---
title: "Uber: Bullish on Strong Future Demand"
description: "2Q23 Conference Call Minutes"
type: "topic"
locale: "en"
url: "https://longbridge.com/en/topics/10461714.md"
published_at: "2023-11-08T06:00:26.000Z"
author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)"
---

# Uber: Bullish on Strong Future Demand

**Here is a summary of the Uber FY23Q3 conference call. For a financial analysis, please refer to the "Uber: Can it reach new heights?" article.**

**1\. Management Remarks**

Strong audience and frequency trends have driven travel growth, as consumer activity remains robust during the busiest time of the year. It is worth noting that the monthly trips per monthly active platform consumer (MAPC) continue to steadily increase, reaching an all-time high. Meanwhile, adjusted EBITDA exceeded our expectations for the third quarter, with the adjusted EBITDA margin surpassing 3% for the first time. In short, our growth flywheel, combined with strict cost discipline, allows us to generate significant leverage and end the year with tremendous momentum and reliable execution.

Our third-quarter performance and fourth-quarter outlook indicate that Uber continues to achieve significant profit growth. We remain focused on expanding GAAP revenue and free cash flow while making disciplined investments to provide adequate funding for growth plans and achieve long-term, sustainable financial value. Finally, I would like to express my gratitude to Shack Nelson for his tremendous contributions to the company and his collaboration with me over the past five years. Looking ahead, I am pleased to welcome Prashanth as our new Chief Financial Officer starting tomorrow, and I believe he will continue to build upon the great foundation established by Nelson.

**2\. Q&A**

**Q1: Several questions regarding the ride-hailing business. Could you provide more details on the driving factors behind the accelerated growth in total bookings in the third quarter? Looking ahead in the next few years, what do you believe will be the biggest drivers for sustainable growth in total bookings?**

A1: In the third quarter, performance was strong across almost every product in each region. However, notable growth was observed in the Asia Pacific and Latin America regions, which experienced significant year-over-year growth between the third and second quarters.

Some of these countries started penetrating the market early. For example, in Japan and South Korea, our penetration rates are still relatively low compared to other parts of the world. We have developed some new products, such as taxi-hailing, which have gained significant market share in Japan, Taiwan, Hong Kong, and South Korea. Additionally, we launched two-wheeler products like Moto, which have experienced rapid growth in Latin America, including Brazil and many other markets.

While growth is seen in all regions, the Asia Pacific and Latin America markets are particularly strong, partly due to the introduction of new products. Furthermore, the flourishing tourism industry has been beneficial for Uber.

We are also seeing a very strong return to school, which contributed to our growth in the third quarter. In terms of business structure, the primary driver of growth is the core UberX business, which saw year-over-year growth of over 20%. This is a supply-driven market, as we increase the supply, the market becomes more liquid, and the expected arrival time decreases, which drives the demand.

We have launched many new products, such as taxis, tricycles, and Uber for Business. These products have already shown some strength, which is great. Our UberX shared and low-cost products have reached a total of $9 billion and have grown by over 80% YoY.

From the perspective of usage frequency, only one-third of our annual users use the platform on a monthly basis. So our focus is on increasing user frequency. We now have 15 million Uber One members. The spending of members is four times that of non-members, and as we penetrate the frequency of members, it naturally increases.

The prices have remained stable this year, which is a good thing. However, looking ahead, we can expect that our service prices will also increase with inflation.

**Q2: Please give us some examples of how you can improve matching and conversion on the platform. Looking ahead to 2024, where do you see more opportunities for improvement? Additionally, there are many articles in the media about new potential product expansions, travel, and the B2B mentioned by you. When you see these new potential products, what excites you the most about the future development they can drive?**

A2: I think it's hard to say where machine learning can be improved because it exists in almost every part of our business.

Currently, we use machine learning technology, like computer vision, to enable machines to recognize documents more reliably and accurately transcribe them. Machines can read these documents better than humans. This is one example. In terms of productivity, we are launching GitHub Copilot for software developers. The productivity of ordinary software developers is much higher now than two years ago, and we believe that GitHub Copilot will increase productivity and reduce errors on the platform.

AI can also assist our customer service agents. They will review customer history and obtain detailed information about specific issues that customers may call or talk about. We will provide recommendations on the actions to be taken based on our policies worldwide. Ultimately, machines will also interact with our frontline customers.

In the delivery and mobility markets, we have been using advanced machine learning algorithms for routing, matching, and pricing. These algorithms are constantly improving year by year to reduce the transaction costs of delivery space. These are just some areas where machine learning is being explored. Listen, machine learning is a powerful technology for us.

In addition, our users are high-income individuals who often travel, which is a good target group for us. We have done this in the UK, and we are very optimistic about our travel business in the UK. We see some early signals, such as in the UK, where you can book trains and buses. 60% of train and bus users and 25% of flight users are now repeat users of Uber.

**Q3:** 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 scale about how you're thinking about bringing that subscription to market more globally than in the early years and what that might mean for the business in the years ahead?

And then on driver supply. We were in a very different position a year ago where you were using a lot of incentives on driver supply. As we come out of that period and things have normalized, how are you thinking about optimizing driver supply for efficiency, cost, maybe even insurance. So we should be thinking about that as an initiative going forward?

A3: Regarding the development of Uber One and the lessons learned from it, to be honest, the behavior of Uber One customers is very consistent. Uber One consumers spend four times more per month than non-members. The retention rate of members is more than 15% higher than that of non-members. This model has been maintained.

There are some questions like, hey, when we expand the user base, will the fourfold consumption decrease to threefold? But that hasn't happened. The fourfold consumption and 15% retention rate are still continuing. There are three main focuses for Uber One now. The first is to continuously expand the geographical scope.

We have just introduced Uber One into several other markets. Now we have 15 million members in 18 countries/regions. The second point is to really focus on the retention rate of Uber One. When you look at the benefits of Uber One, you will find that these benefits are usually monetary in nature. In the future, we also want to provide non-monetary benefits, such as priority matching when there are not many cars around. We believe that our members will greatly appreciate these additional non-monetary benefits.

We have over 6.5 million earners on our platform. The actual earnings of these earners this quarter amounted to $15.9 billion, an increase of 23% at a fixed exchange rate. In other words, we don't have to rely on incentives as much as before when optimizing our profitability costs. Our incentive spending has decreased by about 41% compared to the previous year. The income level in the United States is high, around $33 per hour, and in New York City, it is $50 per hour. With such high income levels, we are able to reduce incentives.

**Q4: What are the new products? Please tell us about how these new opportunities create demand?**

A4: These products are definitely creating demand, and they are creating demand in different ways. For example, for taxis or taxi-like products, if you look at the percentage of new customers coming from taxis, it is about twice the percentage of total bookings represented by taxis. This is because, in many markets, the only way we penetrate these markets is through taxis.

Taxis essentially serve as our brand new supply, introducing us to a brand new audience in Japan. In fact, tourists coming to Japan also support the local economy. So this is a completely new audience. The same goes for many places in Argentina and Turkey, where these new business models essentially bring in new audiences.

Another thing I want to point out is low-cost products. For example, if you look at the share of UberX. You can indeed see that lower-income individuals are transitioning to UberX sharing more quickly.

**Q5:** what do you view as some of the primary compounding advantages you're currently achieving just across operational best practices? And where do you see the biggest opportunities going forward? And Nelson, you've improved profit significantly over the past year, incremental margin is now running at about 9% in 3Q. How are you thinking about key investments in hiring into '24?

A5: So in terms of the compounding advantages, I'll go back to what I was talking about in terms of machine learning, which is becoming a much more important part of the business. So we're just -- we have more data points in terms of opportunities to match riders to drivers or eaters to restaurants to couriers. And for example, if you take a look at our driver upfront pricing, the change that we made, it had a huge benefit for drivers, right? Drivers can see where their destination is and as a result, can accept or not accept that trip based on destination and upfront price that they see. It's a very, very powerful driver of the business. But it also is another opportunity for us to price out that trip. Previously, drivers are paid based on time and distance. Anyone can price based on time and distance.

So the amount of data that you have doesn't help you calculate a certain per mile rate and a certain time rate as well. Now in a world where drivers know their destination, we can price out that destination. We have more opportunities to price. We have more drivers than anyone else in the marketplace. So we'll be able to price out that trip and match it to a particular driver based on a bigger data set than anyone else in the world. That advantage compounds as our machine learning kind of platform learns more about different trips, which ones are accepted, which ones are not accepted, which ones are canceled as well. So all of our marketplace mechanisms in terms of routing, in terms of matching, in terms of pricing, now are essentially point estimates that we can train on a larger database than anyone else.

If you look at payments, for example, we announced a great new partnership with PayPal and our ability to -- we're one of the largest players out there in terms of bookings, $35 billion in bookings in a quarter, growing at a rate that most players our size aren't growing. So on the payment side, for example, we think we can secure a lower payment cost than other players, that's going to compound. If you look at parts of our business like detecting fraudulent activity, there are lots of fraudsters out there. They are being armed by machine learning, and we can detect patterns across a greater set of use cases, both in mobility and delivery, so that we can identify, let's say, the bad folks from the good folks, differentiate them and reject the bad folks and have them maybe go try to steal from other platforms.

All of these different parts of the business are compounding in one way or the other. Many of them are powered by machine learning. And again, if you've got the most data in the world, your ML algos typically have an advantage over smaller players.

**Q6:** can give us sort of a lay of the land on the regulatory front? And do you feel comfortable operating sort of in any employment classification outcome?

And then just quickly, there are concerns around the crisis in the Middle East we've heard from other travel companies. Could you sort of help size your exposure there? And have you seen any impact to demand since the conflict began?

A6: So in terms of the regulatory framework, the first thing I'd say is we can operate under any regulatory framework. For example, the settlement agreement we reached with the New York Attorney General and the Department of Labor allows earners to earn a minimum income and other protections on the platform, which we believe is the right framework for future insurance protection. This is the same framework supported by California voters in Proposition 22. If I look at the big picture, generally speaking, the world is moving towards this model, which is achieved through flexible benefits such as minimum income and other welfare, which are important for states or countries.

In some markets, such as some countries in Europe, we directly contract with fleets, which are also profitable markets. Frankly speaking, the end consumer pays a higher price and drivers miss out on the flexibility they have in the independent contractor plus model, which is the right model for the future. Generally speaking, most countries and states around the world are moving towards flexibility and efficiency.

As for the Middle East, it accounts for about 2% of our total business bookings. So this is only a relatively small part of our business. The profits in certain regions of the Middle East are quite substantial. So this is a very attractive geographical location for us. Overall, we see some weaknesses in some countries in the Middle East, such as Egypt that I want to point out.

But we do not operate in Israel. We do not operate on the West Bank, so we are not directly affected. Any weaknesses we see in the Middle East are very, very small compared to our other businesses. We are a bit concerned.

**Q7:** Two questions. First, why do you think the growth of ride-hailing has not been affected so far this quarter? And perhaps a bigger question is how do you think about the economic sensitivity of the business more broadly? If the growth of active drivers continues to outpace the growth of trips, how do you think about balancing the potential utilization opportunity with expanding use cases and expanding potential markets?

A7: We have been looking for weaknesses in consumer spending on our platform, and frankly, we haven't found any yet. I think part of the reason is that, first, US consumers are very strong. Second, I think within the range of consumer spending, service spending has not yet returned to pre-pandemic levels.

So we believe that the tailwind we see in service spending continues and may continue to move forward. I think the local nature of our business makes us relatively resilient to macro uncertainties.

**Q8:** Then, besides travel and airport bookings, what impact do you think bookings could have on other aspects of the ride-hailing business? On your advertising product, you have made significant progress since its launch. I would like to learn more about how you think your product meets the needs of large enterprises.

A8: In terms of bookings, it is a very promising product and continues to grow at a significant pace. Currently, we generally only handle one leg of round-trip airport bookings, and the increase in airport penetration is definitely an important opportunity for us, and we are still in the early stages of this penetration. We have done a lot of work. There is a need for optimization in terms of arrival rate and airport pricing algorithms. We usually base our pricing on market rates, but now we are really focusing on the airport experience.

I believe that the airport experience in terms of finding pickup areas, pricing, and airport supply is the best in its class. We are working hard to optimize the balance between price and reliability.

As for advertising, **currently, most of our advertising revenue comes from small and medium-sized businesses**. This is a very simple audience payment and additional business model payment. The return on advertising sales is very good. **The average return on advertising sales is 7 to 10 times the expenditure**.

**We are developing more complex technology for larger advertisers**, and to be frank, these technologies will also be made available to our smaller advertisers. For example, for grocery products, we integrate the merchant's membership and loyalty programs into Uber Eats.

We are increasingly focused on building toolsets to help larger advertisers measure incrementality. For example, some larger advertisers want to promote breakfast, so we allow them to schedule ad push notifications during certain time periods.

These relatively new tools will achieve higher penetration rates among our large advertisers in the Uber Eats business, but equally important, among CPG advertisers in our grocery business. Therefore, we believe that **we are on track to achieve our goal of more than $1 billion in advertising revenue**, which we set a few years ago. We are still very satisfied with our progress.

**Q9: Can you roughly maintain the number of employees or only have a low single-digit percentage growth in the foreseeable future? Secondly, in the next earnings conference call, you mentioned that you will provide the latest information on returning capital to shareholders. I know you will announce this news, but what options should investors consider, and what is a reasonable range of choices?**

A9: As for the number of employees, **we do believe that we can continue to move forward with a relatively stable or very small incremental increase in the number of employees**. That is our plan for the future. As you know, our employee count has been very stable since 2019. We continue to gain operating leverage, which you can see in our profits.

As you know, we are now eligible for inclusion in the S&P 500. So, from a corporate perspective, this is indeed an opportunity issue. We are also moving towards an investment-grade rating.

Two years ago, we were talking about achieving EBITDA profitability. Last year, we discussed achieving free cash flow. This year, we are discussing achieving GAAP revenue at some point.

Regarding the form of shareholder returns, whether it is through buybacks or dividends, both are possible. I believe that when we speak to investors in the next earnings call in February, we will provide more insights on this matter.

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> **Disclaimer**: This article is for reference only and does not constitute any investment advice.
