Uber Technologies, Inc Q3 FY2023 Earnings Call

Good morning. My name is Briana and I will be your conference operator today. At this time, I'd like to welcome you to Uber's Q3 2023 Earnings Conference Call. Please note that this call is being recorded. All participants are in listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn today's call over to Alax Wang, Head of Investor Relations. Please go ahead.

Thank you, operator. Thank you for joining us today and welcome to Uber's third 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 underwrite 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. Q3 marked another very strong quarter for Uber. Year-on-year trip growth accelerated to 25% from 22% in Q2, outpacing gross bookings growth for the third quarter in a row. Trip growth was powered by strong audience and frequency trends as consumer activity remains robust heading into our busiest period of the year. Notably, monthly trips per MAPC continue to steadily increase, matching our all-time high. At the same time, adjusted EBITDA exceeded our Q3 outlook and our adjusted EBITDA margin exceeded 3% for the first time. Simply put, the growth flywheel we built, coupled with rigorous cost discipline, is enabling us to generate strong leverage. We're exiting the year with tremendous momentum and reliable execution. Our Q3 results and Q4 outlook demonstrate that Uber continues to drive profitable growth at scale. We remain focused on scaling GAAP operating income and free cash flow, while also making disciplined investments to appropriately fund growth initiatives that will deliver long-term, sustainable financial value. Finally, I want to recognize and thank Nelson for his immense contributions to the company and his partnership with me over the past five years. Looking ahead, I'm thrilled to welcome Prashanth as our new CFO starting tomorrow, and I'm confident that he'll continue to build upon the great foundation that Nelson has built. With that, let's open the call to questions.

Thank you. Our first question comes from Ross Sandler with Barclays. Please go ahead.

Hey, Dara. Just a couple of questions on the Mobility business. Could you just flesh out a little bit more in detail what the drivers of the acceleration in Mobility gross bookings were third quarter? And as we look out over the next few years, what do you see as the biggest drivers of sustainable mobility gross bookings growth now that we've caught up with the pre-pandemic trip volume and frequency, what do you see for UberX versus the new areas? Thanks a lot.

Yeah, absolutely, Ross. So in terms of Q3, the quarter was strong across the board in every single geography, pretty much in every single product. But a couple of geographies to call out are the Asia Pacific regions and the LatAm regions. These areas accelerated pretty substantially on a year-on-year basis between Q3 and Q2 on big absolute numbers. Some of those countries were very early in penetrating. For example, in Japan and South Korea, our penetration rate is miniscule compared to where we are in the rest of the world, and some of the newer products that we're building out, like Hailable Taxi, are very large parts of the marketplace again in Japan and Taiwan and Hong Kong and South Korea. Then we got products like Moto, which are two-wheelers that are growing very quickly in Latin America, especially in Brazil and a number of other LatAm markets. While growth was pretty broad, I do think that the APAC and LatAm markets, in particular, were super strong, partially because of some of the newer products that we're rolling out. Looking more broadly, we had a strong summer, augmented by travel. Leisure travel, in particular, has been booming, and Uber has a very high penetration among all travel consumers. Now, with back-to-school underway, we're also seeing strength. So this absolutely added to our Q3 strength and acceleration, which frankly surprised us. Regarding the mobility business and growth outlook, we consider it from both a business construct and user construct. For the core UberX business, the number one driver for growth has consistently been adding more drivers to the platform. We now have 6.5 million earners, which is up over 30% year-on-year. This is a supply-led marketplace; as we add more drivers, the marketplace becomes more liquid, ETAs come down, and surge rates decrease, thus pushing demand. Adding more drivers truly drives our marketplace. Additionally, on top of that base business are our new growth initiatives. These are businesses that we've built over the past five years from the ground up, including hailables products, taxis, three-wheelers, two-wheelers, and our Uber for Business product that is witnessing some strength now. This collective is now at a $9 billion annual run rate, growing over 80% year-on-year. Furthermore, we have several international markets with significant GDPs where we are trying to establish ourselves, such as Germany, Spain, and Argentina, which grew by more than 150% year-on-year; Japan, South Korea, and Turkey are also notable mentions. So overall, we have a base business driven by supply, combined with a myriad of new products contributing to growth, in addition to international markets where penetration is still quite low. On the user side, we aim to expand our audience, frequency, and monitor pricing. In terms of audience, we are entering new markets where many are, in fact, brand new consumers. For example, introducing taxi services in small rural areas in the UK is exposing us to new audiences. We consider demographics — for high-income consumers, we are introducing products like reserve that offer higher reliability, resulting in increased usage. On the other hand, for lower-income consumers, we are expanding offerings like UberX Share and larger capacity vehicles, also increasing their access. Additionally, we are concentrating on age demographics; our introduction of Uber for Teens has highlighted that younger users tend to engage the platform similarly to adults, which bodes well for future growth in usage. We are focusing on increasing the one-third of our annual users who utilize our services monthly through membership, which is a significant driver. We currently have 15 million Uber One members, who spend four times more than non-members. All new use cases introduced, like reserve, further encourage frequency. Users who utilize more than one product in both mobility and delivery frequently spend up to three times more on the platform. This leads to increased frequency, while the price has remained largely stable this year, which we see as favorable. Moving forward, we anticipate our services will grow in price along with inflation. Thus, with so many avenues to expand audience engagement, elevate frequency, along with stable pricing, a compelling long-term growth trajectory is ahead.

Thank you.

You're welcome. Next question.

Our next question comes from Brian Nowak with Morgan Stanley. Please go ahead.

Great. Thanks for taking my questions. I have two sort of somewhat higher level. First of all, I want to ask you on the types of machine learning or data analytics that you've done on the platform so far. Give us some examples of where you’ve been able to improve matching and conversion on the platform? And where do you still see more opportunities for improvement as you look into 2024? Second, there have been lots of articles in the press about new potential product extensions, travel, B2B, etc. As you look at these, which of these new products have you most excited and could move the needle over the next couple of years? Thanks.

Yes, absolutely, Brian. I think on the ML front, it's difficult to pinpoint where ML can improve because it is integrated into nearly every aspect of our business. A few examples: we are utilizing machine learning for earner onboarding; we are employing technologies like Computer Vision, which allows machines to recognize and accurately transcribe documents, leading to drastic reductions in onboarding time and minimized errors. Our productivity is also benefiting from GitHub Copilot for software developers. With the investments made in our development tools, our software developers are significantly more productive than two years ago, and we believe GitHub Copilot will further enhance productivity while also reducing mistakes. We are optimistic about conversational support using large language-based tools to assist our customer service agents by reviewing customer history and providing actionable recommendations based on our established policies worldwide. Additionally, in both our delivery and mobility marketplaces, advanced machine learning algorithms are continually improving routing, matching, and pricing mechanisms, yielding hundreds of millions of dollars in incremental bookings. ML is a potent technology, and since we are the largest player globally, we collect data from an extensive range of customer behaviors, giving us a distinct competitive edge that we intend to leverage further as ML becomes increasingly critical in the industry. Regarding new use cases, Uber for Business is showing significant promise as we deepen our penetration into the corporate sector, especially now that employees are traveling again, and we've observed an uptick in this area. We're also targeting verticals like health and transit that are performing well. Additionally, I personally have a strong interest in travel, stemming from my prior experience with Expedia. In 2022, nearly 700 million trips globally were taken by consumers who were outside of their primary city. Remarkably, about 20% of our users took a domestic trip outside their primary cities each quarter, confirming our user demographics tend to travel extensively, which presents a great opportunity for us to focus on. We're particularly optimistic about our travel business in the UK, and the initial data shows that 60% of train and coach users and 25% of flight users are recurring customers with us in the UK, supporting our growth in this segment.

Okay. Thanks, Dara.

Yeah. Next question.

Our next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks so much. And first, thanks to Nelson for all the insights and conversations over the years. I wish you the best going forward. Maybe, Dara, I think two bigger picture ones for you. One on Uber One. As it continues to scale globally and the base of subscribers continues to build, what are some of the early learnings that have now translated into scaling how you're thinking about bringing that subscription to market globally compared to the early years and what that might mean for the business in the years ahead? That's number one. And then, on driver supply, we were in a very different position a year ago when you were relying heavily on incentives for driver supply. As we emerge from that period and things have normalized, how are you thinking about optimizing driver supply for efficiency and cost, perhaps even regarding insurance? So, what should we expect as an initiative moving forward? Thanks a lot.

Sure, Eric. As for Uber One and the lessons learned, overall, user behavior has remained quite consistent; Uber One members spend four times as much as non-members on a monthly basis, and retention is over 15% higher for members compared to non-members. That consistency has held up nicely. Our current focus points for Uber One are threefold: First, we aim to keep expanding geographically; we've just rolled out Uber One in a couple of more markets and now have 15 million members across 18 countries. Secondly, we are focusing on improving Uber One retention. Currently, benefits provided are predominantly monetary, including food discounts, free delivery, and cash back on mobility. Our aim is to also provide non-monetary benefits such as advanced matching upgrades to better cars or priority matching when arriving at airports during peak times, which we believe will enhance member retention. The third focus area is optimizing the mobility user experience — Delivery members currently account for over 40% of bookings compared to the mid-teens for mobility, indicating there's a lot of room to grow in that dimension. Regarding driver supply, our supply position is currently at its best, with over 6.5 million earners. They earned $15.9 billion this quarter, reflecting a 23% increase on a constant currency basis. This gain positions us as one of the largest earnings platforms offering flexibility to our earners while also ensuring their income is growing faster than bookings. Notably, we have reduced our reliance on incentives: incentive spend is down about 41% year-on-year and 50% in the U.S. due to increased marketplace liquidity. Current earning levels are notably high, at around $33 per utilized hour across the U.S., and $50 in New York City. A significant part of our focus is improving onboarding efficiency for drivers. By strategically timing background checks based on earner interest, we can delay unnecessary expenses. Overall, we are trying to optimize costs and improve efficiency in all aspects of our operations.

Thanks so much.

Sure. Next question.

Our next question comes from Ron Josey with Citi. Your line is open.

Great. Thanks for taking the question. I wanted to ask a little bit more about the non-X gross bookings now at that $9 billion run rate growing 80%. Are any of these new offerings creating demand? Additionally, are specific products experiencing more significant demand growth, such as Reserve, Comfort, Green, UberX, etc.? Thank you.

Yes, absolutely. These products are indeed creating demand, but in different ways. For instance, with our Hailables or taxi products, we observe that new customer acquisition through Hailables is about double the percentage of gross bookings represented by taxi. This is vital because, in many markets, taxi services are the only way to penetrate effectively, as demonstrated in Japan where our high-end peer-to-peer business is quite limited. By joining the taxi association in Japan, we are introducing a whole new audience, including tourists, to the local economy. Similarly, low-cost products like UberX Share are drawing in some users previously reliant on UberX amid economic hardships and inflation, thus expanding access for lower-income consumers. Moreover, products like Moto, which targets two-wheeler users in Latin America, are also attracting a new, previously unreachable audience. In summary, these offerings stimulate growth by either expanding our audience, increasing frequency, or both, aligning strategically with our long-term growth formula.

Great. Thank you, Dara.

You're welcome. Next question.

Our next question comes from Doug Anmuth with JPMorgan. Please go ahead.

Thanks for taking the question. One for Dara and one for Nelson. Dara, what do you view as some of the primary compounding advantages you're currently achieving across operational best practices? Where do you see the biggest opportunities going forward? Nelson, you've improved profit significantly over the past year; incremental margin is now running at about 9% in Q3. How are you thinking about key investments in hiring for 2024? Thanks.

Absolutely, Doug. For compounding advantages, I'd refer back to machine learning and the data it provides for improving our business. We now possess extensive data points to improve our operations, enabling features like upfront pricing for drivers. This change has empowered drivers to see their destination and make informed decisions about accepting or declining trips based on upfront pricing and destination, which is a significant enhancement for drivers. This translates into more opportunities for us to optimize pricing. Since we have more drivers than anyone else in the marketplace, we can price trips more effectively and match them to drivers more seamlessly using our extensive data. Our strategies in routing, matching, and pricing benefit from this technological advancement. Machine learning is also pivotal in reducing costs, detecting fraudulent activity, securing favorable payment terms due to our large volume of bookings, among other enhancements across our operations. Overall, these improvements compound our competitive advantages. As for the biggest opportunities, we see great prospects in the growing machine learning space, as it enhances our operational efficiency and the overall customer experience.

So Doug, in terms of the balance between growth and profitability, since going public, Dara and I have been discussing our capital allocation strategy. Our performance has aligned with our top-line targets, and we have consistently surpassed bottom-line expectations. Looking ahead, our guidance is very constructive. The mobility business is growing robustly, with gross bookings up 30% in Q3, prompting a continued focus on investment in this sector. We are achieving significant results across new mobility products and verticals. Furthermore, we are balancing our capital allocation efficiently, focusing on long-term growth while ensuring bottom-line improvements. Overall, the company is in great shape as we gear up for 2024 and beyond.

Thank you both.

You bet. Next question.

Our next question comes from Benjamin Black with Deutsche Bank. Please go ahead.

Great. Thanks for taking the question. You obviously had a significant regulatory win in New York last week, but we still have the DOL on the EU platform directive and Prop. 22 in California. Could you give us a lay of the land regarding the regulatory landscape? Do you feel comfortable operating under any employment classification outcome? Additionally, there are also concerns about the crisis in the Middle East. We've heard from other travel companies; could you help size your exposure there? Have you seen any impact on demand since the conflict began? Thank you.

Sure. Regarding the regulatory framework, we believe we can operate under any regulatory structure. The right framework preserves flexibility for drivers and couriers while providing necessary protections. Our settlement with New York AG and the DOL allows earners to earn flexibly with minimum wages and other important protections. This framework aligns with what voters wanted in Prop. 22 in California. Overall, I see a general movement in favor of flexibility coupled with protection at both state and international levels, and we're committed to achieving the right solutions through dialogue with relevant stakeholders. In terms of the Middle East, it accounts for about 2% of our overall gross bookings. Although parts of the region are profitable and attractive, our operations in Israel and the West Bank are nonexistent, ensuring we are not impacted directly by current events. There are some minor weaknesses observed in a couple of Middle Eastern countries, like Egypt. However, marketplace changes due to conflict have not significantly affected our overall business. In fact, with Uber for Business, we have seen travel spending increase, contradicting concerns. Companies that initially restricted travel have now left it more to employee discretion, and as a result, we have seen notable growth in utilization of our services.

Great. Thanks so much.

You're welcome.

Our next question comes from Ken Gawrelski with Wells Fargo. Please go ahead.

And let me reiterate. Thanks, Nelson, for the partnership over the years. Two questions, if I may. First, you talked about broadening out a little bit on the macro side. I know you just discussed specific exposure to the Middle East. Could you provide further context? Some of your travel-related peers have experienced broader macro weakness into October. Why do you think ride share growth quarter-to-date hasn't been impacted? More broadly, how do you think about the economic sensitivity of your business? And, second, if active driver growth continues to outpace trip growth, how do you think about balancing a potential take rate opportunity versus expanding use cases and growing the addressable market? Thank you.

We've been keeping an eye on consumer spending within our mobility and delivery sectors and have observed no notable signs of weakness despite ongoing discussions on broader macroeconomic challenges. Consumer spending remains robust, and we believe that spending on services remains notably lower than pre-pandemic levels. This trend represents an ongoing tailwind for us. Our localized service approach means that even amid economic uncertainty, customers still pursue affordable luxuries like food delivery rather than cutting back on dining out with friends or casual outings. This local focus may provide a buffer against macroeconomic impacts. Regarding active driver growth, we cater to a scenario where driver growth is currently outpacing trip growth. Our strategy emphasizes maintaining a low take rate to enable long-term compounding growth for our company. We view lower take rates as critical for scalability, fostering operational efficiency, and creating a sustainable business model. Our incentive spending, which has decreased significantly year-over-year, has become less tied to marketplace liquidity. We strive to manage our operations for maximum free cash flow potential while enabling long-term growth in our earnings.

Thank you.

You're welcome. Next question?

Our next question comes from Michael Morton with MoffettNathanson. Please go ahead.

Hi, thank you for the question. Wanted to talk a little bit about the new growth opportunities in mobility. In the past Dara, you've spoken about aspirations for reserve penetration of total airport trips. I’d love to know, given that we’ve had some time in the market with this product, how you see this opportunity and how large it could get reserves as a percentage of airport bookings? Looking outside of travel and airport bookings, how do you think reserve could impact other aspects of your mobility business? Second question, a quick one: On your advertising product, you've made a lot of progress since rolling this out. I’d love to learn more about how your offering meets the needs of large enterprises. It seems like there's a growing demand from large sophisticated enterprises, but these clients are more discerning about advertising solutions, as historically the product has focused more on SMBs. Any updates would be great as well. Thank you.

Yes, absolutely. Regarding the reserve product, it remains a promising venture that continues to show strong growth. However, it remains at an early stage of development. Currently, we account for about 25% of all legs related to airport trips. Therefore, increasing penetration in this sector represents a substantial opportunity, and we are still early in capitalizing on it. This product excels in providing rides from home or hotel to the airport, but we can significantly improve the rider experience after landing at the airport as well, especially by automating arrival details and enhancing pick-up processes. We also see some users leveraging reserve for other various purposes, like casual dinner outings. We view this as an opportunity to fine-tune the price for the service against the reliability it provides and to optimize the value proposition for our users in different market segments. It is vital to find the right balance between price and reliability to maximize reserve volume. As for advertising, your question highlights a key area. Thus far, our advertising revenue has been primarily driven by SMB initiatives; however, we see significant growth potential among larger enterprises. They're seeking sophisticated advertising solutions that ensure direct targeting and return on investment tracking. We have begun to develop tools that address their needs while at the same time making these tools available to SMBs. For example, we have started integrating loyalty programs with Uber Eats, allowing consumers to engage with familiar products directly through our platform. Additionally, we are focusing on tools that help large advertisers measure their incrementality across advertising channels. This advanced targeting includes dayparting strategies, allowing us to cater to specific periods (like breakfast) based on advertisers' priorities. While we are currently more weighted toward SMBs, we are committed to expanding our technological capability to meet the demands of larger advertisers effectively. We remain enthusiastic about reaching our target of $1 billion in advertising revenue, and there's substantial potential for further growth.

Thank you.

All right. Next question.

Our next question comes from Mark Mahaney with Evercore. Please go ahead.

Okay. Thanks. Two questions, please. You mentioned that net headcount is down roughly 1% sequentially, and you’re looking for ways to showcase further operational leverage ahead. Do you believe you can maintain headcount at a flat level or see low single-digit growth for the foreseeable future? Secondly, regarding capital returns to shareholders; you are expected to provide an update next quarter. While I know you will share specifics then, what reasonable range of options should investors be considering? Thanks a lot.

In terms of headcount, yes, Mark, we do believe that we can continue to maintain a flat or very minor incremental growth in headcount. That is our plan going forth. Since 2019, we have maintained steady headcount, a commitment which has delivered significant operating leverage visible in our bottom line. Our team is dedicated to preserving this approach while simultaneously investing wisely in growth. Regarding capital return options, as I'm transitioning the CFO role to my capable successor, he will prioritize engaging with Dara in assessing capital return strategies. The business is in excellent shape; we've moved beyond the phase of EBITDA profitability, free cash flow generation, and now GAAP operating income as a baseline for our projections. We've also reached a stage of eligibility for inclusion in the S&P, and thus the forthcoming discussions will center around buybacks and dividends, leveraging my successor's experience as he evaluates the entire spectrum of potential actions.

Thanks, Nelson. Wishing you all the best.

Thank you very much, Mark.

This will conclude our question-and-answer session. I will now turn the call back to Uber's CEO, Dara Khosrowshahi, for any closing remarks.

Thank you, everyone, for joining us this quarter. Huge thanks to the Uber team, who continue to work hard and deliver impressive results with a flatter headcount. A big thank you to our partners, our restaurant partners, earners, without whom none of this would be possible. A special note of thanks again to Nelson, who has been an incredible partner on this journey. Nelson, you saved the best for last, and this is definitely the best. Thank you for everything you've contributed to this company. We wouldn't be here without you.

I want to express my pride in the collective work we’ve accomplished over the past five years. The company is exceptionally well-positioned for future growth, increased profitability, and enhanced cash flow. My hope is that the firm sustains the discipline that has allowed us to honor our commitments. Lastly, I’d like to thank Dara and everyone at Uber for presenting me with an incredible opportunity. I am truly proud of the work we've done together, and leaving behind a company that is a verb in everyday language in such good shape is about the best I could hope for.

Thank you, everyone. Thank you, Nelson.

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