Uber Technologies, Inc (UBER) Q2 2021 Earnings Call Transcript

Good day, and thank you for joining. Welcome to the Uber Q2 2021 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 Technologies' second quarter 2021 earnings presentation. On the call today, we have Uber's CEO, Dara Khosrowshahi; and CFO, Nelson Chai. During today's call, we use 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 annual report on Form 10-K for the year ended December 31, 2020 and in other filings made with the SEC when available. Following prepared remarks today, we will publish the prepared remarks on our investor relations website, and we will open the call to questions. For the remainder of this discussion, all second quarter growth rates reflect year-over-year growth and are on a constant currency basis, unless otherwise noted. For July trends, we will be providing comparisons with July 2019 in addition to year-over-year trends. Lastly, we ask you to review our earnings press release for detailed Q2 financial review and our Q2 supplemental slide deck for a number of additional disclosures that provide context on recent business performance. With that, let me hand it over to Dara.

Thanks, Balaji. On our last call with you, we said that we would lean in to re-ignite driver and courier growth. We've done so aggressively, and we've made real progress. Matching and balancing supply and demand, market by market, at the right times, at the right places, and at the right price is the key to our marketplace and what we do better than anyone else in the world. As a result of our driver-focused investments, everything from refreshed digital marketing to more attractive incentives to good old-fashioned phone calls to folks we haven't seen in a while, monthly active drivers and couriers in the U.S. organically increased by 420,000 from February to July, and we gained an additional 110,000 active couriers from our Postmates migration. In particular, the number of Mobility drivers in the U.S. ended the quarter up 75% year-on-year in June. We also made several operational and product improvements to the onboarding process that led to nearly a quarter of new drivers signing up to both drive and deliver, and we cut courier onboarding time by over 90%. We continue to see strong earner momentum early in the second half of the year and have been able to taper our short-term incentives as we hit our stride. The good news is that drivers increasingly want to get back on the road. In June, 60% of inactive drivers told us they intend to start driving again within a month; that's up from 40% in April. And 90% of drivers told us they expect to come back by September. We are also beginning to see marketplace metrics revert to normalcy in several markets, with surge levels and wait times nearly back to normal in Miami, Atlanta, Dallas, Houston and Phoenix. But in major cities like New York, San Francisco and Los Angeles, demand continues to outpace supply and prices and wait times remain above our comfort levels. Our investment in the earner experience is a fundamental, cross-disciplinary, and long-term initiative for our company. From doubling down on our app quality, to targeted and personalized re-engagement campaigns, to completely redesigning our onboarding flow to make it easier and faster than ever to earn safely, to rolling out unique programs like free language learning from Rosetta Stone or free tuition with Arizona State University, our Earner Super App is unique in the depth and breadth of earnings opportunities we can offer drivers and couriers globally. We have a lot of work to do and it's on us to ensure Uber remains the most attractive and rewarding platform for on-demand work in the world. I do also want to acknowledge the Delta variant. Thanks to the incredible effectiveness of the vaccines, we continued to see Gross Bookings growth in our business from June to July, despite the impact of the new variants. Where markets are recovering, our Mobility and Delivery businesses are emerging stronger together. As of last week, our total Gross Bookings in New York City, London and Paris are over 30% higher than July 2019, as Mobility has made a nearly full recovery. Nelson will have more specifics, but we have confidence in our ability to manage through any scenario, just as we have done over the last 500-plus days. Our ambition is to help people go anywhere and get anything. Whether they first came to Uber via Rides, Eats or Freight, consumers, merchants and companies alike are increasingly getting used to doing more with Uber. During the pandemic, we've shown how each of our multiple business lines can provide a hedge against the others. But more exciting is how innovation in our product and brand is driving cross-pollination between our customer bases — in other words, our businesses do provide a hedge, but, more importantly, strength in one business can strengthen the others. You are well aware by now that the Rides app is acting like a free marketing engine for our Delivery business. What may be less obvious is that Delivery is now increasingly driving consumer acquisition for Mobility. That's because in many markets, especially suburbs and smaller towns, Eats is sometimes the first way consumers engage with Uber. We've launched proactive efforts to convert these Eats-first consumers into Uber riders. In Q2, over 20% of Mobility's first-time riders in the U.S. and more than 40% of first-time riders in the U.K. were existing Delivery consumers, with this contribution rapidly growing over the last year. Over time, we expect our growing New Verticals business to increasingly benefit from, and contribute to, our platform. Already, over 3 million consumers are ordering groceries, convenience items, alcohol and more on Uber's apps each month — and this is before we have even fully addressed the U.S. opportunity. Notably, consumers acquired through one of our New Verticals offerings spend more than twice as much as consumers acquired through our restaurant delivery offering. We are beginning to broadly roll out grocery powered by Cornershop in the U.S., having doubled our footprint to more than 400 cities in the last few weeks, and expect this to be the next pillar of growth for Uber. Underpinning all of this is our membership program. Just a year ago we began to roll out Uber Pass in earnest. It now drives 30% of Delivery Gross Bookings in the U.S., and roughly 25% globally. Consumers who regularly engage with both Mobility and Delivery now account for nearly half of our total company Gross Bookings. For these consumers in particular, Pass is a no-brainer, and we see a long runway for increased adoption. We're also seeing the benefits of cross-platform synergies for merchants and other businesses. Uber remains the largest global on-demand delivery platform outside of China, with more than 750,000 monthly active merchants on our platform. And our leadership position continues to grow. We are now the category leader in eight of our top ten Delivery markets, with clear number two positions in the U.S. and U.K. We're proud that Uber Eats, Postmates, and Cornershop helped many small businesses offset the loss of in-store traffic during lockdowns. But as cities reopen, these merchants are discovering that delivery demand is additive, even as in-store traffic comes back. Merchants have increasingly embraced our Ads offering to drive significant demand amplification at a reasonable cost. Our original goal was to exit this year with $100 million of Ads run-rate revenue, but we now expect to surpass that goal and end 2022 with at least $300 million in run-rate revenues. Beyond last-mile delivery, Uber is increasingly powering first- and middle-mile logistics with Uber Freight. Notably, roughly 50% of our freight volumes come from grocery and consumer staples shippers. Freight has successfully disrupted the freight brokerage market with our innovative technology, and is now one of the largest digital freight brokers globally excluding China. We believe there is a large opportunity to be the preferred end-to-end logistics partner for shippers. Eighty percent of shipper decision-makers manage both full truck loads as well as last-mile shipping, and almost 60% of surveyed customers have last-mile needs. With the pending acquisition of Transplace, we have the potential to create the first end-to-end digital logistics platform that could one day power the movement of goods all the way from the point of production to the consumer. While none of us can predict the macro future or the effects of the Delta variant going forward, we continue to see Uber gaining momentum, as we expand our services and footprint and become a bigger part of the daily local habits of millions of consumers, earners, merchants, and shippers all over the world. We see the path to sustainable and improving EBITDA profitability in the next six months, but it's our growth potential over the next five to ten years that has me and this team excited and hungry to Uber On. Now, over to Nelson.

Thanks, Dara. As Dara mentioned, we are of course still seeing impacts from the virus. However, on balance, we continued to make good progress, with total Gross Bookings growing from June to July. Mobility Gross Bookings were at a $39 billion run-rate in July, with Gross Bookings up 6% month-over-month and 83% recovered vs. July 2019. U.S. and Canada Mobility Gross Bookings were up 7% month-over-month and 76% recovered vs. July 2019, while trips were up 9% month-over-month. EMEA and LatAm were nearly fully recovered on a GB basis vs. July 2019, while APAC was a mixed bag with New Zealand, Hong Kong and Japan growing vs. July 2019, but India, Australia and Taiwan impacted by ongoing or new lockdowns. Delivery Gross Bookings were at a $51 billion run-rate in July, with Gross Bookings up 4% month-over-month, up 56% year-over-year and up over 260% vs. July 2019. Delivery has remained relatively steady since March, even as cities reopened. We are witnessing very healthy trendlines in major markets like Sydney, New York, and London, with Paris as an outlier where we have seen some modest pullback. Next, a word on M&A. Our business has a huge amount of organic momentum, and we will always aim to have the vast majority of our growth be organic. Indeed, our Delivery business has organically grown at a greater than 100% compound growth rate over the past four years. At the same time, we do not hesitate to leverage M&A where appropriate, including both acquisitions and divestitures. Just as we divested several assets last year that along with cost rationalization helped improve our cost base by over $1 billion, we have also made several attractive acquisitions. For instance, our acquisition of Careem has led to markets in the Middle East turning into some of our most profitable markets, operating well above our Mobility long-term margin targets. More recently, our acquisition of Postmates has helped us establish a number-one position in Los Angeles, the second-largest Delivery market in the U.S., while allowing us to execute organically to establish category leadership in New York City at the same time. We have now largely completed the integration process, and expect to deliver on our synergies targets laid out at the time of the acquisition. Turning to our balance sheet, the past few months have been eventful for Uber's equity investment portfolio, as several of our portfolio companies took steps to become publicly traded companies, including Didi, Zomato, Grab, Aurora, and Joby. At the end of Q2, our equity stakes portfolio was carried at nearly $15 billion, or over $7 per Uber share. As we have previously noted, some of these stakes are more strategic and others are more financial, with Didi being the clearest example of the latter for us. As we emerge from our post-IPO lockup restrictions, we will evaluate some of these positions, as long as the market is reflecting a reasonable value for them. As we have said previously, we don't intend to run an investment firm, but we have sufficient liquidity to ensure that we have the flexibility to maintain those positions with the aim of maximizing value for Uber and our shareholders. Finally, turning to outlook. We were very clear in the spring that our Mobility marketplace in the U.S. was not delivering the magical experience we have all taken for granted, as consumer demand returned faster than drivers as markets opened up. We emphasized that it was not okay and we would proactively invest to reenergize supply. As expected, these efforts impacted our margins and adjusted EBITDA in Q2. At the same time, we also told investors that we have the levers available to achieve total company quarterly Adjusted EBITDA profitability this year. We remain committed to it. The good news is driver supply has been growing and our marketplace dynamics are improving; drivers on our platform are earning more than other alternatives. Our gross bookings continue to grow and in July our margins are already improving, benefiting from our investment in Q2 to accelerate the flywheel. In July, new driver additions on Uber in the U.S. grew 30% month-over-month — that's right, over 30% month-over-month — even as we pulled back on incentives and improved our margins. As our investments taper, we expect Mobility to show strong leverage in the back half. For context, in major markets like Australia, Canada, France, and UAE where supply was organically recovering without significant investments from Uber, our Mobility EBITDA margin in Q2 exceeded long-term targets, ranging from 46% to 67% of revenue. In the U.S., our take rate in Miami, Atlanta, Dallas, Houston, and Phoenix has nearly reverted to pre-COVID levels in July. We expect our Delivery business to continue to improve its bottom line while growing at scale. Our Delivery business outside the U.S. and Canada was just shy of breaking even in Q2, while we consciously leaned into the U.S. to improve our category position. We expect to start delivering on our Postmates synergy targets in Q3, and deliver additional leverage through improving network efficiencies and lower incentive spend across our global footprint. We expect Freight to continue to grow and manage its investment levels for the balance of the year and we will continue to manage our corporate overheads. Pre-COVID, we used to provide guidance around our expected annual Gross Bookings and adjusted EBITDA, which we believe provides investors with some transparency on our near-term goals, without being overly focused on quarterly fluctuations. With our business emerging from the pandemic, we believe this quarter is the right time to return to providing guidance around near-term trends. However, there is still a reasonable amount of uncertainty in the world, and as a result, we will provide guidance for Q3 on this call. With that context, for Q3, we expect total company Gross Bookings to be between $22 billion and $24 billion and total company adjusted EBITDA to be better than a loss of $100 million. And for Q4 we expect to achieve total company EBITDA profitability. So with that, let's open it up for questions.

Thank you. Operator Instructions: Your first question is from Ross Sandler from Barclays. Your line is open.

Hey, guys. Thanks for the color on the guidance. Just a question on 3Q for the Rides business. It looks like your EBITDA is doing swing thoughts about $300 million to $350 million to above $500 million or so. So how should we think about the take rates in Rides in 3Q system-wide? You mentioned a few cities there back into the pre-COVID levels. But how do we think about overall take rate? And then what level of driver incentives are baked into that EBITDA run rate? Thanks a lot.

So, Ross, as you heard in my prepared comments, we did give some update about what we're seeing in July. And you heard us talk about not only growth, but margins are improving. So, if margins and take rate stay where they were in July, and we continue to grow our volume as we expect, we will be comfortably within the ranges that we're talking about. We're already seeing that pullback and I think you heard my stat that we increased new drivers on the Uber platform in the U.S. by 30% between July versus June. And that's as we pulled back on incentives, because when we did this, we knew what we wanted to build: long-term sustainable profitability and growth. As you saw coming out of the pandemic, our marketplace wasn't operating efficiently or functionally correctly. So, we invested on the supply side to get our marketplace healthy again and we're seeing the benefits of that today. So, we are able to pull back on incentives. If you just look at where we are in July and you run that forward we should be able to achieve that kind of range that you're talking about, which is why you saw the guidance on Q3 on the bottom line and also in the investor deck, there's a chart on that which hopefully provides some simple ranges to help guide in terms of where we're getting to. Our next question?

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

Great. Thanks. I think there might be a little confusion on the investment levels at Uber versus basically Lyft in the U.S. Could you explain why it might be a little bit different dynamics in the second quarter? And why you may have a bigger profitability pivot? And then maybe if you can give us an organic update on Delivery maybe ex-Postmates or some of the acquisitions. Just how you did organically in the quarter? Thank you.

Yes. Sure. Listen, we can't speak for Lyft, but I think on balance we were super aggressive as it relates to driver acquisition levels and when we compare the number of new drivers coming onto the platform quarter-on-quarter, month-on-month, the monthly active drivers directly against at least the numbers that we've heard from Lyft, our numbers are higher on a direct comparable basis. So, I think that if you compare our numbers to Lyft — again, we're not privy to their numbers — we invested early and aggressively and we're seeing very positive momentum as a result of that early investment and we've been able to pull back as it relates to incentives and revenue margins in July have come up significantly over Q2 and the momentum that we see in driver and courier growth is continuing if not strengthening. So that gives us a lot of confidence as it relates to Q3 in terms of revenue margins, take rate, and in terms of EBITDA. And we think the Q2 investment that we made was the right investment. And it puts us in very, very good stead as it relates to Q3 and Q4. As far as Eats goes, the vast majority of Eats' growth is organic. So, broadly, we are seeing monthly active eaters on a global basis up about 40% on a year-on-year basis. We are seeing basket sizes of about 10% on a yearly basis. We're seeing frequency of orders up as well. So, the organic growth rates for Uber Eats are well over 50% and most of that is really about continuing to build up audience on a year-on-year basis. We're obviously happy with the Postmates acquisition in terms of being able to drive synergy value and getting to a number-one position in LA. We're number one in New York as well, but it's really about the organic growth. And it's about active eaters, it's about basket size and it's about orders per eater and all of those are running positive for Q2. And we think they'll continue to run positive for Q3 and Q4.

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

Great. Thanks for taking my questions. I have two. The first one is on sort of the point around the investment in the drivers. I feel like we pay so much attention to these access incentives. But when you're talking about marketing and onboard costs and background checks and vaccination promotion education, can you just help us better understand a little bit, how big was the investment to bring on more drivers in the quarter? And how do we think about that throughout the course of the year? Just so you can sort of think about 2022 and hopefully, those costs are not as big of a burden? And then secondly on Uber Pass, I appreciate the color on the volumes. So, it was a bit more than areas you think you've had some success in driving adoption Uber Pass, and in your mind still low hanging fruit areas to drive more adoption of that for riders as the rides recovery continues. Thanks.

Yes. So, in terms of driver acquisition spend the heaviest driver acquisition spend and incentive spend that we think we will see and we saw was in Q2. We really had to take action very quickly because the marketplace was not at a place that we considered healthy. And we wanted to lean in and get wait times down and get service levels back. All of those metrics in general as far as surge and wait times are moving in the right direction. And in a bunch of cities, southern cities etc., they're actually back to normal. And the vast majority of the spend as it relates to driver acquisition is really incentives. It's about putting dollars in front of drivers, and our top 20 cities drivers for Mobility are making over $40 an active hour including just earnings and tips as well. So, the good news is, we're now in a place where we're able to pull those investments back. If you look at July, volume growth will add about $200 million in EBITDA, take rate improvements will add about $150 million in EBITDA, which gives us a lot of confidence as it relates to our Q3 numbers. And we're running positive in these numbers based on actual July numbers. So, I think from that standpoint, the investments were big, I thought investments were well worth it and we're on the positive side of the ledger so to speak. As far as Uber Pass goes, the most important factor is what the retention rate is. And what we're seeing is, after some optimization building up the product etc., the retention rate for our cohorts that are with us more than six months is now a 98% retention rate on a month-on-month basis. So now that we have really perfected the product and driven the savings, we can now lean into member growth. The vast majority of member growth is going to be organic. It's putting the product in front of both our riders and diners; we see the Mobility business coming back is going to be a big benefit and you've heard us talk about how users who use both Mobility and Delivery account for more than 50% of our gross bookings on a global basis. So, now that we have the retention, we can step on the gas in terms of acquisition, but we're really going to take advantage of that 100 million monthly active platform customers and put what's a great product in front of them and we think that we'll get a significant amount of organic traction there.

Great. Thanks, Dara.

Your next question is from Mark Mahaney from ISI. Your line is open.

Thanks. Question on the drivers: you mentioned those two numbers about drivers up 75% year-over-year in June and a couple of 100,000 from February to July. Those drivers, can you tell us how many of those are absolutely new drivers to the platform versus lapsed drivers or people who didn't drive during the COVID crisis and have come back?

Yes, Mark. We can. And the majority of drivers who are coming back to the platform are what we call resurrecting drivers — they've driven before. The number one reason why they had not driven is because of safety concerns: COVID, vaccinations, etc. As vaccination rates go up, we are seeing the resurrected drivers come back. Because of the size and scale of the business we can reach into our database and we are getting real momentum in terms of those resurrections coming back. So, I think all of the signs are quite positive.

And one quick follow-up question, please. Any comments — updated comments on the regulatory outlook? And particularly on the state of Massachusetts?

Yes. When we think of the state of Massachusetts, we think the right answer is our IC+ model, which is independent contractor with benefits. Our drivers love it; Prop 22 has proven to be incredibly popular with California drivers. The vast majority of drivers prefer IC+ over full-time employment. With Massachusetts, we absolutely prefer a legislative outcome. But if we can get there we'll go to a vote and based on what happened in California, we're quite confident.

Your next question is from Doug Anmuth from J.P. Morgan. Your line is open.

Thanks for taking my questions. I just wanted to clarify on driver supply: a few months ago your expectation was that things would return to normal by the end of the third quarter — is that still what you're expecting here given your trajectory and the tapering that you've mentioned? And then second on profitability, is that overall in Delivery profitable in the fourth quarter? I just wanted to clarify there. Thanks.

Yes. On the fourth quarter, it's total company EBITDA profitability and then even in the third quarter guidance was total company as well; that includes all aspects of the business. In my prepared comments I said that we'll continue to make progress and improvement on Delivery and we expect our EBITDA profitability of our Mobility business to continue to improve. We're pretty confident in terms of how we're doing it, which is why we put out the guidance for Q3.

But I think if you look in the supplemental slides you also see that our Delivery business outside of the U.S. is an inch away from EBITDA profitability. So, again, in theory we're executing on it quite effectively and we're confident in our stance on overall profitability. And then lastly, you mentioned driver supply returning. What I would say is that you heard us both make comments in the prepared remarks that again we invested heavily in Q2. We're seeing the benefit even in July, which we talked about — margins are improving, we're adding more drivers and we've pulled back on incentives. Our ability to achieve those numbers is really just based on take rates where they are in July point forward for the rest of the quarter. I would also add it's not just a question of money. We have leaned in on incentives, and driver earnings are definitely high and driving is a very flexible way to earn. But I would also underline the operational and tech improvements we have made. For example, now we're testing the capability to bring on drivers who usually when someone wants to drive a person we have to do background checks, etc., not just in the state that you live but in other states as well. We can onboard drivers very quickly to deliver food and as we process all of the regulatory checks that we have to do on the ground in each state, we can then move them over to driving for the Mobility business as well. That has allowed the onboarding flows and CRM campaigns that we are driving and the incentive technology has allowed us to move from a period of heavy spend and adding drivers to much less heavy spend while adding both couriers and drivers at the fastest pace that we have for the year. July looks really good and if August and September are anything like July, we will be in very, very good shape.

Great. That's helpful. Thank you.

Your next question is from Brent Thill from Jefferies. Your line is open.

Thank you. Any color just as it relates to pricing trends for the second half? And how we should think about that? And Dara on the Eats business, if you could just comment on the frequency, I know you had mentioned on the last call that there is perhaps a slowdown in terms of frequency. How are you thinking about now as you look forward?

I'll start with the second first, which is we actually have not seen a material decrease in frequency as it relates to our Delivery business. We think that's because a higher portion of our delivery customers are using Pass. We always thought Pass could be an offset, but we weren't sure of the relative offset between that and the effect of cities reopening. So far that's been the case: orders per eater has stayed very consistent even as people go out more. We do think orders per eater will be a tailwind as we continue to drive membership. As far as pricing trends in the second half, in July and early August we are seeing pricing ease. It's still up year-on-year, but the pace of the price increases looks like it's easing as we get into a more normalized supply situation, which we think is a real positive for the marketplace.

Great. Thank you.

Your next question is from Deepak Mathivanan from Wolfe Research. Your line is open.

Hey, guys. Thanks for taking the questions. Just a couple of ones. First on Eats EBITDA given the high incremental margins on this business below the revenue margins, how much are you reinvesting into the business right now on non-food and some of these other categories? And what are the underlying trends in terms of profitability of the core of our food business? And then second question, just a follow-up on the rides take rate. In addition to U.S. growth, you also saw European markets recover during our second quarter with the impact of driver incentives somewhat low. So, is the 280 basis point sequential decline in take rate predominantly from the U.S., can you give some color on quantifying it by geographical regions?

As far as Delivery goes, we are spending a fair amount as it relates to Grocery and New Verticals. Grocery and New Verticals account for about 5% to 6% of our overall Gross Bookings and it's growing at healthy rates, but we think that we can get to delivery EBITDA profitability by the end of the year, including Grocery as well. So, yes, we're leaning into those parts of the business, but really the Delivery story for us is as a larger percentage of our delivery customers are repeat customers, the incentives that we have to put into the marketplace and the marketing spend that we have to spend come down. Generally, in the U.S. and other markets, as the marketplace becomes more efficient and we get more frequency in the marketplace, we're able to drive the cost per trip down because couriers can batch two or three deliveries per courier and the time they have to be on a trip reduces as we add more restaurants into the marketplace, etc. So the combination of marketing efficiencies and cost per trip efficiencies allow us to continue to invest aggressively in growing our Delivery business while improving our margins and investing in grocery.

Regarding your question on the take rates, you're right. In APAC and Latin America, we are not expecting any take rate changes. Much of the investment was in the U.S. and Canada and there was actually some in Europe as well in order to get drivers back and help build supply.

Got it. Okay. Thank you so much.

Your next question is from John Blackledge from Cowen. Your line is open.

Great. Thanks. Two questions. First on the Delta variant: could you talk about Mobility trends in the recent weeks in areas where the Delta variant has spiked? And also Delivery trends along the same lines. And then on Delivery, second question, how is Uber differentiating versus other competitors in Grocery and other categories across different geographies? And what's the goal in the U.S., given there are several scaled players in that market? Thank you.

As it relates to Delta variant trends, where we have seen shutdowns, we see significant changes as it relates to the Mobility side of the business. For example, in Sydney where the city shut down, we see Mobility take a hit, but we see essentially the opposite happen in Delivery. That's the hedge we talked about. Even net of the hedge, Mobility and Delivery tend to be up pretty significantly on a year-on-year basis. Certainly, if we compare to 2019 volumes where there aren't shutdowns, it's hard to see major changes: people still want to go out and there may be slight changes in behavior, but these are not material and the underlying growth that we see in the business takes over. The July trends relative to June were pretty encouraging, but no one can predict what's going to happen with Delta going forward. So far we're hedged, and the trends that we're seeing are pretty good. As it relates to differentiating in Delivery: the differentiator we have is the audience and the Uber platform. We were late in the Delivery game and we built it based on the Uber brand, marketplace matching technology, pricing technology and routing. Three-quarters of the essential elements of a ride and what delivering ultimately will be for grocery overlap; our engineers get to work on common elements. We have bigger datasets than anyone else, global data points, which allow us to train algorithms for matching, routing, incentives and marketing that are more personalized and have greater capabilities. At the same time, we have operating teams on the ground in every market. Our overheads are much lighter than some competitors. That translates into lower cost of customer acquisition, higher lifetime value because of higher frequency, and lower overheads. So lower CAC, higher LTV, lower overhead and greater tech capabilities — that's the differentiator. We built Eats to be number one in eight out of our top ten markets. For grocery, we're off to a great start internationally; in the U.S. Instacart is a strong competitor. We'll be practical in the U.S.: we'll build out our merchant base and lean into the Rides and Eats audience to build grocery. We have a bigger audience than anyone else, and that's a great asset.

Thank you.

Your next question is from James Lee of Mizuho. Your line is open.

Great. Thanks for taking my question. Can you give us an update on competition with Didi given their issues with regulators in China? Are you seeing any pullback from their perspective on international operations? I know you guys compete within South America and EMEA. Any update would be helpful. Thanks.

As you know, it's happened very recently and quickly. So, we actually really haven't seen anything material. We compete with them particularly in some parts of Latin America. We had a strong second quarter and continue to do well into July and we actually haven't seen anything I'd call material changes. There are city-by-city fluctuations but nothing that I could attach specifically to the broader regulatory issues.

Next question, please.

Next question is from Brad Erickson from RBC Capital Markets. Your line is open.

Hi there. Thanks for taking the questions. Just one more on the driver incentives. Can you talk about the confidence level that you can continue to taper here? I think your main competitor in the U.S. is going to keep investment levels fairly high for the foreseeable future. I'm just wondering how conservative are your expectations there as we look at what's contemplated into the Q4 guide and the profit target? And then second, can you remind us what's built-in for that profit target regarding advertising? Thanks.

So, there isn't much more from a run-rate standpoint on advertising. It's really coming from Mobility recovery. The variability is really around the Mobility recovery. We did notice that Lyft increased some of their incentive spend both in June but particularly in July and as you heard from our commentary based on the results in July, our business is quite strong and our margins have come back. As we think about getting to the guidance that we gave you, it's really around not increasing our incentive spend between now and the end of the quarter. It's just maintaining where they were at this point in Q3 and then seeing some expected increase on the volume side. Obviously, we can't predict the future, but we feel pretty good about what's going on now and it's happening today in the marketplace. As Dara mentioned, we invested early and often to build back our marketplace. You do get the benefits of the flywheel. You heard my comments about in July how we had a 30% new drivers increase without incremental spend — we are getting the benefits from it. I'm not going to comment on what Lyft will do. But again, we feel pretty comfortable for our market position today.

I would add, Brad, that incentives were the fastest lever we could pull, but the improvements we've made in onboarding flow, the CRM campaigns to resurrect drivers, and testing which incentives work have resulted in greater efficiency. We're able to add incremental drivers at a lower cost and hold on to drivers because earnings are high. Also, we invested more aggressively earlier than some competitors; when we say we can taper it's off of a more aggressive base. We pulled back incentives in July and driver acquisition looked really strong, so we're getting smarter about how we're spending and that gives us confidence going into Q3 and Q4.

Great. Thanks.

Your next question is from Edward Yruma from KeyBanc Capital Markets. Your line is open.

Hey, guys. Thanks for taking the question. I wanted to ask a question about Pass. I know you continue to innovate the program. How successful have you been in terms of driving incremental usage either on the Eats side or on the Rides side, more importantly getting a consumer to use both sides of the app?

On average, past customers' number of trips, rides and food orders per customer on a monthly basis increases more than 50% post-Pass versus pre-Pass. That included incrementality is pretty significant. We see a lot more crossover and if you look at our supplemental slides the percentage of our total Gross Bookings now coming from Mobility and Delivery cross-platform users is close to 50% in the U.S. and the U.K. as well. So, the path is working and the most important factor on the path is the 98% retention rate. It's a really strong product that's sticky and that gives us the confidence to be able to lean in and grow the number of Pass members that we have.

Got it. And do you think that helps keep the customer loyal to your platform versus shopping other platforms from a price perspective?

It certainly shows up in orders per month. It's our belief that it's not purely price — we invest in customer service as well as savings. This is a well-worn path like Amazon Prime: high-frequency interactions drive value. Our Pass structurally because of the Delivery benefits, Ride benefits, and Grocery benefits can offer more than any other Pass out there and the upside we can see from frequency is structurally higher than others. So, we think Pass is a clear business upside and the retention is structurally different versus many competitors.

Great. Thank you.

Your next question is from Tom White of DA Davidson. Your line is open.

Great. Thanks for taking my question. Hoping you could comment on whether you expect to stay EBITDA profitable after the fourth quarter and how you're thinking about investing in long-term large opportunities like grocery and other Delivery categories versus catering to public equity investors who want near-term profitability.

Tom, when we talk about getting EBITDA profitability in Q4, our expectation is that will continue and be sustainable and growing as we move into 2022. We believe we'll have enough to invest in those other new verticals and reinvest back in. This quarter we invested to get our marketplace healthy so we can have healthy margins and profitable growth as we move towards EBITDA profitability. That's important for the company and Dara and I want to sustainably build our business and continue to grow our bottom line.

Tom, mathematically the Mobility business is a $50-plus billion run rate as we recover, and we're seeing a number of markets back above 100% of 2019 levels. At that scale, Mobility margins as a percent of Gross Bookings can be 10% and already are 10% in a bunch of markets. So, the earning power today with our Mobility business growth is significant — call it a $5 billion earnings power. Delivery has markets at about 5% of Gross Bookings, so another $2.5 billion in earnings power. Our overheads are about $2 billion on a run-rate basis. So the earnings power of the company is very significant, which allows us to invest in new businesses like grocery, rentals, Reserve while being EBITDA profitable and increasing margins for the foreseeable future. COVID sharpened our operating muscles but our goal is to continue growing and increasing profitability simultaneously.

Thank you.

Your next question is from Steven Fox from Fox Advisors. Your line is open.

Hi, thanks. I was wondering if you could follow up on a couple of comments. In particular the comment about being practical when considering category expansion in the U.S. It seems like category expansion has a better return on your investment and you could be aggressive while still protecting profit. Any longer-term thoughts on how to think of not just groceries but also the Drizly acquisition and other categories as you invest in the next year? Thank you.

On the long term, Uber has run this play before. We were late in Delivery and built delivery using the engineering platform from Mobility. Freight was built organically and some via acquisition. Grocery and Drizly are very close to our Delivery business: fast and frequent use cases. We'll use the family of apps to cross-promote services at the right time to the right person using ML algorithms. They share identity, payment, fraud engines, routing, and pricing — all running against a larger dataset than competitors. We've done this play before and we're confident we can do the same for grocery and other categories.

Great. And to clarify, those new categories were 5% to 6% of Delivery Gross Bookings?

Delivery Gross Bookings.

Next question is from Jason Helfstein from Oppenheimer. Your line is open.

Thanks. Two quick ones: first, how would an extension of unemployment benefits change your third-quarter outlook? And second, any thoughts about SoftBank's position in your stock and how that could get resolved? Thanks.

In terms of our guidance, it's based on what we think will happen; to the extent benefits are extended, we will manage it. We have made good strides in the current environment with our current plans. We do see benefits in folks coming back to drive when benefits expire — that's more of an upside. On SoftBank, it's hard for me to comment. We have a good relationship with them as an investor. There's a lot you read about what they're doing regarding some holdings, particularly given developments in China. Much of it is already done. They don't call us for advice on how they're going to trade; we're fine with whatever they do.

Your next question is from Nikhil Devnani from Bernstein. Your line is open.

Hi, thanks. A couple of questions. First, in the markets where you've invested aggressively and seen driver supply improve, could you see market share gains versus competitors in those regions? Second, on the users that you're adding, any way to dimension how many of these are new to Uber altogether or just older users reactivating?

In terms of supply and market position, our category position is healthy and has been stable or slightly improved in every major market, whether due to investment in bringing drivers back or competitive dynamics. The team is executing well during the pandemic and the recovery.

Regarding new users versus resurrected users: the majority of both driver growth and new rider growth tends to come from resurrection. We have the deepest database and can reach in with CRM campaigns, which is very cheap to bring back resurrected drivers. The second most significant area of growth is Eats driving Rides and mixing new customers who don't use the other product. The third channel is new customers to the platform altogether. We have active initiatives in all three, and momentum is positive across the board.

Operator, we have time for one more question.

Your last question is from Youssef Squali from Truist Securities. Your line is open.

Great, thank you. I have one question for Dara and one for Nelson. Dara, can you speak to driver supply and incentives in states that have ended federal unemployment benefits recently versus those that did not? How much of the pullback you're seeing is maybe partially driven by that? And Nelson, with profitability a couple of quarters away, can you revisit long-term margins of the business across both Rides and Eats that you've shared with us pre-COVID? You're in a better financial situation with cost savings; ex-grocery and ex-new areas still investing, if you could provide color on that, that'd be great.

I'll go first. We are not updating our long-term margins today. We want to get through the pandemic and then address that more formally. Dara gave a high-level math view: think of Mobility at about 10% of Gross Bookings and Delivery around 5% as useful guideposts. We'll formally review long-term margin targets as we get through the pandemic. Our focus was creating equilibrium in our marketplace, which we accomplished in Q2 and are starting to see benefits in Q3.

On driver incentives: we leaned into incentives broadly in Q2 and have been able to pull back on incentives broadly in Q3 while continuing to acquire and resurrect drivers in July. Our targeting and machinery are working much better. In states that have ended unemployment insurance, our marketplace balance is generally in a healthier condition than in states that have not ended UI. There may be additional factors including the Delta variant, but overall it's a positive signal. Our driver incentive efficiency improvements have occurred in states where UI has ended as well as states where UI continues.

Okay, thank you both.

We can wrap it up, guys.

All right, thank you everyone for joining us. A lot of hard work from the team in Q2, and we see some pretty positive signals as it relates to Q3 and Q4. Thanks very much for joining us.

This concludes today's conference call. Thank you for participating. You may disconnect.