Hello, and welcome to Uber Q2 '23 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I will now turn the conference over to Alax Wang, Head of Investor Relations. Please go ahead.

Thank you, Sarah. Thank you for joining us today, and welcome to Uber's second quarter 2023 earnings presentation. On the call today, we have Uber 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 a 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. 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 Form 10-K and in other filings made with the SEC. 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, Alax. For most of our history, profitability wasn't the first thing that came up when you asked someone about Uber. In fact, many observers over the years boldly claimed that we would never make any money. And I understood why they felt that way; the easy availability of capital over the past decade obscured the poor unit economics of many businesses. But we knew they were wrong about Uber, as did many of our investors who backed us over the years. We reached two important milestones this quarter, which demonstrate the significant transformation we've undergone towards profitable growth: our first-ever GAAP operating profit of $326 million, and our first quarter of free cash flow over $1 billion, all the while delivering record platform engagement, strong top-line growth, and a new all-time high of $15.1 billion in total earnings for drivers and couriers on the platform. As we've said before, when it comes to fulfilling our mission and building a generational company, profitability is a means and not merely an end. There are very few businesses that can deliver both strong growth at our scale and continue to expand margins. We remain focused on scaling GAAP operating income and free cash flow while also making disciplined investments to appropriately fund growth initiatives that will carry us into the future. I also want to take a moment to thank Nelson, who we announced will be leaving Uber on January 5 after overseeing a smooth transition as we search for a new finance leader. Nelson has been a huge part of Uber's transformation over the past five years, taking us public, gearing the company towards profitability through unprecedented times, establishing credibility and trust with our investor base, and building a phenomenal team along the way. Nelson has been a trusted advisor for me personally, and I know that I speak for the entire company that we're grateful for everything he's done to establish such a strong foundation for our path forward, and that we'll sorely miss hearing Nelson unplugged during our all-hands meetings. With that, let's open the call to questions.

Thank you. Your first question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.

Great. Thanks for taking my questions. I have two. The first one is about the growth in multi-year Mobility bookings. Dara, could you explain how we should think about the main factors that influence single-digit versus double-digit growth in multi-year ride bookings? Is it related to users, frequency, or pricing? What framework should we consider to maintain double-digit growth? For my second question, I know you did some interviews and podcasts throughout the quarter regarding improvements in matching and conversion in the network. I'm interested in how you're currently applying large language models to analyze the network better and your thoughts on using them in the future to enhance matching across the overall network.

Sure, great questions, Brian. Regarding Mobility growth, it really boils down to the fundamentals of audience frequency and pricing. We've seen a year-on-year MAPC growth of 12% for the platform, and Mobility is performing even better. Our transaction frequency per MAPC has also risen, showing a 9% increase year-on-year. We believe we can continue to grow our audience in the high-single to low-double digits as we launch new products and expand internationally. While our frequency is not at historic highs right now at 5.6 uses per month, in markets like Brazil, Mobility frequency exceeds 7 times a month. We foresee several years of increasing frequency as we introduce more products and the world moves toward on-demand services. Additionally, with inflation and normalized pricing growth, we believe we have a solid foundation for double-digit growth in our core business. Even if we consider single-digit growth for audience and frequency, along with steady pricing, it results in a double-digit growth rate for the base business. We also have a growth portfolio worth $8 billion, expanding over 80% year-on-year, which we project will contribute around 35% to our growth moving forward and is outpacing our base business. Furthermore, there are several international markets where we have opportunities to shift our model and grow; the pool for bookings in these markets is approximately $3 billion and is growing over 100%. By integrating all these elements, we believe our growth will remain solidly in double digits. Coupled with the cost discipline we've demonstrated, we anticipate strong EBITDA growth in our Mobility sector for the foreseeable future.

Great. Thanks, Dara.

You're welcome. Next question?

Your next question comes from the line of Justin Post with Bank of America. Please go ahead.

