decision whether it's a good decision for us or a bad decision for us is going to be appealed. So I wouldn't expect anything significant happened in California one way or the other, other than the decision. On the ground, we'll see what the decision is. And then we'll react accordingly.
As it relates to New York, I do think that New York is taking its time to get the decisions, right. As it relates to delivery, New York, for us is -- New York delivery is about 2% over overall volume on a global basis. That's all of Uber to be clear, and it's a much, much, much lower percentage of EBITDA. And whatever the outcome is and we're hoping for the best outcome, we can make adjustments to our business to essentially we think we certainly net neutral from an EBITDA basis one way or the other.
Unidentified Analyst
Okay. All right. Got it. Thank you very much for those.
Dara Khosrowshahi
Thank you. I appreciate it.
Question-and-Answer Session
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Uber Technologies, Inc. (UBER) Management Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript)