Uber Technologies, Inc (UBER) Q1 2021 Earnings Call Transcript

Good day. And thank you for standing by. Welcome to First Quarter 2021 Uber Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Operator Instructions: Please be advised that today's conference is being recorded. Operator Instructions: I would now like to hand the conference over to your speaker today, Balaji Krishnamurthy, Head of Investor Relations. Please go ahead.

Thank you, operator. Thank you for joining us today, and welcome to Uber's first quarter 2021 earnings presentation. For the first time since the pandemic began, we are pleased to be broadcasting to you live from Uber's office in San Francisco. On the call today we have Uber's CEO, Dara Khosrowshahi, and CFO, Nelson Chai and Chief Legal Officer, Tony West. During today's call, we will present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures, are included in the press release, supplemental slides and in our filings with the SEC, each of which is posted to investor.uber.com. As a reminder, these numbers are unaudited and may be subject to change. Certain statements in this presentation and on this call are forward-looking statements. Such statements can be identified by terms such as believe, expect, intend and may. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today, except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainties described in our most recent quarterly report on Form 10-Q for the quarter ended December 31, 2020 and in other filings made with the SEC when available. Following prepared remarks today, we will open the call to questions. For the remainder of this discussion, all first quarter growth rates reflect year-over-year growth and are on a constant currency basis, unless otherwise noted. For April trends, we will be providing comparisons with April 2019 in addition to year-over-year trends. Lastly, we have included a detailed Q1 financial review in our earnings press release and Nelson will not go over those details again. With that, let me hand it over to Dara.

Thanks, Balaji. And thanks everyone for joining us today. We're finally seeing the light at the end of the tunnel. As vaccination rates rise, infections fall and restrictions lift, people quickly breathe a sigh of relief and start moving again. There's pent up demand to see family and friends, offices, restaurants and bars are reopening, and even airports are seeing improved traffic. But it's important to recognize that the battle is certainly not over. Cases remain far too high in many places around the world with many tragic consequences. We will continue to do our part on the ground to help get this virus under control wherever we can. The actions we took last year and our team's hard work since then have uniquely positioned us to harness the recovery. Uber's already begun to fire on all cylinders. On a consolidated basis, we've returned to growth with Q1, our best quarter ever, April, our best month ever and last week, our best week ever, in terms of gross bookings. Even as we invested for growth, the benefits of scale and rigorous cost management drove adjusted EBITDA improvement of $253 million year-on-year and $95 million quarter-on-quarter. We continue to have a strong balance sheet with significant liquidity and valuable and growing investments in several leading global Mobility, Delivery and Autonomous assets. Looking ahead, I'm confident that Uber will benefit from the complementary nature of our two large core opportunities, to help people go wherever they want and to get whatever they need. Just last week we announced several new products focused on the recovery. You can now book a vaccine appointment at Walgreens and ride there all in the Uber app. We're also expanding our reserve products to UberX and to airports, and our Uber Rent product is bringing the magic of Uber to car rentals. You can now rent a car from providers like Avis and Hertz right in the Uber app, and with our new valet feature, someone will drop the car off at your house and pick it up whenever you want. We've also added new benefits to Eats Pass, new rides benefits to Eats Pass further differentiating it from the competition. I'll dive into each of our segments now starting with Mobility. Mobility recovery started to pick up pace in March and improved further in April, with strong vaccination rates in several key markets, including the US. We are optimistic that this trend should accelerate going forward. In April, Mobility gross bookings were at a $31 billion annualized run rate, up roughly 280% year-over-year and 68% recovered versus April of 2019. US regional trends continue to improve in most markets with Miami now back to growth versus 2019, while New York City, New Jersey, Austin, Houston, Dallas, Atlanta were all up 70% to 80% recovered versus 2019 GB levels. Overall, US gross bookings improved 5% month-on-month in April, and were 62% recovered versus April of 2019. Outside of the US, we see significant improvement in several markets in APAC, including Australia, New Zealand, Taiwan and Hong Kong, which were all positive versus April 2019. In EMEA we saw early signs of improvement after prolonged lockdowns in Q4 and Q1 with EMEA gross bookings up 10% month-on-month in April. In particular, the UK started reopening in April, with our business seeing a strong recovery almost instantly, improving nearly 60% week-on-week in the first week of reopening. UK GBs are now over 80% recovered versus 2019. In contrast, exceedingly elevated case counts and renewed lockdowns in India adversely impacted Mobility trends there. As riders come back to the platform, we're working hard to make sure that their second first trip is as magical as ever. One of our top priorities is to rebuild the driver base. Our research shows that drivers who left the platform last year primarily did so for two reasons: concerns about safety and concerns about there being enough rider demand. On the safety front, we're working hard to improve vaccine access to drivers and we've continued to enforce our mask policies and provide free PPE and other supplies that keep both drivers and riders safe. With demand currently outstripping supply, driver earnings are at historically elevated levels. Median earnings for all online time before tips are around $37 an hour in New York City and Philadelphia, $36 an hour in Chicago, and $33 an hour in Austin, just to name a few cities. We know that drivers often work simultaneously on other apps so their total earnings are likely even higher. In other words, looking at the more appropriate measure of active time on Uber, median earnings are at or above $40 an hour in several US cities. In several countries, including the US, we will continue to lean in with targeted incentives for new and existing drivers to build up significant supply which will enable us to achieve maximum velocity as the recovery plays out. Now turning to Delivery, which continues to surpass our growth expectations. Q1 gross bookings growth accelerated to roughly 160% year-over-year and reached a $52 billion annualized run rate in April. We improved our category in several major markets including the UK, Canada, France, Spain, South Africa and Taiwan. In the US, our category position was stable with some improvement in urban markets in recent weeks. Notably, we continue to strengthen our category position in New York City and suburbs driven by improving restaurant selection. We continue to broaden our delivery offerings beyond food as consumers become habituated to having anything delivered to their door. Our new verticals business expanded substantially during the quarter, with an annualized GB run rate nearly doubling from Q4 and reaching $3 billion in March. We're seeing improving traction in many markets including France, UK, the US, Canada, Japan, Chile, Brazil and Mexico. We signed several key partnerships over the past few months, including Rite Aid in the US, Rexall in Canada and Group Casino in France, among many others. We also announced an exclusive partnership with GoPuff that will expand our selection of convenience and everyday essential items, directly from the Eats app. To capitalize on these tailwinds, we'll remain in a period of elevated investment for the delivery business, including leading into courier growth to serve robust demand. Additionally, our profitable markets generated over $135 million of EBITDA, and just over $3 billion of gross bookings, giving us additional flexibility to reinvest in growth markets. As a result, we remain on track to reaching EBITDA breakeven for delivery by year-end. Finally, turning to freight. With a renewed focus on the freight opportunity in the US, our team reached an important milestone during the quarter with the business registering its first positive variable contribution quarter, while delivering revenue growth acceleration to 51% as well as an EBITDA margin improvement of 23 percentage points year-on-year. Scale and automation has allowed us to achieve what we believe is industry-leading variable cost per load. Our ML and data capabilities have allowed us to tighten pricing and margins on a target route level. And we have diversified our product offerings to new channels such as APIs directly providing shippers real-time pricing, and our market access product that helps customers quickly and easily source unplanned capacity from the largest digital carrier network, all with one tap. We're confident about Uber Freight's product market fit in a very large TAM opportunity. As the business continues to scale, we now have a clear line of sight to EBITDA profitability as well. To sum up, I'm as excited as ever about the opportunity ahead for Uber. Our delivery business continues to grow faster than anyone could have predicted. Our Mobility business is bouncing back in many markets around the world and freight is gaining share while improving margins. And because of the actions we took this past year, we're returning to growth on an even stronger, more focused and ultimately more profitable foundation. Now over to Nelson, for some details and the financial outlook.

Thanks, Dara. I'll provide a high level recap on our performance during the quarter, and our balance sheet before closing out what's in outlook for Q2 and the rest of the year. For a detailed financial review of our Q1 results, please refer to the financial highlights section of our earnings press release. Overall, Q1 performance is better than expectations we had outlined three months ago. And we are seeing our business trend in the right direction each week. We continue to execute well despite the slow start to Q1 from extended lockdowns in North America and Europe. And despite Mobility gross bookings coming in roughly flat quarter-over-quarter and elevated growth investments in delivery, our disciplined cost management led to significant total company adjusted EBITDA improvement, meaningfully exceeding our prior outlook. We also made good progress on the Postmates integration, and we expect to substantially migrate Postmates merchants to the Eats platform by mid-year. We remain on track to deliver our expected $200 million in run rate synergies by year end. One question we've often been asked over the past few weeks is whether the Mobility recovery has come at the expense of delivery demand. So far, at the high level, the answer appears to be no. We're seeing encouraging signs of continued use in our delivery business, even as cities reopen. For example, in Sydney, dining fully reopened more than two months ago. Delivery trends remain healthy even as Mobility has fully recovered and returned to growth versus 2019. In fact, delivery in Sydney continues to be a bigger business for us than Mobility. Similarly, as New York City has partially reopened dining and other services, delivery demand has continued to expand. In general, as cities opened back up, we appear to be retaining our active delivery consumers and their larger basket sizes, even if the frequency of ordering moderates somewhat. Turning to the balance sheet. We recognized a $1.6 billion gain from our divestiture of our ATG business to Aurora during the quarter. Our Q1 GAAP net loss of $108 million benefited from this gain, partially offset by the $600 million UK accrual. We ended the quarter with approximately $5.7 billion in unrestricted cash, cash equivalents and short-term investments and have access to over $2 billion from our revolver, providing us with ample liquidity to manage through the recovery ahead. In addition to our significant cash balance, Uber has several valuable minority investments that were recorded on our balance sheet at nearly $13 billion at the end of Q1. Over the past quarter, some of these companies have taken steps to become publicly traded, including Grab and Joby, and their press reports suggest others may follow in the near future. While some of these investments are strategic and Uber will remain an investor for the foreseeable future, others likely will be significant sources of liquidity. We'll be proactive in maximizing the value from these investments for Uber and our shareholders. I'll wrap up my comments with a few thoughts around our expectations for Q2 performance and some early views on the second half of 2021. In April, Mobility gross bookings were at a $31 billion annualized run rate, up roughly 280% from April of last year and 68% recovered versus April of 2019. We expect the segment's recovery to continue to be driven by improving vaccination rates in the US and several international markets more than offsetting headwinds in markets like India and Brazil. With demand continuing to outpace supply, we will be investing to revive the driver base during Q2. Consequently, we expect Mobility take rates to decline sequentially to roughly 20%, which would also pressure Mobility adjusted EBITDA in Q2. Turning to delivery, gross bookings were around a $52 billion annualized run rate, up over 100% from July of 2020. For the remainder of the year, I would remind you that delivery gross bookings year-over-year comparisons will become tougher as we continue to face significant forecasting uncertainty in predicting post-reopening consumer behavior. Similar to Mobility, delivery continues to see demand trends that are outpacing supply additions. That said, we expect our improving scale and network efficiencies to drive sequential improvements in delivery EBITDA through the rest of the year, even as we remain in investment mode for the segment. Q2 corporate G&A and platform R&D should increase to between $450 million and $480 million, driven by headcount investments. And as Dara laid out during Q2, we are leaning in with investments to support the recovery in Mobility and growth initiatives in delivery. Beyond Q2, we expect Mobility, delivery and total company EBITDA margins to significantly improve as Mobility demand continues to recover and the marketplace approaches supply-demand balance. We remain on track to reaching adjusted EBITDA profitability in the second half of the year. And with that, let's open it up for questions.

Operator Instructions: Your first question comes from the line of Mark Mahaney from ISI Evercore. Your line is open.

Thanks. Two questions, please. Dara, could you talk about and provide an update on the synergies that you're seeing between the two segments, Mobility and Delivery and how you're tracking that? And secondly, since you've got Tony there, could we get some comments on how you view the risk related to the comment the Labor Secretary made a week or two ago on gig employees being treated as full-time employees? Thank you.

Yeah, absolutely. As far as the synergies between Mobility and Delivery, we're seeing very consistent trends. I think last time around, we talked about 13% of Eats first-time eaters coming from Mobility, whether it's a super app or CRM notifications, etc. And we continue to see those trends. Even as the Eats business continues to get bigger and bigger, what I'm really curious to see, Mark, is what happens when Mobility actually comes back to kind of full run because the audience and the masses on the Mobility side of the business will increase. And even though Eats will be growing as well, hopefully we'll continue to see similar trends going forward. And for perspective, the number of first-time eaters, for example, that our Mobility business delivers is actually bigger than the number of first-time eaters that we get out of paid channels for our Delivery business. So as a competitor, we basically have all of our paid channels for free coming from a Mobility business, which is pretty phenomenal, and we think these kinds of synergies can continue. What we're now starting to explore and see are similar synergies, although we're a little less mature between Uber Eats and, for example, Cornershop in the markets where Cornershop has launched as well. So not only do we see our Mobility business driving Delivery and Eats, but we expect to see Delivery and Eats then driving Cornershop, driving Drizly when that deal closes, etc., kind of this chain reaction between businesses. So we're pretty excited about it. And by no means do we think we are fully optimized as it relates to this kind of activity. You can also expect that as our membership business grows, what we're trying to do is create more differentiation. Our delivery membership will start leading into our Mobility membership, and we really think we will have the premier local get-it-within model in our membership anywhere and just a structural advantage that the other players can't match.

So I'm afraid I lost the connection. The second question was?

Mark, can you repeat yourself?

Yes. Tony, just the commentary or reaction to the Labor Secretary's comments about gig independent contractors should be treated as full-time employees. And just help us think through the risk associated with that or what are the end cases? How long it would take to get some sort of resolution on that issue? Thank you.

Sure, yeah. Well, look, I think it should surprise no one that the Biden-Harris Administration's approach on these issues is similar to the Obama-Biden Administration's approach and is obviously different than the last administration. And I think that when we look at the makeup of the current administration, it's fair to say that there are individuals who have varying views on these issues. They're not all identical in their outlook, and we think that creates space for some meaningful dialogue. The fact that the labor department has said that they want to engage key companies on this issue, the fact that they said just as late as today that they're not planning to offer new regulations for independent contractors in the near future, we think all of that creates a real opportunity for a dialogue that can ultimately lead to a solution that gives gig workers the protections they deserve while preserving the innovation that gives them the flexibility they desire. So we think there's space here for a conversation. And we continue to look for opportunities to talk about options for bolstering independent work with those kinds of benefits and protections.

Thank you for the color.

And I think from my perspective, what comes through again and again, in any piece of research done by anybody, is that independent workers want to stay independent. They do not want to be full-time employees. The number one feature, as it relates to gig work, is flexibility. And what we're talking about is taking it to the next level, which is providing flexibility and protections. We don't want to lose the really important dialogue to have here. And we think that if you listen to drivers and couriers, and certainly you listen to voters, the answer is pretty clear, which is flexibility and benefits going forward. And we hope to have that conversation.

Okay. Thank you, Dara.

Your next question comes from the line of Brian Nowak from Morgan Stanley. Your line is open.

Thanks for taking my questions. I have two, one for Tony and one for Dara. Tony, just coming back to the labor discussion, I know you've now been living in California with the Prop 22 situation for a while. You made some changes to the UK labor compensation this past quarter. Just talk to us about what you've learned from operating in those two markets when you're thinking through driver liquidity and passing through pricing and managing a profitable network? How scalable those types of platforms and those types of options could be? Then, Dara, as you talked about the synergies across the platform, any update on the number of members or subscribers you're seeing on the platform now and how fast that side of the business is growing?

So, I'll start. One of the things that we've learned is that the premise — and Dara touched on this in the last answer — that earners on these gig platforms, particularly drivers, prefer independent work, is borne out. In Prop 22, in California, which is a very blue state, you have a model that was overwhelmingly approved by the voters. So not only are voters listening to drivers and to earners on these platforms that are choosing independent work, we see that that choice being made over and over again. In the UK, where we have a flexible third category that, frankly, we would like to see in other jurisdictions, we're finding that it's possible to have a solution where you can maintain the flexibility that earners repeatedly choose as well as provide benefits and protections that people deserve. One of the things we've learned is that while you won't have a one-size-fits-all solution in every jurisdiction because every jurisdiction is very different, these kinds of workable solutions are real resolutions to this issue. We'd like to see other states and jurisdictions draw upon some of the things we've seen in California, in the UK and in other places where we're able to bolster independent work with these types of benefits and protections.

And then on membership, the number of members continues to grow. This last quarter, we've been focused more actually on converting a higher percentage of our free trial membership into paid memberships, and we're making really good progress there. What we continue to see is that consistently, members — especially paid members — have much higher engagement metrics and much higher trips per month than non-members. And you can also see we continue to increase membership benefits in addition to rides benefits. For example, our most recent relationship with GoPuff means you can also get GoPuff deliveries for free as well. So right now, the focus is converting free members to paid members and really starting to push the differentiation of the membership to continue to drive the increased engagement that we're seeing.

Thanks.

Let me just jump in on Tony's answer on Prop 22. We did see a slight increase in costs because of the benefits. On the Mobility side, we've been able to pass on the incremental cost to the rider, and we haven't seen any impact from a demand perspective. On the Delivery side, we passed on much of the cost, and again, we have not seen any impact from a demand perspective. As you know, we've seen this before in places like New York as well. So as Tony said, we're going to continue our dialogue.

Clearly, our model has pricing power. In markets like the UK, what we're looking for is a level playing field and for other companies to do the right thing. We think with a level playing field, we get the network advantage and the scale advantage and the global advantages that allow us to continue to be the number one player in most of the areas that we focus on.

Great. Thank you all.

Your next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is open.

Thanks. I guess one for Dara and Nelson, and one for Tony. Dara, Nelson, can you guys help us understand a bit more on driver supply challenges into the recovery? It seemed like the food delivery driver supply scaled up really well during the pandemic, but we're having more challenges with driver supply on the Mobility side. Is that because during the pandemic drivers moved into food delivery? Is it that food delivery drivers aren't as impacted by unemployment insurance? Anything you can share to give us a sense of where supply is coming back or if we have to wait until early December when the unemployment benefits start to tail off would be helpful. And Tony, wondering if you can give us an update around the European regulatory environment. You guys have made some good progress in markets like Germany, but there have been other markets like Spain and Switzerland changing rules negatively. What's the latest on the outlook in Europe and at the EU level around regulation? Thanks.

I'll start with the driver supply. The way I would describe it is that demand is a fast-twitch muscle and supply, especially driver supply, is slow-twitch. Both during periods when we see demand increasing at very high rates or decreasing, supply adjustments are slower. The hurdles to become a driver — qualification, regulatory and vehicle requirements — are generally higher than the hurdles to being a courier for food. So it's a heavier lift to get drivers on board or to resurrect drivers. Because of COVID safety concerns, there's a greater hesitation for some drivers to come on board to drive people versus delivering food. So courier supply adjusted pretty quickly; there were fewer safety concerns. That said, because our Eats business is growing so fast, and our growth even accelerated on top of a very high rate last quarter, we need to bring on more couriers. We are seeing one of the advantages in our network is cross-dispatch between drivers who drive people and drivers who deliver food, which is a network advantage that we have. We're actually seeing our drivers drive less food and more people because the demand for people is higher and the earnings opportunities are higher now. We're seeing encouraging signs with drivers coming back — both new drivers we're recruiting and resurrected drivers. Sign-ups are up on a week-on-week basis. We do think that as we get into Q3, the marketplace will get back into balance, and we're certainly putting a lot of focus toward making sure it does. It will take time and focused operational effort, and I'm already seeing green shoots as a result of both.

We are actively engaging with policymakers all over the world and Europe is at the forefront of those efforts. Our position is consistent with the end goals of regulators, who want to ensure drivers have protections while retaining flexibility. In Europe, since we're talking about many different countries with different legal systems and employment laws, we won't see a one-size-fits-all solution. But in our engagement, we're able to make progress. For instance, last quarter we published a white paper calling on policymakers, platform companies and social representatives around Europe to come together to set a new standard for platform work. We've been hosting business roundtables with senior members of European governments. I participated in one just yesterday. There are many efforts ongoing to try to get to a place where there's value for everyone in a resolution.

Okay. Thank you, guys.

Your next question comes from the line of Ross Sandler from Barclays. Your line is open.

Hey, guys. Just want to follow up on the driver supply question and then one on Eats. Are there any other factors holding back supply besides safety issues and stimulus and unemployment benefits? Pre-pandemic, a lot of drivers would either rent cars or buy used cars to come online, and it seems like both of those are more expensive now. Even at $40 an hour, you can't rent the car these days. So are there other factors like that holding back supply? And any color there? Then on Eats, thanks for the charts on profitable versus unprofitable markets. Is the biggest driver of the difference the time in market and the nature of competition, or is it the pace of your grocery and convenience offerings in some markets? Any color on what's driving the difference between the profitable versus unprofitable Eats markets? Thanks a lot.

In terms of driver supply, the big factors are safety and earnings opportunities. Renting a car or sourcing a car relative to the opportunity ahead is a relatively small factor; it will be low single-digits as it relates to supply. We do have programs to help drivers who want to secure cars, get cars both in the US and outside of the US. The biggest issue is safety, and we think that issue is being dealt with as it relates to vaccines. Earnings opportunities are extraordinary, and the trends we're seeing are drivers coming back as expected. Sign-ups are up week-over-week and as we get into Q3, you're going to see the marketplace get back into balance. We're putting a lot of focus on making sure it does so.

In terms of profitability, two of our top five countries are profitable right now, and we have over 12 countries in total that are currently profitable. The characteristics of profitable markets are a strong market position, good basket sizes, and momentum. Around the world, our business is operating at an extremely high pace and doing really well. Our capital allocation model is working — we exited a number of countries last year which has allowed us to get scale in the marketplaces we operate in. In markets where we're still in investment mode, they are highly competitive. Some competitors are still private but many are going public, which is actually beneficial. We have a good plan and as we think about the back half of the year, we are confident our delivery business can achieve profitability by year end.

To add to what Nelson said, patterns that separate profitable versus unprofitable markets include incentives and marketing spend. In profitable markets, you have lower incentive spend as a percentage of bookings because you build a cohort of very loyal users who come back out of habit rather than price. As the percentage of existing users grows, marketing becomes more efficient since you don't need to acquire as many new users. And as these businesses scale, you can scale overheads and variable costs — cost per transaction, customer service costs, etc. — which helps profitability. Financially, it's incentives, marketing costs and scale in variable and fixed costs that get you to a profitable market. This formula is working overall: our profitable markets are getting more profitable and our investment markets are requiring less investment.

Your next question comes from the line of Justin Post from Bank of America. Your line is open.

Great. Thanks. A couple of questions. Nelson, you've had more experience with Prop 22 and the UK changes — any changes to your long-term margin assumptions for the rides or Mobility business versus a couple of years ago? Or do you think elasticity in the market will help support that? Any offsets on other costs related to the increased benefits? And Dara, any update on market share in Latin America or the UK would be really helpful. Thank you.

No, we don't see any changes to our long-term targets. There is some price elasticity, but when we made those targets, we expected to run a much more efficient business. Actions we took last year and our capital allocation model execution allow us to lean in and get leverage. We're seeing benefits from larger basket sizes post-COVID. We're also starting to see early traction on ads. As you think about reaching target profit margins on the delivery side, ads will be an important part of it. We remain optimistic about where we stand right now.

As far as category position, it's a good news story. We've maintained or improved our category position in a bunch of key markets — the US, UK, Australia, Brazil and France. Mexico continues to be quite competitive, on both Mobility and Delivery. But overall, the global picture for our mobility and delivery businesses is better than it has been in the past two years. It's improving and fundamentally looking pretty good.

Great. Thanks, Dara and Nelson.

Thanks, Justin.

Your next question comes from the line of Doug Anmuth from JPMorgan. Your line is open.

Thanks so much. On Delivery, we've seen some industry changes in terms of restaurant pricing recently. Could you talk a little about your offering and how you're thinking about your positioning into reopening? Also any comments or expectations around commission caps and potential timing for any easing? Thanks.

On restaurant partner acquisition, we now have over 700,000 partner restaurants globally and expect to grow restaurant supply for the next five years at least. Penetration into many markets is still early. Restaurants are seeing the benefits of having delivery as a core part of their business, even in a reopening scenario — delivery plus walk-in makes for a fundamentally better business. We can establish interesting relationships with restaurants around dine-in promotions using Mobility, while maintaining Delivery relationships. We monitor competition on a local basis for marketplace pricing and believe our pricing models are competitive. We also plan to focus more on pickup, which is currently a small portion of our volume and a bigger opportunity going forward. Regarding fee caps, it will differ city-by-city. We can adjust the business model where there are fee caps. Essentially, fee caps force us to increase delivery fees, which we have repeatedly seen as a net negative for demand to our restaurant partners. From a margin standpoint, and profitability per order, we can adjust where fee caps exist, but higher delivery fees can hurt demand. We think the better answer is to let markets find balance themselves, but where fee caps exist we can adjust accordingly.

Okay. Thank you, Dara.

You bet.

Next question.

This is John for Brent Thill. Two questions. One, on Delivery, is there a way to think about the trends or growth rates between core restaurant food versus everything else combined in terms of all the new initiatives? And second on Mobility, the take rate going down in Q2: is that mainly for driver supply incentives? Or is there anything else to think about? Thank you.

On the second question, yes. As we said, we're leaning into Q2 on supply both on the driver and the courier side. That is the reason for the guidance on take rates and the expectation of pressure on Mobility adjusted EBITDA in Q2.

On the first question, regarding food versus new verticals, our new verticals were at about a $3 billion run rate while the overall Delivery business was at over a $52 billion run rate, so you can see the relative size. The business accelerated Q1 over Q4 both overall and on a stand-alone food basis. So the trends are favorable and the potential remains enormous.

Your next question comes from the line of Tom White from D.A. Davidson. Your line is open.

Great. Thanks for taking my question. There's been a lot of questions on labor classification, but I had a follow-up on Delivery and regulation. For example, Andrew Yang, a mayoral front-runner in New York, is calling for food delivery platforms to share customer data. Can you characterize how you think food delivery regulation may evolve over the next few years? It seems regulators are paying more attention and making more noise.

We've been regulated on a local basis for Mobility from day one and those dialogues are important. We're guests in every city and the money flows are local, so we already have relationships with local governments and regulators to begin constructive dialogue on Delivery. We welcome the dialogue. We want a business model that aligns with cities' needs. Look at what we've done on safety reporting, sustainability — our pledge to be all-electric by 2030 in many major markets and 2040 globally — and our leaning forward on policies for independent contractors. These are all based on dialogue. Delivery will follow a similar path, creating a model that thrives long-term and serves communities, service partners and shareholders.

Great. Thank you.

Your next question comes from the line of Jason Helfstein from Oppenheimer. Your line is open.

Thanks. Two questions. One, how do you know that changes you made in California that increased pricing haven't been a drag on demand given we're still not in normal conditions? Do you have cohort data that tells you that? And second, can you talk more about grocery — will we be talking about that more 18 to 24 months from now, especially in the US and the UK, and what role do you expect to play?

On California pricing and demand, we can't predict everything, and future patterns may differ from the past. When we compare pre- and post-change behavior in California versus non-California markets, we don't see significant differences in trends that would suggest a major economic change for growth rates. Historically, our services have pricing power and consumers tend to pay more for services they value. We've seen that when we've raised prices in California for both Mobility and Delivery. On grocery, it's potentially a significantly larger TAM than food but earlier in the lifecycle for online penetration. Grocery is a global initiative for us: we'll grow grocery in Latin America with Cornershop, where we believe we can lead due to excellent service and efficiency. In the US, Instacart is a strong competitor, and the US will be a competitive battleground for some time. We're making good progress in Europe, Australia and other countries on grocery. We expect grocery to be a meaningful share of our business in 18 to 24 months and even more obvious beyond that.

Your next question comes from the line of John Blackledge from Cowen. Your line is open.

Thanks. On driver supply, are there any key markets outside the US where you're seeing the same supply constraints? And on Delivery, as the offering evolves to where the consumer can get almost anything within an hour, how impactful will that be in raising courier utilization rates?

Driver shortages are primarily a US issue; we do see shortages in Mexico as well, although that's more related to vehicle availability than safety or earnings. We're working with vehicle partners to make it easier for drivers to get cars. The rest of the world is more balanced. On Delivery, courier utilization is currently high due to demand. As Eats grows, Delivery-as-a-service grows, and grocery is added, all of this will drive courier efficiency and utilization, improving cost per transaction. Our cross-dispatch model across drivers and couriers gives us an efficiency advantage that many competitors don't have. We expect cost per transaction trends to improve over time as we drive utilization across these patches.

Thank you.

Your next question will come from the line of Pierre Ferragu from New Street. Your line is open.

Good evening, this is Ben Hall calling in for Pierre. I have a question on the introduction of autonomous driving: how much progress have you made since you pursued autonomous cars on your platform? What kind of timeline do you have in mind and what are your most advanced experiments and tests at this stage? We expect to hear more from you on this front. Thank you.

On the autonomous side, we have established a very deep partnership with Aurora. Aurora has a leading team and the merger of ATG and Aurora should meaningfully advance their efforts. Aurora's first commercial focus will be in trucking. That creates potential tie-ins with Freight. Highway trucking is a different, and in many ways easier, initial use case than full urban driving. Being autonomous on a 100-mile highway trip is easier than being autonomous on dense city streets. The advantage for us is being able to dispatch appropriately to a human or to an autonomous vehicle, which is unique in the industry. This technology must be safe and will take time to reach scale, but we are positioned to take advantage of autonomous when it's ready for market.

Operator: Let's take a last question. Your final question today comes from the line of Itay Michaeli from Citi. Your line is open.

Great. Thanks everybody. On the adjusted EBITDA profitability target by year-end, can you provide more context on the business conditions you would need? Maybe talk about take rate and whether OpEx is expected to potentially go down from here, or whether there's room to make additional investments beyond Q2? Anything you can share on the bridge would be helpful. Thank you.

Itay, we believe we have enough levers under our control to deliver profitability in the back half of the year. As we said on the call, we are substantially leaning in on supply on both the driver and courier side to make sure we're positioned as the world opens. We feel really good about where we are. We executed well last year during a very difficult time to position the company to be where we are today. We know the levers to pull — pricing, cost management, scaling efficiencies and targeted investments — and we have a high degree of confidence. Dara and I and the rest of management are committed to profitability, and we will pull the levers necessary to reach adjusted EBITDA profitability in the back half of the year.

Great. That's all I have. That's very helpful. Thank you.

All right. Well, I think that's it. Thank you very much for joining everyone. This quarter, obviously some green shoots are starting to form and it's great to see us having our best quarter ever in terms of bookings. I am looking very much forward to reporting our best quarter ever in terms of revenue in the near future. Thanks for joining everyone.

That concludes today's conference call. You may now disconnect.