Thanks everyone for taking their seats. It's my pleasure to introduce Dara Khosrowshahi, CEO of Uber. Dara, thanks so much for being part of the conference this year.
Happy to be here, thank you for having me.
Okay, so let's dive in. There's always a ton of, ton of space to cover. The last year, and even the last couple of years, the platform's been on quite a journey of evolving and changing, and the product continues to iterate. Talk a little bit about the path the company's been on over the last couple of years, and how you're sort of positioning the company for the longer term.
Absolutely. So I think, the post-COVID, you know, COVID forced us as a company to really take a hard look at what we consider core to the business versus non-core activities. And obviously, we were pretty aggressive in terms of, moving out activities that were non-core, partnering with them, and deciding that, you know, it shouldn't necessarily be a part of Uber. At the same time, the significant growth that we saw on the delivery side of the business caused us, to some extent, to re-architect the business as a platform. Whereas previously, mobility and delivery were kind of vertical standalones that operated largely independently with some technical, commonalities.
We really decided to bring the platforms, the mobility and delivery platforms together, 'cause usually when you're growing a business from a really small size, you have to kind of grow it on a standalone basis, otherwise it doesn't get the kind of focus that it needs to. But the incredible growth that we saw in delivery allowed us to bring the platforms together. Now, our strategy very much is, we believe that we want to be building best-in-class verticals. So if our mobility business was a standalone mobility business, we'd expect it to be the absolute best mobility business globally. Same with delivery, and I think that we've accomplished that. All of our feature sets, our tech, our service levels, our brand, we believe should be best of breed.
And then having it all together on a single platform will accrue benefits that will allow us to either, and sometimes, in both ways, gain share on our competitors and have a superior margin profile than our competitors. And I think the company has been quite focused on kind of driving that strategy forward, and you're seeing the results in terms of the super strong top-line growth that we've had. Our margin improvement, we've talked about a 7% incremental EBITDA margin. As we grow the business, we deliver, for example, 12% last quarter, where we have guided to, let's say, a midpoint of 9%, this coming quarter. And generally, we've been in a position of promising something and over-delivering it. So I think the company is in a good spot in that the surprises are less surprising.
We have gained category position in eight out of our 10 top markets on the mobility side. We've gained category position in nine out of our 10 top markets on delivery, with growth that for our core business, you know, constant currency growth of 21%.
Yep.
Substantial incremental EBITDA margins, and you're seeing that now translate to the bottom line, right? We were GAAP profitable on an operating basis for the first time last quarter. We think that will continue, hopefully, adding non-GAAP items. And we had $1.1 billion in free cash flow as well, which obviously is a much, much better spot than we were, let's say, three, four years ago. So hopefully more to come.
Understood. And there's a lot in there that I want to unpack and go a little bit deeper into. Maybe starting with the mobility business, you talked about the market share dynamics. You talked about strength in the business on your last earnings call in July. Always super interesting as we get into August and September, there's elements of travel season at the end of the year. Return to office, it seems to be picking up some momentum in September. How should we be thinking about the demand trends broadly, exiting the summer and moving into the later part of the year for the mobility business?
Yeah, absolutely. So September, post-Labor Day, is, like, the big demand spike, was people go back to school, go back to work, et cetera. And the first order of business for us is to make sure that we're prepared from the supply side.
Yep.
You see the number of drivers now on the platform growing well over 30%, and the average driver who's on the platform is earning at very healthy levels. In the U.S., it's about $35 per utilized hour, in Q2, up from Q1. So earnings are healthy. Drivers are staying on the platform longer because typically we are the earning platform of choice. So as we enter into peak season, September, October, November, we're in a very, very strong position as it relates to our supply position. To your point, the categories in terms of demand growth are very consistent with what you'd expect, which is travel is booming.
Yep.
You hear that from travel providers. For us, our Reserve product is kind of booming plus, so to speak, in terms of it's a use case that's specifically built for travel, although we want it to be used for more than just travel, right? If you're going out to dinner and you don't want to be in a hurry, et cetera. So travel is a very strong use case, and we are seeing weekday and commute particular strengths as well, as I think more companies, including us, are telling their teams, "Hey, let's get back to the office. Let's have those kinds of face-to-face encounters." But we're quite optimistic in terms of the demand trends. The consumer in the U.S., the consumer around the world remains strong.
And when you look at personal consumption expenditures, services versus goods, service levels or expenditures on services are still not where they were pre-COVID.
Yeah.
We think that generally, the pent-up demand for services continues to be pent up, and as long as we're in a strong supply position, we see very, very strong growth coming.
Maybe just one follow-up on what you said there, because we're obviously in a very different position for the industry on supply today from when we had this conversation a year ago.
Mm-hmm.
How do you think about supply and competitive dynamics feeding off each other, and elements of needing to invest in supply or scale feeding into growth of supply, irrespective of needing to make investments?
Yeah, so we were, I think, early in terms of most of our competitors in having the hypothesis post pandemic that the most important area for us to invest in was supply.
Yeah.
Early on, we invested dollars, right? But then, really, we underwent a very significant focus in building out the best product for drivers, for couriers. And that encompassed a couple of factors. One is unified onboarding, so that we could onboard anyone who wanted to work, and have and work independently onto the platform, and onboarded them, and they'd be, you know, able to deliver, they'd be able to drive, they're able to shop, et cetera. And generally, the onboarding for delivery is faster than the onboarding for mobility, so that has given us a superior structural onboarding profile, certainly versus our mobility competitors. At the same time, we have been making certain that the onboarding experience is smoother, right?
So using AI and ML algorithms to transcribe your license or your insurance documents, so if there's something wrong, we can tell you right away there's something wrong, than, let's say, an agent reviewing the document and getting back to you in four hours that there's something wrong. You know, the picture isn't right, it's blurry, et cetera. So all of that onboarding is now moving much faster, is powered by AI, is lower cost, and the experience is better. And at the same time now, increasingly, we are pulling documents digitally, so that the faster we can get you from that moment when you say you want to earn to activating you, the faster that time frame is, the higher our conversion rate as it relates to bringing someone on board.
So we think all of those investments now put us in a position where we no longer have to invest, let's say, significant dollars in terms of supply positioning. Just natural supply continues to grow. About 70% of our earners are saying that inflation is playing a part-
Yeah
... in their decision to, to come onto, the ecosystem. Earnings are very healthy. Earnings are, you know, $35 per utilized hour in the U.S. And so I think, you know, again, the supply positioning is very, very strong, both in terms of absolute, numbers, but also, versus our competitors.
Okay. If you look back over the last 12 months, you've talked a lot about product initiatives. You referenced earlier Reserve, Hailables-
Mm-hmm
... shared rides. I think investors always wanna be interested in how new product initiatives can unlock elements of market opportunity, and how that feeds into the longer-term growth algorithm for the business.
Yeah.
How should we be thinking about those product initiatives against your confidence interval in long-term growth?
Are you talking mobility or delivery or?
Mobility
... all around?
Mobility first.
So generally, with mobility, the growth algorithm that we've talked about is that about 50% of our growth is gonna come from, let's say, our core UberX business.
Yeah.
About 35% of growth is gonna come from new bets and new products that we're launching, and about 15% is gonna come from countries that we had not launched in previously because of the business model, but essentially, we've changed the business model to be able to launch into those countries. South Korea and Japan, as it relates to a taxi model, Spain or Germany with a fleet model, et cetera. So these are all countries with huge GDPs-
Yeah
... and we're running the same Uber playbook, with nuanced positioning in terms of changing the model so that we can launch the proper way, the right way into those markets. As far as the new products go, if I were to categorize the different products, there's one is we're going after the enterprise business with Uber for Business, and that includes traditional businesses. It includes health vertical, for example, providing transportation to and from doctors, medical offices. It includes verticals like, you know, working with Tesla. If your Tesla breaks down, and they don't have another Tesla available, they'll give you Uber credits for rides or transit, for example. So enterprise is a large segment that we bet on. Hailables and taxis onto the platform is another large segment.
There's over five million taxis in the world, and we think we should wire up every single one of them. In San Francisco or New York now, if you order an UberX, we've now coalesced taxi product with that UberX. So you might get a taxi, we'll let you know, and most people are completely fine with it because the quality of the taxi product has improved in New York and has improved in San Francisco. So that just totally increases, again, our supply positioning in a way that many of our competitors can't match.... and taxi also in some newer markets and in Japan, South Korea, Turkey, Argentina, gives us access to whole new markets and whole new audiences versus what, what was available to the, to the product previously.
We also looked at kind of two-wheelers, three-wheelers that are growing very quickly in India and South America, and then obviously, the reserve product, which is a whole new use case, that we're launching, and then low-cost products, UberX Share, and, and high-capacity vehicles. So there's a whole kind of portfolio of new bets that we're making. The new bet portfolio is now about $8 billion in gross bookings. It's about 12% of our mobility gross bookings, but it's about 30% of our new customer acquisition. So not only are these products a source of kind of new business, but they punch above their weight in terms of new customers.
Yeah.
That, and those new customers we can bring onto the platform, and once they get introduced to the Uber platform, we can get them to take an UberX. We can move them over to Eats. We can move them over to Grocery, sign them up for membership as well. So it's actually, it's another entry point into the platform, which we think is a powerful competitive differentiator.
Okay. Maybe pivoting to the delivery business, you talked about the broader strength in the consumer, but is there anything different you're seeing in terms of consumer demand on the delivery side of the business versus the mobility side of the business, or anything to call out there, just from a demand standpoint?
I think generally, demand is actually for delivery proven to be quite resilient.
Yeah.
Right? I, I think of any category that you would you would categorize as benefiting from the pandemic, a lot of them took, you know, a hit, let's say, post-COVID, but delivery has continued to be quite strong. And for us, actually, Q2 delivery gross bookings growth was 14%, which was an acceleration over Q1, which was 12%, and we expect delivery growth in the back end to be at least 14%+ in the back half of the year. So we see a good amount of strength in terms of delivery. The growth in our delivery business has been mostly frequency.
As we improve selection quality, so selection is up over 10% on a year-over-year basis, as we improve average delivery times, reduce the amount of things that go wrong, of defects in the system as well, and then increase our penetration in terms of membership, we're seeing frequency improve, both on mobility, but especially on delivery. So delivery frequency was up 8% year-over-year, which is quite healthy, and so the delivery growth formula this year has been more on frequency and price, menu pricing, increasing. We think going forward, menu pricing and inflation is coming down.
Yeah.
and we think we will see more growth coming from audience and frequency on the delivery side. But the combination of core delivery growing at healthy rates and then our new verticals product-
Yeah
...Grocery, now $5+ billion in run rate, actually, with accelerating growth, we think, we think we've got a growth profile that can be quite healthy for the next 3-5 years for delivery as well.
I do want to get to new verticals in a second, but before that, I think one of the more interesting announcements in the last couple of months was the partnership with Domino's.
Mm-hmm. Mm-hmm.
I don't think I'm overstepping by saying that took the investment community a bit by surprise because of some of the statements that Domino's have made in the past about delivery. So give us a little bit of color on how we should be thinking about the rollout of that partnership. What do you think it means for the business for the long term?
Yeah, absolutely. So we're thrilled to partner with the folks at Domino's. They're incredible partners. They're incredibly good at what they do, and they're kind of the last large merchant out there-
Yeah
... who had not worked with aggregators. So I think that their decision to launch with us reflects generally the value of aggregation, and the fact that we are bringing incremental audience to our restaurant partners, to our grocery partners as well, and I think the Domino's folks saw that, and our global positioning, right? I mean, it's no secret that we're the number two player in, in the U.S. We're a strong number two player in the U.S., but we can bring... Because of our global positioning, we can bring audience in markets where, you know, Domino's is not, let's say, the number one seller, and I think that absolutely played a part in the decision. So we expect to now operate in Domino's in every market that we're both active in.
We expect to see a launch in probably Q4 this year, starting in a few cities, and, and, you know, by the end of the year, we hope to have every Domino's store on our platform, and then next year, you'll see significant growth. Domino's talked about anticipating $1 billion+ of Gross Bookings on our platform, so we will absolutely work to make sure that that prediction comes true.
Okay. You talked a little about new verticals, and it's been interesting to watch from the outside because you've had organic, inorganic, and partnership approaches to growing these new verticals. Talk about what you've built in the new vertical categories and how you think they feed back into the broader delivery strategy and the broader platform strategy.
Yeah, absolutely. So we're very excited in terms of new verticals and as far as our development and the potential there. We got into the business through an acquisition of Cornershop, and that acquisition provided us with a great positioning in terms of Latin America, which is a very, very attractive marketplace, and more importantly, a hugely talented entrepreneurial team who has largely stayed with the company since. What we saw was that in order to drive maximal cross-sell between, you know, mobility going to Eats, going to new verticals, it made sense for us to build out a robust native grocery experience in Uber Eats.
That moving people from Eats to, let's say, Cornershop, created too much friction in the, in the experience, and that people often, even in the same session, if you order from a restaurant, you know, get dessert and in the favorite ice cream place that's just two blocks away, even in the same session, people were open to shopping across food and with grocery as well. And as you know, a lot of grocery providers, one of the fastest parts of their business is hot food. So it made sense for us to build out the grocery capabilities natively in Eats. Our team has been doing so at a rapid pace, at a rapid pace.
By the end of this year, we believe we will have a fully mature native experience in Eats for new verticals that will give us the opportunity to consolidate our efforts, you know, one platform versus two platforms. What we're seeing is that the experience of eaters who are using who are now ordering grocery on the platform is getting better. Retention rates are up on a year-on-year basis, basket sizes are up nicely. About 13% of our eaters have ordered grocery. That's up about 300 basis points on a year-on-year basis.
So all of the experience metrics are improving in new verticals, and what we're seeing consistently, and it's not just unique to, let's say, Eats to grocery, a user who buys more than one thing on our platform, whether it's someone who has been using UberX, who then reserves, or someone who's been using Uber Mobility, who then goes to, order on Eats, or, a person who is on Eats, who orders grocery, the more stuff you order on Uber, the higher your spend on our platform, the better your retention, the higher your frequency. You add to this our membership program, and we really now have a formula for increasing activity on the platform, continuing to drive frequency on the platform, in a way that other competitors who are monoline just can't match.
Sticking with that theme, just bringing it back to competition and, you know, how do you see the array of investments you've made on the delivery platform, feeding your competitive position and moat around the business for delivery? But also bring it back to how you think about it more broadly as a platform, because in many ways, when I'm in New York City, I'm taking rides, I'm ordering food, Uber One subscriber, it all feeds into itself in a lot of ways. So how do we think about competitive positioning, delivery standalone versus delivery within the broader platform you're trying to build?
Yeah, I mean, I think the first of all, we wanna build, as I said previously, a delivery platform that's standalone as best-of-breed, right? Which means we've got to have the best selection out there, we've got to have the lowest defect rates. The customer experience consistently has to be best-of-breed. And while we're not as good as I think we can be, we are generally on an overall experience in delivery, best-of-breed on a global basis, and we continue to get better there. And I do think that, yes, you can look at a delivery on a standalone basis, but what really differentiates us as a company is the platform.
Yeah.
If you look at delivery now, delivery gets twice as many new customers from our mobility business as we do against all of our paid channels out there. The cost of this twice as many new customers is about a quarter of what it would cost to bring in, a quarter of what it does cost to bring in customers from paid channels. That is a huge structural advantage that we have over the standalone delivery players.
Yeah.
In particular, you know, if you look at our cohorts, etc., the new customer cohort any single year as a percentage of the overall delivery business, it's actually relatively low because customers come in, they stick around. You know, cohorts that we acquired six, seven years ago are significant contributors and often bigger contributors than, let's say, our new customer cohort. But when you have this structural advantage, twice as many customers coming in from paid channels, quarter the cost, I think all the investors here, you understand the power of compounding. You know, in one year you don't really see it, but it's been about now three years where this advantage has compounded on top of itself, and it's only gonna continue.
The machinery that we're building in terms of upselling either the next best product or moving you over from mobility to delivery or delivery to mobility, whereas previously it was, let's say, people in a room deciding what percentage of audience should go to XY, and how much we value one activity versus another activity. Increasingly, all of this has been being driven by AI, right? So we essentially give some guidance to algos, and then these algos just go out and optimize, you know, at the lowest cost, how can I move a mobility person to a delivery audience? What's the next kind of pixel that I should show this person?
So I think the machinery that we have in terms of cross-sell is only gonna improve, and then with the membership program that we got in place, which is about 27% of our gross bookings, it's higher than that with our delivery business. It's over 50% of our volume in new verticals, we think these structural advantages are only gonna accrue upon themselves. So we're quite confident. I mean, again, you see the results, which is gaining category position, eight out of 10 markets in mobility, nine out of 10 markets in delivery, while driving higher incremental margins than, you know, basically the whole industry. I think you're seeing the strategy now coming to life, and we don't see anything changing that at this point.
Just one more follow-up before we go quickly through some of the other topics. Bringing it all together, Uber One, the subscription that you've introduced-
Mm-hmm.
How should we be thinking about the inertia around Uber One? What it affords you in terms of competitive positioning longer term, and how to think about flexibility around Uber One, and how it might be used to go into new verticals, new areas, and they, and expand the platform approach?
Yeah, we don't necessarily think about Uber One, let's say, in terms of a competitive positioning other than we wanna price it at the same price as our competitors with many more benefits, right? So we have essentially better content at the same price, right? And better content at the same price over a long period of time tends to win. What we're much focused on in terms of Uber One are, what is the cohort behavior of a member versus a non-member?
Yep.
How can we affect that behavior? Generally, we see members ordering four times more volume than non-members, so it's a very significant step up in terms of volumes, and member retention is also significantly higher as well. For us, membership is also a vehicle to make our products more affordable. You know, in a world where people are worried about inflation and pricing, et cetera, we essentially are able to translate the higher engagement and the higher retention into the platform on lower prices. If you're, you know, using our mobility products, you know, cash back or no delivery fees, along with other discounts on the delivery side of the coin.
From a short-term standpoint, we take a profitability hit when we move someone over to membership because of the lower prices, but from a long-term standpoint, we think, you know, on an LTV basis, membership will pay off, and then more. We are still relatively early in terms of membership in all of the various optimizations that we believe we can bring forward, so moving monthly members to annual members, that increases retention, for example. Making sure that the messaging is very consistent and consumer understanding of what the benefits are, when you're a non-member, once you flip over to a member as well. And then also, importantly, bringing non-financial, let's say, benefits to members. Upgrading you from an X to a Comfort, or securing higher discounts for merchants, for members.
We're still pretty early on that path, so we think as a product, membership can improve significantly over the next 24 months as our engineers kind of build out the vision that our product folks have.
Okay. Advertising obviously been a nice tailwind for the business. Give us a quick update on where the advertising efforts sit today, how your thinking continues to evolve about what advertising might do for the platform long term.
Yeah, the potential is enormous. Our advertising business now is at a $650 million+ run rate. Very high margin, as you would expect, and we are on track to exceed the $1 billion target that we had for 2024. The majority of our advertising revenue right now is SMBs, that are essentially bidding for audience. They have a certain budget every week, and so we're penetrating a higher and higher percentage of SMBs that use the advertising product. The return on ad spend of our advertising product is usually higher than 7x, so it's in the interest of the SMB to sign up for our advertising product because the return is great. There are newer areas of growth in terms of advertising for us, which is building out deeper functionality for enterprise customers.
Enterprise customer may wanna target certain customer segments, certain times of day, certain geos, et cetera, so building out a more sophisticated tool sets for enterprise is one area that we're focused on. Building out products on new verticals for CPG advertisers, which we are relatively immature and young in. We think that you can get to the mid-single digits in terms of advertising as a percentage of gross bookings for a grocery product, and we're well below that at this point. So we think there's a significant amount of growth on grocery and CPG advertisers. And then, of course, Journey Ads, which are ads that show up for our mobility customers and our delivery customers for, you know, Apple+ and other top brands as well.
So the business is scaling, it's growing at high rates, but there are very significant chunks of advertising revenue that we haven't penetrated into. The last area that we're pretty excited about is also car tops and tablets, where we get the revenue share with our drivers. So the focus there is actually more on building a product that can increase driver earnings in the markets in which they operate.
Okay. The analyst, the investor day you had a year and a half ago, you introduced talking about incremental margins. You referenced them earlier-
Mm-hmm
in one of your answers.
Mm-hmm.
You've pretty consistently outperformed on margins since that investor day. Talk about some of the key learnings around incremental margins, and how investors should be thinking about the balance between margins and growth you're trying to capture in the business in the years ahead?
Yeah, absolutely. So we've, we had a goal for 7% incremental margins, EBITDA margins. So if you grow, gross bookings are $100, throw $7 of incremental EBITDA. We have consistently overperformed there, and generally, as a company, you wanna put out targets, and you wanna, overperform against those targets.
I think as a company now, you know, with our mobility business, we're by far the number one player there, and the strategy of building out a higher margin portfolio of products, you know, a reserve, enterprise product, you know, comfort, black, product, and then using those funds to fund lower-cost products, and/or taxi, et cetera, that are lower margin, gives us the benefit of having essentially very strong top-line growth for our mobility segment, well over 20% trip growth, and at the same time, having margins that are quite attractive. Then, when you move to the delivery product, really what we're benefiting from is the advertising business that's very high margin. We are still able to algorithmically to drive cost per transaction down as we get higher liquidity in marketplaces, more stores, more eaters, et cetera.
Cost per transaction has come down pretty significantly in the U.S. and continues to come down internationally as well. And then, the industry generally, in a world where, capital is dear, the industry has pulled back on some of the speculative marketing investments, promo incentives that made sense for a top line but didn't make sense economically. As the largest player out there with real scale, we, you know, the industry pulling back, we've been able to pull back as well without suffering at all on the top line. And then you add to that, I think, the very healthy, discipline that we've had in terms of overheads, and I think the industry has had in terms of overheads.
We think, you know, when I, when I sit here, this is the best I have felt in terms of both the top-line prospects and the bottom-line prospects, and those bottom line, you know, translate to the bottom, bottom line.
Yeah
... real profits-
Yep
and our competitive position out there in the marketplaces. Like, this is. There's never been a better time for Uber at this point.
Okay, if I can get one more in before we run out of time. The other big topic I always get asked about is capital allocation.
Sure.
You obviously have a balance sheet with a lot of cash on it. You've got equity stakes in some businesses. You're increasingly generating Free Cash Flow. How should investors be thinking about your capital allocation priorities and how they might evolve in the years ahead?
Well, I think what's becoming clear, you know, we had over $1 billion of free cash flow just this last quarter for the business, is that this is a business that's gonna throw off substantial sums of cash over the foreseeable future. You know, our capital allocation as a company becomes increasingly important over a period of time, especially when you're throwing out this cash, and we have the typical priorities. You know, we'll look at acquisitions, we'll look at buybacks, et cetera. Generally, I would say that the cash flow profile of the company is gonna improve, and we don't see the... We're investing at very strong levels so that we think we can have very healthy top lines. We talked about the incremental margins that the business can throw off.
So I do think that we're now entering the phase where we're increasingly thinking about returning capital to shareholders, either through dividends or buybacks, more, more likely with buybacks. We do wanna get to investor grade in terms of our debt profile. I think we're on a good path there, but I do think over the next couple of years, I think shareholders should expect some kind of investor return in the form of buybacks.
Okay. Dara, I really appreciate your time. Please join me in thanking Uber and Dara for being part of the conference this year.
Thank you very much.