Uber Technologies, Inc Q1 FY2023 Earnings Call

Good morning and welcome to Uber Technologies, Inc.’s Q1 2023 Earnings Conference Call. All participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Balaji Krishnamurthy, Head of Investor Relations. Thank you. Please go ahead.

Thank you, operator. Thank you for joining us today and welcome to Uber's first quarter 2023 earnings presentation. On the call today, we have Uber’s CEO, Dara Khosrowshahi; and CFO, Nelson Chai. During today's call, we will present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including the reconciliation of GAAP to non-GAAP measures, are included in the press release, supplemental slides, and 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 belief, 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 risks and uncertainties described in our most recent annual report on Form 10-K for the year ended December 31, 2021, and in other filings made with the SEC when available. We published our quarterly earnings press release, prepared remarks, and supplemental slides to our Investor Relations website earlier today. And we ask you to review those documents if you haven't already. We will open the call to questions following brief opening remarks from Dara. With that, let me hand it over to Dara.

Thanks, Balaji. Uber is off to a strong start in 2023, with gross bookings up 22% year-on-year at constant currency. Trips outpaced gross bookings growth and accelerated to 24% growth from 19% last quarter. Adjusted EBITDA of 761 million, exceeding the high end of our guidance, and we delivered incremental adjusted EBITDA margin of 12% and record free cash flow of 549 million. Over the past two years, we’ve consistently delivered results that have exceeded both investor expectations and our own internal plans. Even as we performed well, we're acutely aware that expectations have only continued to increase for scaled platforms. We're working to accelerate our path to GAAP net income by optimizing our entire P&L, every single line item. Despite any macroeconomic uncertainty, I'm more confident than ever in our prospects and remain committed to best-of-breed cash flow growth. The Uber platform has never been stronger, our own expectations have never been higher, and we’re excited to leave no doubt as to the scope of our ambitions for exceptionally profitable growth. With that, let's open up the call for questions.

Thank you. Our first question comes from Doug Anmuth from JPMorgan. Please go ahead. Your line is open.

Thanks so much for taking the questions. Dara, good EBITDA upside, the 549 million in free cash flow, and talking about GAAP operating income this year. I think headcount is flat-to-down this year. Do you believe you need to tighten up the cost structure anymore, and how do you balance those considerations with product and growth? And then secondly, just in terms of AI, you talked about improvements on ETAs and onboarding, what are some of the other ways you envision AI driving the consumer experience for Uber?

Yes, absolutely. So, I think as far as the cost structure goes, listen, we manage the cost structure dynamically based on the environment that we're seeing. And I think the results speak for themselves in terms of our bookings growth, acceleration on a quarter-on-quarter basis. And then you look at our EBITDA that we delivered well above street expectations, well above our guidance, and the forward EBITDA of 800 million to 850 million that we guided to, again even at the low-end above what street expectations were. So, we will be managing our cost structure to the opportunities ahead and also with a very strong dose of discipline. Even in a market where we're gaining category position, we expect our headcount to be flat to down for the balance of the year, and that is going to be our starting point as we go into next year as well. So, I think you're going to see pretty extraordinary leverage in terms of the top line and bottom line. The incremental EBITDA that we delivered this last quarter was 12%, which is well above the 7% target that we talked about. If the business slows down and we don't expect it to slow down materially, we will adjust, and I think Nelson, myself, and the rest of the team have demonstrated the ability to deliver in good markets and bad markets. We've been through a lot of difficult things and came out of COVID. So, the muscles, the P&L muscles are there. And hopefully, you'll remember early last year before everyone else was raising alarms about the reality of today's capital markets and discipline needed, we raised the alarms internally and took action early so that we didn't have to be reactive like a lot of other tech companies had been. We're innovating, we're building, while a bunch of people are restructuring, and I think that's a good position to be in. As far as AI goes, we are looking full stack at AI. A lot of people want to talk about the sexy new consumer applications. I would tell you that the earliest and most significant effect that AI is going to have on our company is actually going to be as it relates to our developer productivity. Some of the tools we're seeing in terms of co-pilot will allow our developers to innovate more, build more, faster, having co-pilot alongside them. That will essentially leverage and accelerate innovation across the platform. The cost side, you can see chatbots powering a lot more experiences as opposed to live agents. The quality of those chatbot experiences is going to increase with AI with a voice that can be more human, interactions that can be more complex, etc. And then we will look to surprise and delight customers, for example, picking someone up at the airport. We’ll know who they are, where their home is, what kind of cars they like, etc., and AI can power those kinds of experiences. It's going to go from productivity to cost to delight. We're thrilled with this wonderful deployment that will hopefully return significantly going forward for the company.

Thank you, Dara.

You bet.

Our next question comes from Ross Sandler from Barclays. Please go ahead. Your line is open.

Hey, guys. Congrats. Question on the ride's take rate. So, you mentioned in the prepared remarks that both rider and driver incentives were down pretty nicely in the U.S. and your category position is stable. So is that the primary driver of the improvement in rides take rate? And kind of looking forward, how much more room do you see to kind of continue that trend of reducing incentives while holding category share? Thanks a lot.

Yes. So as Dara mentioned, we optimize our marketplace to ensure that we're driving and overachieving against the guidance that we put out on the bottom line. But we also want to try to allocate and drive growth on the top line as well. Right now, things are working quite well if you look at both top line and bottom line growth in the quarter. I would say it's a combination of both. We leaned in a lot last year to bring drivers back. The marketplace is much healthier from a supply perspective. Periodically, we will put in some more incentive to drive demand. What I would say is that we work very hard at balancing our marketplace because it's not just delivering EBITDA and the free cash flow that we're promising, but we're trying to continue to grow the company at scale. Our gross bookings were up 22% on a constant basis, and the mobility business even higher. What’s exciting is that our trip growth is accelerating faster. You'll see us continue to toggle between the two and our focal point really is on continuing to drive our company at scale on the top line and overdeliver against our commitments on the bottom.

And Ross, just to add one point is, part of the take rate increase that you saw Q4 to Q1 on the mobility business is seasonal. Q4 tends to be very busy from a demand perspective, so we put more money into incentives to make sure that supply is balanced. Q1 usually has lower demand, and because supply is elevated, we can reduce incentives, which has the effect of increasing our take rate. Excluding the merchant model and accounting adjustments, our take rate from Q4 to Q1 went from approximately 21.4 to 21.1. So, there was a slight decrease – sorry, it was the other way around. So, there's a slight increase in take rates, but most of that is seasonal. We're managing the entire P&L and take rates is just one element of it.

What Dara is referencing is the business model change in the UK that happened last March, and you're seeing that overlap, which is our point.

Thank you.

Our next question comes from Brian Nowak from Morgan Stanley. Please go ahead. Your line is open.

Great. Thanks for taking my questions. I have two. The first one, appreciate the new rider cohort data in the slide deck. I'd be curious to hear a little more detail about which use cases or products are sort of driving this strong new user cohort frequency and spend behavior that you're observing. And then the second one on delivery, you're talking about acceleration in the business, really healthy. Can you just talk to us about which products or regions are driving that acceleration? And how we should think about that over the course of the year? Thanks.

Yeah, Brian. In terms of the mobility cohorts, which are positive on a year-on-year basis, the newer cohorts are actually even healthier in terms of trip frequency. It comes really from the amalgamation of all of the work we are doing on the platform. Supply is strong, ETAs are coming down, and surge pricing came down from Q4 to Q1, resulting in higher conversion rates in terms of how many sessions a rider has and how they convert on that session. The quality of the marketplace is clearly having an effect, but at the same time, we're innovating and adding a ton of new products and choices for the riders as well. The Reserve program, for example, is responsible for 20% of our airport drop-off being reserve trips. We’re finding that Reserve has a combination of riders who used to utilize our on-demand marketplace now relying on Reserve to ensure guaranteed availability or much higher reliability. It's also bringing new riders into the system with travel being a strong use case with high average fares as well. In terms of delivery, as far as growth and acceleration drivers, one factor is that we had Omicron-related comparisons earlier in the year; delivery volumes were lighter in January due to comps. Then we expect strong growth for the balance of the year, and the customer cohort data looks quite healthy. Customer retention has significantly improved. So, eaters are staying with the platform, frequency is increasing, and a higher percentage of eaters and riders, especially eaters, are members. Members spend four times more than non-members. All of that is contributing to continued healthy growth for both the mobility and Eats platforms.

Great. Thanks, Dara.

You're welcome. Next question.

Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead. Your line is open.

Maybe following up on that with two on the delivery side of the equation. Dara, you called out in the letter improving your category position in large markets. Can you give us a little bit better sense of what you see as the key investments to improve category position, and how investors should think about the growth output or the yield from those investments looking out over the medium to long term? And then second with respect to the delivery business, how should we think about market share dynamics broadly in the delivery business versus where you see yourself as the best positioned to compete where there's an overlap between the Uber One subscription and the mobility business where that might put you on a competitive footing that’s different than markets where that may not be as prevalent? Thank you.

