Uber Technologies, Inc. (NYSE:UBER) Q3 2023 Earnings Call Transcript

Uber Technologies, Inc. (NYSE:UBER) Q3 2023 Earnings Call Transcript November 7, 2023

Uber Technologies, Inc. misses on earnings expectations. Reported EPS is $0.1 EPS, expectations were $0.13.

Operator: 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. [Operator Instructions] Thank you. I will now turn today’s call over to Alax Wang, Head of Investor Relations. Please go ahead.

Alax Wang: 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.

Dara Khosrowshahi: 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 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.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Ross Sandler with Barclays. Please go ahead.

Ross Sandler: 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.

Dara Khosrowshahi: Yeah, absolutely, Ross. So in terms of Q3, listen, 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. And some of those countries were very early in penetrating. So, 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, for example, 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, very quickly in Latin America as well in Brazil and a number of other LatAm markets. So while the 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. And then if you look more broadly, like we had a very, very strong summer augmented by travel. As you know, travel has been absolutely booming. Leisure travel and Uber has a very high penetration of all the travel consumer. And then what we’re seeing now back-to-school is also going very, very strong. So that absolutely added to our Q3 strength and acceleration that frankly surprised us in terms of its strength.

In terms of the mobility business and the growth construct, how do we think about the mobility business going forward multiyear, we tend to look at the business from a business construct and then from a user construct. So from a business construct, number one driver for growth, and this is of the core UberX business that grew over 20% on a year-on-year basis is about adding more drivers to the platform. We added – we’re now at 6.5 million earners on a form, up over 30% on a year-on-year basis. And this is a supply-led marketplace as we add more drivers, the marketplace gets more liquid, ETAs come down, surge come down, that pushes essentially demand. So adding more drivers essentially drives the marketplace. Then on top of that base business, we have the new growth initiatives that we have, these are businesses that we’ve really built in the past five years, essentially from zero.

These are hailables products, taxi, three-wheelers, two dealers, our Uber for Business product that is actually seeing some strength now, which is great. Our UberX Share and low-cost products such as high-capacity vehicles and then reserve as well. That collective is now $9 billion and is growing over 80% on a year-on-year basis. And then on top of that, you’ve got international markets with very big GDPs, where, as you know, we just weren’t in those markets five years ago, and we’ve tuned our business model to be able to penetrate into those markets. These are the Germany, Spain, Argentina that grew more than 150% on a year-on-year basis; Japan, South Korea and Turkey. So really, you’ve got a base business that’s driven by supply. On top of that, you have a bunch of new products that are big $9 billion annual run rate growing over 80%.

And then you’ve got these international markets, which are big GDP markets that we’ve got very low penetration too. So that’s the business construct. And then the other way that we look at the business is actually from a consumer view, and that’s about driving new audience, driving frequency and then price as well. So if you think about audience, all of these new markets, the international markets that we’re getting to, many of them are entirely new audiences or when we introduce taxi into a small village in the UK, that’s a new audience that comes on to our platform. Then when we think about audience, we think about demographics. So for example, for the high-income consumer, we’re introducing products like reserve, where you can pay more for higher reliability and we’re seeing that reserve usage is actually incremental.

And then for lower-income consumers, we’re introducing like UberX Share, or high capacity vehicles, et cetera. So demographically, we’re expanding internationally, we’re expanding. And then we also look at age. So like we introduced Uber for teens, for younger consumers, turns out teens tend to use Uber just as much as adults do, which is great. And we think they’ll continue to use it as they grow up. So that’s the audience kind of construct for us, which is global, income level and age, and we have products specifically for all three of those. And then when you get into frequency, only one-third of our annual users use us on a monthly basis. So our job is to increase that one-third. Membership is a very, very big driver there. As you — we got now 15 million Uber One members.

Members spent four times more than non-members, so as we penetrate into the membership frequency naturally increases. All of the use cases that we’re introducing like reserve, drive frequency as well — and then what we’re also seeing is that users who use more than one product on mobility and delivery tend to spend more on the platform. They spend up to three times more, for example, in mobility, if they take two different products as well. That draws frequency as well. And then price this year essentially has been flattish, and that’s a good thing. But I think going forward, you can expect our services to grow price along with inflation as well. So if you’re driving audience, driving frequency and then prices kind of ore price takers, so to speak, you get to a pretty good growth construct over the long-term.

Ross Sandler: Thank you.

Dara Khosrowshahi: You’re welcome. Next question.

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

Brian Nowak: Great. Thanks for taking my questions. I have two sort of somewhat higher level, Dara. First of all, I want to ask you is sort of 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’d be able to improve matching, improve conversion on the platform? And where do you still see more opportunities to improve that as you kind of look into 2024? And then the second one, there’s been a lot written in the press about new potential product extensions, travel, you mentioned B2B, et cetera. As you look at these, which of these new potential products have you most excited that could move the needle over the next couple of years? Thanks.

Dara Khosrowshahi: Yes, absolutely, Brian. So I think on the ML front, it’s actually hard to say where ML can improve because it’s pretty much in every part of our business. Like we’ve been developing and using machine learning for many, many years now. Just a couple of examples might be like earner on-boarding, right? You take that for granted. But actually, now what we’re using is we’re using machine learning technology to like Computer Vision to essentially allow the machines to recognize documents more to reliably, transcribe them accurately so that your on-boarding experience and the time to onboard could be reduced drastically, errors can be reduced as well. So, essentially, machines can read these documents better than humans can.

That’s one example. On the productivity front, we’re rolling out GitHub Copilot for software developers. We have already seen, because of investments that we’ve made in our tooling, our average software developer is much more productive now than they were two years ago, and we think that GitHub Copilot will improve productivity and hopefully will also reduce mistakes on the platform as well. So, they will have ML algorithms debug developer code before that code kind of is tested, et cetera. So, we think that’s — that can increase the productivity of our business as well. We’re pretty excited about conversational support. So, these are large language-based tools that essentially help our customer service agents. They will go through customer history that get details about the particular issue that the customer might be calling about or chatting about, and we’ll be giving recommendations on what to do based on our policies all around the world.