Great. Thank you. Maybe one on Delivery and one on AV partnership. For Delivery, you're in the low double-digit growth. Obviously, non-restaurant is helping a lot there. But can you talk about the state of the restaurant market? Is the reopening hurting growth rates? Do you expect acceleration from here? And how do you think about penetration in that market? And then second, could you give us some details on the partnership with Waymo? How you're thinking about AVs as far as costs long-term and maybe opening up the market to more riders versus potential competition from other companies? Thanks a lot.

Yes, absolutely. So, when we look at the Delivery business, we're quite pleased with the trends there. Last quarter, we grew at about 12% constant currency, which accelerated to 14% constant currency this quarter. Certainly, New Verticals were a help. But we continue to drive higher frequency as a higher percentage of our bookings come from our members, as we improve the service, and as we improve the average delivery times to consumers as well, and generally basket sizes are positive there. We expect growth consistent with what we saw this quarter or accelerating even from this quarter, depending on the marketplace, the competitive position and how things shake out. Overall, we're quite confident of Delivery top-line growth going forward. We think penetration in these markets is very low. In many of our developed markets, significant markets, we've wired up anywhere from 20% to 40% of restaurants in a particular market. As we wire them up, naturally more people want delivery, because it's another way of staying connected to great food anytime you want on-demand. Regarding AVs, it's still very early, and we are quite excited about the partnership with Waymo. They are the best in terms of their technical capabilities and ambition in this business. It really is too soon to tell what the economics are going to look like yet. We're focused on building the product and working with Waymo and other autonomous partners. We think we will develop a routing layer to determine in real-time the optimal choice for demand routing, whether that be to a person or to one of our autonomous partners, including Waymo or Aurora in trucking. We are at the early stages of building this technology, and we expect to continue to build and support a large autonomous ecosystem.

Great. Thank you.

Next question? You're welcome.

Your next question comes from the line of Mark Mahaney with Evercore ISI. Please go ahead.

Okay. Thanks. One on Uber One. Can you talk about the kind of product innovations that you're currently working on? Are you thinking about for next year or two to drive that adoption to a higher level? I know you're rolling it out into more international markets. Can you talk about maybe is there a lead market where the Uber One penetration is in North America so we could think about where that could go globally? Briefly, on the Mobility revenue take rate, it looks like it was a record high 29.3%. Is that sustainable? Was there a reason to think that it just continues to move higher because of operational efficiencies? Thank you very much.

Nelson, do you want to take take rate first, then I'll...

Yes. The reported take rate was 29.3%. If you adjust for the U.K. merchant model change, which happened a year ago, the underlying take rate was actually 21.1%. It's down versus Q1. The take rate decreased by 30 basis points, largely because we made some supply investments in some international markets, particularly LatAm and APAC.

As for Uber One, we're quite excited about the introduction of Uber Cash for our Mobility business. We think it is a better product for the consumer. One, the discount we offer is higher because it creates more incrementality for the consumer, but it also allows them to essentially earn cash on rides and spend it across the platform. They can spend that cash on Mobility, Delivery, and if they earn on a business trip, for example, they can spend it on a personal trip, which is advantageous. We think it creates a win-win scenario. We are working on membership areas that aren't just based on discounts to drive long-term retention. Current membership penetration is in the high 20% range for gross bookings across the platform and in the mid-30% for Delivery. For example, in Taiwan, members account for significantly higher than 50% of our gross bookings, and we know that it can be done globally. That's really our aim for member penetration.

Thank you, Dara. Thank you, Nelson.

You're very welcome.

Thanks.

Next question?

Your next question comes from the line of Ross Sandler with Barclays. Please go ahead.

Hey, everyone. Regarding profitability improvements, the incremental margin for Mobility remains strong. As we approach our goal of a double-digit EBITDA margin, what are the key factors driving this progress? Will it involve bringing underperforming markets up to average levels or the integration of new services? Any insights you can provide would be appreciated. Additionally, I'd like to ask about the new travel options. In the U.K., you’ve introduced features for booking train and bus tickets among other services. What have been the early findings from these initiatives, and how do you see the long-term potential for these new offerings beyond the core Mobility and Delivery segments? Thank you.