Yes, absolutely. On the delivery side, we're seeing the result of several factors. First of all, we have the power of the platform. Our mobility business is actively upselling our mobility customers to our Eats products. The audience we have in the mobility business is the largest among any of our mobility competitors. We're the only scale players who are upselling from mobility to delivery and vice versa. Against competitors who deliver only, we have a source of significantly lower cost traffic. Our mobility business attracts more customers than we get from Facebook, Google, or Snap combined. That's a structural advantage. We are executing particularly well algorithmically in terms of improving our marketplace efficiency on the delivery side. We're batching a higher percentage of orders and using deep learning techniques to reduce the cost per transaction on delivery. Adding to this is our advertising product, which is growing at high rates; advertisers have increased by 70% year-on-year using our platform. This combination yields powerful economic drivers allowing us to deliver the bottom line results you saw, which are significantly exceeding estimates while gaining category position in nine of our top ten markets globally. So, it's happening broadly. It's not five out of ten; it's nine out of ten markets where we're gaining category position, reflecting the power of the platform. We see it in almost every market.

Great. Thank you.

Sure.

Our next question comes from Justin Post from Bank of America. Please go ahead. Your line is open.

Great. Thanks. Nelson, maybe just give us an update on the EBITDA progress if you take the midpoint of your guidance. You're already over a 3 billion run rate. What are the drivers to get over 5 billion here? Is it network efficiencies, marketing spend, leverage on personnel? How are you thinking about the growth from here? And then I noticed you had some interesting comments on the taxi business. Just a high level, how much that's helping your mobility growth? Thank you.

Okay. So, I'll handle the first half of it. When we put out the targets last year, our expectation was to at least achieve them on the top line but over deliver on the bottom line. We’ve had five quarters of our 12-month plan. History shows that we’ve overachieved every quarter and we intend to keep doing so. If you take the Q2 trajectory, which is what you’re referencing, we don’t stop there. We continue to invest in our marketplace and continue to grow while optimizing every single line of the P&L. We're seeing benefits here. Last year, we talked about cost per trip benefits in delivery. We're seeing incremental improvements in recruiting costs, and these are significant amounts. The platform is performing quite well. With 22% constant currency year-over-year growth at our scale, it’s impressive considering all that we're doing. You should focus on where we think we’ll end up next year while continuing to outpace on the bottom line. The commentary indicates we expect 12% incremental margins in Q1. The midpoint of guidance is at 10%, and we believe we can continue to do even better, generating a lot of free cash flow that we think will ramp in coming quarters. While we aren't providing new guidance for 2024 or the following years, we aim to build a track record to show you that the company is operating at a high level.

As it relates to the taxi market, we don't disclose taxi bookings. However, hailables business, which includes taxis, two-wheelers, and three-wheelers in certain markets is already over a billion dollars. Our view of the portfolio includes a set of growth bets we're making. This includes taxi, two-wheelers, three-wheelers, low-cost UberX share, high-capacity vehicles, Uber for Business, Uber for Health, and new products like Reserve that create unique instances for riders to use our service. When combining all growth bets, we have about a 6 billion run rate growing at 100% year-on-year. We discussed our growth platform of 50% base business growth, 35% new growth bets, and 15% international expansion. Our growth bets made up about 10% of our volume in Q1 and around 20% of our growth in Q1 while accounting for around 20% of new riders joining the platform. They’re a significant part of our growth, and while introducing new business segments, these new riders typically leverage other products like the mainline offerings we have.

Our gross bookings are up 22% on a constant basis, and our EBITDA is up 4x year-over-year. We're confidently pulling the levers to ensure we deliver strong top and bottom line growth. We believe we will continue this in upcoming quarters.

Great. Thanks, Nelson and thanks, Dara.

Thank you. Next question.

Our next question comes from Lloyd Walmsley from UBS. Please go ahead. Your line is open.

Thanks a lot. Two, if I can. First, continuing on the last question, I appreciate the color on hailables and the new formats. On that international side of medium-term growth, what is the update on some of the markets you flagged at the Analyst Day, like South Korea, Spain, and Germany? Second one, following up on previous delivery questions, how much do you think the benefit you experience in terms of market share is from product improvements versus perhaps more discipline across the competitive landscape, especially considering rising capital costs? Any insights would be appreciated.

Yes. I'll start. Concerning international markets, a few I would highlight are Spain, Germany, and Turkey. Spain is a highly regulated market. We’re adding supply to our marketplace and seeing great earnings and demand. The growth rate in Spain is impressive, and we believe we’re gaining category position there. Similarly, in Germany, we launched about four years ago, and it’s developed very well. We’re following the regulations, and Germany being the largest GDP in Europe provides a significant market opportunity. We’re confident in both the mobility and delivery sectors in Germany. Other markets like Turkey, specifically focused on taxis, we’re innovating around hailables and establishing taxi products to penetrate that market. Argentina is showing promise in South America as well. For South Korea and Japan, development is progressing slower due to regulatory issues regarding dynamic pricing, hindered innovation for competitive pricing structures. We believe pricing reform will benefit drivers and the market but it’s taking longer than anticipated. Now, Nelson, do you want to address the second?

Yes. You’re correct about the rationalization occurring in the marketplace due to the higher cost of capital. We've led efforts to drive companies toward profitability and everyone has had to adapt as the market evolved. We see the benefits of having a larger, more efficient platform, allowing us to strengthen our positions in key markets. Notably, in our top delivery markets, we’re generating a 2% EBITDA margin, profitable in 15 of our top 20. In fact, six of our top 20 markets exceeded our long-term targets in Q1. We're continuing to expand category position while seeing strong top and bottom line growth, presenting a robust formula for success.

Okay. Thank you, guys.

Thank you. Next question.

Our next question comes from Mark Mahaney from Evercore. Please go ahead your line is open.

Thanks. I wanted to ask about two questions on the advertising side, what traction you're seeing for advertising on the mobility side? And in terms of the Uber One program in the prepared comments, you talked about seeing really nice traction, record high levels in North America. Could you talk about the rest of the world as well? Additionally, what product development areas do you want to lean into to make the Uber One program more attractive? Thank you.

Yes, absolutely. We’re very optimistic overall with our ad products. Advertisers using our products have increased by 70% to approximately 345,000 businesses. The majority of our revenue is on Uber Eats along with the new products being introduced – also have vertical ads with sponsored items in the U.S. from brand advertisers. We are seeing strong momentum on the mobility side with Journey Ads, yielding premium CPMs because Uber riders have strong demographic appeal. They are younger and more inclined toward high-quality brands. We’re seeing high CPMs related to our mobility advertisers. One exciting newer product is car tops noticeable in cities like New York City and tablets in other locations. The benefit of these newer formats is improving driver earnings – drivers with a car top make an average of $100 more a week. Increased driver earnings lead to higher retention and more supply. As for the Uber One program, it is performing strongly across the board. Our goal is to offer deep discounts to our best customers to increase frequency. Uber One members are spending four times more than non-members, with retention rates 15% higher. Uber One is a larger percentage of our bookings, currently around 27%, and we aim to reach over 50%. In certain markets outside the U.S., Uber One penetration is higher than 50%. This target is absolutely achievable. Plus, Uber One members are profitable, making it an effective strategy to foster frequency and engagement with our customers.

Okay. Thank you.

You're welcome. Next question.

Our next question comes from Deepak Mathivanan from Wolfe Research. Please go ahead. Your line is open.

Great. Thanks for taking the questions. Dara, your competitor in the U.S. is going through a transition currently. How do you think about the potential impact on the U.S. rideshare market? Additionally, philosophically, what is Uber's priority between defending category position and profitability if competition intensifies? And then a second question for Nelson. You noted that you intend to outperform on EBITDA, with excellent incremental margins. However, any updates on your views regarding top line bookings for 2024 since you provided guidance at the Analyst Day? FX has been a headwind, and markets seem to be on different trajectories. I’d like your insights on 2024 top line growth. Thank you.

I'll start, and Dara can address the competitive question afterward. If you consider our performance in Q1, achieving a 22% constant currency growth and 19% reported growth across our business is exceptionally strong despite industry headwinds. For Q2, we expect core mobility and delivery businesses' growth bookings to rise 18% to 22%, depending on guidance. Our operational efficiency enables us to invest back into products highlighted by Dara. Expect us to maintain our growth trajectory while focusing on products that foster top-line growth and committed bottom-line results generating ample free cash flow moving forward. Our capital allocation efforts will intensify, ensuring we can invest in new geographies and products. Our current operational formula is working well.