So, Ross, I'll take the first one on Mobility profitability. We continue to march up the margin expansion, and we have over the previous quarters. We'll continue to do it. There may be times where we make aggressive investments in new products or geographies. There will also be quarters where we invest more in drivers, but as you know, we are committed to continuing to push our Mobility profit profile upwards. It's about leveraging our fixed cost base, keeping costs contained, and we're seeing good adoption of new products like Reserve, which results in margin expansion. You should expect that we will continue to maintain our margin discipline.

When looking at our efforts in the U.K., we aim to wire up every vehicle available to move people or things around. The second trend is our efforts to capture the significant tour operator market in the U.K. that offers coach transport to airports. Travel is critical for us, as we have a large audience of travelers. We're encouraging our users to utilize the Uber platform for their travel needs, and initial signals are showing promising engagement.

Thank you, Dara.

Thank you. Next question?

Your next question comes from the line of Doug Anmuth with JPMorgan. Please go ahead.

Thanks for taking the questions. Can you talk about the expansion of upfront fares and upfront destination, and just the improvements that you're seeing for both drivers and riders at this point? And then, also, where you are in fully rolling out the new shared rides experience for UberX Share, in particular? Thanks.

Absolutely. Upfront fares are a process in expansion, and we're happy with the direction there. The most crucial factor is getting the upfront destination for drivers so they have all the necessary information. This is reducing driver cancellations significantly, which is a negative experience for riders. Therefore, we see upfront prices as a significant positive for consumers, although there's still improvement to be made. In terms of UberX Share, we're very positive about the momentum. We are now in over 50 markets and have seen 100,000 weekly UberX trips in New York alone. The match rates are over 40% in certain cities, indicating promising efficiency in terms of distance and pricing.

Thank you, Dara.

Thank you. Next question?

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks for taking the question. Maybe a multi-parter on the advertising initiatives. As they continue to scale, what are some of your key learnings with respect to the type of advertiser, the different industry verticals that are most attractive in coming in and allocating ad budgets across your ad impressions? How do you see the scaling of ad impressions, whether measured by top of the funnel, bottom of the funnel, sort of brand versus conversion advertising? And how they might scale, given the differences of engagement between the Mobility business and the Delivery business and the different consumer behavior you might see on those platforms? Thanks.

Yes, Eric, that's quite a mouthful. Overall, when you add it all up, our run rate for advertising is exceeding about $650 million, and we’re on strong progress towards the $1 billion target we have for 2024. The vast majority of our ad business currently consists of SMBs who bid for higher positions in the Uber marketplace. Their return ranges from 7 to 9 times return on ad spend, which is healthy and significantly profitable. We are building more targeted advertisements for enterprise customers since they have different needs from SMBs. We're also focused on CPG advertisers, enabling them to feature products prominently in the Uber Eats app, and building a Journey Ads product that places advertisers in front of our Mobility customers. There's much potential in all these areas as we develop our ad strategies.

Great. Thanks for all the color, Dara.

You bet. Next question?

Your next question comes from the line of Deepak Mathivanan with Wolfe Research. Please go ahead.

Great. Thanks for taking the questions. One on Uber One and then another on New Verticals. On Uber One, memberships and volumes continue to be growing steadily. Are you also starting to see now the benefits on contribution margin and profitability as some of the earlier cohorts kind of mature? How does profitability or maybe incremental margins of the subscriber base compare versus non-subscribers at this time? And then, on the New Vertical, you noted that it's about 10% of the bookings inside Delivery. Can you give some color on what categories are driving growth? Where does New Verticals stand in terms of profitability versus the core restaurants business? Thank you so much.

In terms of Uber One, we're focused on engagement and retention rather than profitability. Uber One members are profitable, but our profit margins from members are lower because of delivery discounts. However, their lifetime value is significantly higher as members spend 4 times the amount of non-members monthly, and member retention is about 50% greater than non-member retention. Regarding New Verticals, the first category we penetrated was convenience, but we're now focusing much more on grocery with large basket sizes resulting in higher frequency. The initial data shows strong performance in grocery, as 90%-plus of the traffic is unique from proprietary traffic. We also see promising potential in add-ons which are driving incremental volume. Although there are profitable countries, we are still investing extensively in New Verticals overall.

Thank you, Dara.

Can we have the next question? You're welcome.

Your next question comes from the line of Nikhil Devnani with Bernstein. Please go ahead.

Hi. Thank you for taking my questions. Dara, it was helpful to hear your comments on frequency and mobility and to see the slide on engagement by ride type. When you look at that slide, it seems like there is greater usage amongst lower-cost rides. So, do you feel you need to lower the overall cost of the service to keep driving frequency higher? Or can just new ride types and supply improvements get you there even if prices are increasing with inflation? Another question on profitability: incremental margins keep beating. When looking beyond 2024, should we still be holding you to the 7% or better framework?

Look, we remain committed to achieving at or above the 7% incremental margins that we've discussed previously. We plan to balance this with continued investments in growth initiatives. If you look at the midpoint of our Q3 guidance, it implies 9% incremental margins. We're halfway through our three-year plan and have consistently exceeded our goals. You can expect that we will remain successful against that framework and should target at least 7% incremental margins for the foreseeable future.

In terms of frequency, typical Uber style, we want both. Generally, as we increase the choice of affordable transportation options, we drive engagement. The more products a customer uses on Uber, the more they spend overall. We want to increase our membership base as members spend 4 times more than non-members monthly. The third factor is introducing low-cost options as well; low-cost products have high frequency and are often crucial for daily commutes. We believe with continued innovation and product offerings, we can keep driving engagement and frequency over time.

Great. Thank you.

You're welcome. Next question?

Your next question comes from the line of Lloyd Walmsley with UBS. Please go ahead.

Thanks. Two questions if I can. First, your leverage ratio looks set to fall under 3 times post-next quarter based on the guidance. Is that a magic number or is there a number in mind after which you can start returning capital? How should we think about that? Secondly, could you give us your updated thoughts on the competitive dynamics in the U.S. rideshare market? With competitor pricing changes, has there been any impact on share or unit economics? Any reports regarding reduced booking fees lately worth noting? Thanks.

Our main goal is to ensure we maintain adequate liquidity on our balance sheet. You're starting to see a ramp-up in free cash flow that began last year and continues this quarter. We are focused on continuing to work towards investment grade, but it will not be a gating item for capital returns because we anticipate growing cash flows and monetizing our equity stakes. We believe that a strong balance sheet is a competitive advantage that lowers our cost of capital against competitors.

Regarding share and booking fees, there was a report from Yipit that we believe is inaccurate. We've updated booking fees in certain markets based on insurance costs. In Los Angeles, for example, we needed to increase booking fees due to the higher tort environment and insurance costs. Conversely, in markets with effective tort reform, we're able to lower booking fees. This was a rebalancing that creates more efficiency in the marketplace since we're reflecting the true costs of a trip. In terms of share, Lyft has become competitive in pricing recently, and our pricing remains comparable to theirs. Thus, we believe the U.S. market will continue to be a two-player market.

All right.

Thank you very much.

This concludes the question-and-answer session. I will now turn the call to Dara Khosrowshahi for closing remarks.

Everyone, thank you very much for joining us, and a big, huge thank you to the Uber team, especially Nelson, for taking us through some big ups and big downs and to our first-ever profitable quarter in terms of GAAP operating income. Nelson and I get to talk about it, but it's the result of the work of thousands of employees here at Uber, who are the true heroes. So, hopefully, more to come, and lots of challenges ahead of us. But thank you to the team and a big thank you to Nelson.

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