Yes. We've shown over the past six or seven quarters that the dichotomy of prioritizing between category position and profitability is a false trade-off. We’ve gained category position while significantly over-delivering on profitability, averaging 12% this last quarter, simultaneously achieving record adjusted EBITDA of 288 million. We've consistently exceeded external expectations, capturing category position, and we see emerging competition from Lyft who is undergoing shifts. Lyft remains a strong brand. While they seek to price competitively, we believe this fosters a healthy competition focusing on brand, service, ETAs, reliability, etc. We’re seeing advantageous dynamics in the marketplace, differentiating us from others, enjoying our broad efficiencies and scale. The increased capital costs are pushing companies towards profitability. It seems those era of unsustainable trials for market share are over. Thus, we expect a constructive competitive environment ahead.

Our next question comes from John Colantuoni from Jefferies. Please go ahead. Your line is open.

Hi, thanks for taking my questions. Looking at U.S. and Canada cohort figures, I’m curious why frequency among the pre-COVID cohorts in 2022 was lower than newer cohorts. Is there a demographic or product adoption issue impacting frequency? Additionally, how do you believe that adoption of Reserve or Uber One in older cohorts can improve? Finally, on freight, given its performance has been below expectations from industry headwinds, can you provide an updated outlook for that business’s performance? How do you view ROIC and capital allocation for this business relative to core mobility and delivery—are you looking at potential monetization opportunities to accelerate GAAP profitability and investment grade?

Absolutely. For the frequency of the cohorts, it aligns with your point—is essentially stemming from our expanded product offering. Our current product assortment is notably broader than that of 2019, regarding utilizing Reserve, along with reimagined vehicle share, etc. Thus, our ability to drive traffic coupled with high availability drives overall frequency growth persistently across cohorts. Note that the membership program, when viewed over time, will logically increase engagement frequency—a heightened impact appears highly probable as the current metrics reflect positively on frequency numbers, improving our success overall. The innovations we are making continue to set the stage for leading frequency. Nelson can comment on freight.

Certainly! From a macro perspective, we’re at a low cycle for the freight sector as excess supply entered the market, driven by the post COVID supply chain challenges. Therefore, oversupply has affected rates—a situation where spot versus contract rates are noticeably impacted. The current outlook reflected that many freight carriers and the brokerage segment are experiencing similar challenges. We've included this fallout into our guidance with clear thoughts on our path to GAAP operating profit. Additionally, we want to clarify that we raised excess capital for freight and aim to keep managing it separately. Employees within freight are incentivized with freight equity as well. The team remains focused on digitizing the historically analog sector. Despite the present cycle, we believe we still have options available, while the team showcases progress.

I'd like to add on frequency. The 2019 cohort leaned heavily on Uber Pool—this served as a high frequency, yet low-margin product, detrimental to our overall profitability. Currently, UberX Share will set up for a successful introduction that aligns with our desired economic benefits, thus potentially boosting frequency further as customers embrace these fresh offerings.

Our last question will come from Ron Josey from Citi. Please go ahead. Your line is open.

Great. Thanks for taking the question. I wanted to ask a little bit more about Uber One, given its recent surge; it now accounts for 27% of gross bookings. What are the programs in place to drive continued adoption of Uber One? In addition, there was discussion regarding investments in grocery, convenience, and new verticals around delivery. We would love to hear the progress made there.

Certainly, Ron. Regarding the Uber One program, while adoption is critical, the primary focus lies in retention. Building any membership program requires short-term engagement tactics. However, if the retention levels don't reflect positively, we’ll quickly stall. Our team prioritizes retention, ensuring that the Uber One experience is exceptional. We strive for excellence even in operational details like payment management and minimizing payment failure rates. This work is crucial for enhancing retention—improving retention rates will drive overall membership growth. Presently, we're assessing how to layer in experiential benefits, such as priority dispatch during busy periods, creating a unique advantage. Additionally, in our new vertical ventures, we hold great optimism. Currently, we are exceeding a $5 billion annualized gross bookings run rate with 30% growth year-on-year. Our disciplined investments underpin our approach in this sector. We're broadening native grocery experiences to more customers, seeing positive developments as we partner with grocery chains. With growth in selection and improved experience, happy customers who engage with verticals will lead to more loyalty over time. Though this area requires consistent discipline for growth towards our longer-term aspirations, we are confident in our trajectory.

Let's wrap it up there. Thank you, everyone, for joining.

Thank you very much for joining, and we'll talk to you next quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect.