Uber: Steady growth in core business, additional revenue from advertising and groceries.

Here is a summary of Uber's Q4 2023 earnings conference call. For an interpretation of the earnings report, please refer to " "Uber's performance is ten times that of DiDi, but lacks surprises""

1. Review of Key Financial Information:

Looking solely at the performance of this quarter, Uber, with its steady growth in business volume and revenue, and continuous improvement in profit margins across major segments, still aligns with our previous bullish outlook. Both growth and profit indicators continue to trend upwards, and the guidance for the next quarter also indicates an upward trajectory at least until Q1.

However, the downside is that the current price of around $70 reflects a relatively full valuation. Despite the impressive performance this quarter, it mostly met expectations due to high anticipation, lacking surprises. Moreover, third-party data has shown a weakening trend in offline travel, dining, and hospitality demand in the United States. Therefore, while the market generally recognizes Uber's achievements, there is also some caution. Without significant positive surprises, the motivation to further drive up the valuation is somewhat lacking.

2. Detailed Content of the Earnings Conference Call

2.1 Executive Management Statement of Key Information:

We have 6.8 million drivers and couriers on our platform, who earned nearly $62 billion on our platform in the fiscal year, representing a 24% YoY growth at constant exchange rates.

Latin America and the Asia-Pacific region experienced growth in travel volume beyond expectations, driven by strong holiday travel trends and the growth of our non-UberX business portfolio.

Supply trends continue to improve, with a 30% YoY growth in active drivers and a 10% YoY growth in driver engagement (defined as the number of supply hours per active driver per month).

Members account for nearly 50% of the gross revenue from delivery in the United States (a 10 percentage point YoY increase), with high retention rates.

Grocery and retail achieved an annualized total order value of $7 billion in the fourth quarter (10% of the total delivery order value), representing a 40% YoY growth at constant exchange rates.

Revenue in the fourth quarter reached an annualized level of $900 million. We expanded sponsored products on Uber Eats to include alcoholic beverages and entered new markets in Latin America.

2.2 Q&A Analyst Discussion

Q: Bookings grew by 20% in 2023, leading to positive GAAP operating and net income and significant growth in free cash flow. Could you provide more details on the company's priorities after entering 2024? How do you make Uber an indispensable part of users' daily lives? And what are your key strategic investment areas of focus?

A: The good news is that the strategy remains largely unchanged. Specifically, in the Mobility business, our top priority is to ensure the supply side is in good condition. The number of drivers on the road and their level of engagement should continue to be in a good state, as this is a key factor in driving the overall market's healthy development. We must never overlook this foundation. The number of drivers on our platform has increased by 30% YoY, and at the same time, the average engagement of drivers has increased by 10%. Drivers are still the core of our business.

As long as we have sufficient driver reserves, for example, in the United States, they can earn $33 per unit of effective working time, and the more they rely on the platform, the better the platform's operational status will be, and we will have a continuous influx of new drivers.

Furthermore, we are improving this foundational platform through a series of implemented new initiatives and updated products. For example, we provide reservation services for those willing to pay more for higher reliability to ensure their travel needs are met. In addition, we also offer low-cost products, including taxi, two-wheeler, and three-wheeler services.

The situation in the Delivery business is similar. The service coverage will include more restaurants to ensure excellent reliability. As you can see, the growth rate of this business has increased from 16% to 17%, and the profit margin has also significantly improved. Of course, this is also thanks to new businesses such as the Grocery business, which currently has an annual revenue of $7 billion and is growing at an astonishing rate. The Advertising business also plays a crucial role. We had expected the annual revenue of this business to reach $1 billion, but the actual situation will far exceed this number. In the fourth quarter of this year alone, the annual revenue has already exceeded $900 million.

Our membership program has reached 19 million members. Cross-platform sales are also essential, as they help increase the number of users purchasing products on the Uber platform. For example, if they take an Uber X ride and order on Uber Eats, their average order volume will be three times higher than users who don't do so. Therefore, looking ahead, we will continue with our current strategy and further expand the scale of the above-mentioned businesses. We will continuously improve profit margins, and now that the company is profitable, we can use the profits to explore new opportunities and directions for development.

Q: I would like to know if there are specific regions that you are closely monitoring for the outlook of 2024. These regions may be conducive to increasing market share or driving the utility of Uber One, or they may have the potential to separate or operate the Mobility and Delivery businesses independently?

A: I will start with the Delivery business. The Delivery business has gained industry prominence in all 10 major markets this year, further driving the growth of our total bookings. Our growth in the delivery sector has significantly exceeded that of similar businesses. Part of the reason is that our team has executed the fundamental tasks exceptionally well, including expanding product choices, attracting more consumers, recruiting more carriers, and ensuring service reliability and operational efficiency. Delivery is no longer delayed, and I need to emphasize again that this is indeed the power of our platform. Our Uber Eats business has gained a large amount of free traffic from the ride-hailing business, or almost free traffic.

Of course, the membership program will continue to be a growing part of our business. Currently, about 45% of total delivery bookings come from member customers. If you observe the audience of the delivery business, you will find that their order frequency has increased, as well as the amount per order. Therefore, the growth of the business is mainly due to the increase in transaction volume, rather than price growth compared to last year. Last year, there was more price growth rather than transaction volume growth, but now the situation is the opposite. The growth is quite significant.

In terms of mobility, the standout regions are Latin America and the Asia-Pacific region. Of course, we have strong growth globally, but we have seen particularly outstanding growth in the Asia-Pacific region, with the Japanese market achieving remarkable growth, Korea starting to rise, Australia performing exceptionally well, and the same goes for Taiwan and other regions, all of which have shown excellent performance. In India, the growth of the taxi business has further enhanced our competitiveness, and we believe we are the leading player in that market. We have made great progress in the two-wheeler business, and the two-wheeler model is really popular in Latin America. It is a low-cost product and our flagship product in this region. The new products have received good market response and have performed well in the region.

Q: (1) During 2023, you have talked a lot about increasing the overall usage frequency and engagement of the platform. Can you talk to us about the key areas where you need to invest, both operationally and from an investment perspective, to continue increasing usage and user engagement to achieve this goal? How do you achieve this operationally?

(2) You already have some understanding of the company. From different perspectives, both internally and externally, what do you think are the most surprising and underestimated aspects of the company? Do you now have a deeper understanding of the company?

A: (1) When it comes to frequency, the most important factor should be to provide a reliable and predictable service at any time and any place. Therefore, for the mobility business, ensuring that the average expected pickup arrival time (EPAs) for each driver is at an acceptable level, while also ensuring that the occurrence frequency of price surges does not exceed 20%, means that both are moving in the right direction, especially in the first quarter, they are moving in the right direction. Now, when it comes to our delivery business, we need to eliminate any mistakes, such as missing drinks, and ensure that if we promise delivery within 25 minutes, we deliver on that promise. The diverse range of products and services provided by our platform increases user stickiness, enhances their engagement and retention on the platform. In fact, we have a team that is utilizing AI algorithms to launch promotional activities. We can offer appropriate discounts to the right people at the right prices based on different scenarios. Marketing strategies are now completely driven by algorithms, eliminating the need for manual programming. This transformation allows us to accurately target different user groups with personalized and customized promotional activities within a limited time frame. In mathematical terms, this approach enables us to drive user frequency in the desired direction.

Lastly, I want to emphasize that our membership system is also quite helpful, as we gain a significant number of new members each year. Members make more frequent purchases and have longer retention times. Mathematically speaking, members will account for a higher proportion of total bookings, which means a higher proportion of customers will stay on our platform for the long term and engage in transactions more frequently.

(2) Based on observations over the past three months, I have found that the organization is filled with passion and vitality, especially in terms of the focus on building products for users, the working class, and partners. This is a mission-driven company, and while this may be a familiar expression used by many tech companies, I genuinely feel the atmosphere here. Another exciting finding is that as a new member of the team, I have noticed a strong belief and plan within the organization to drive profit growth. This organization has tremendous growth potential in the coming years, not only focusing on growth but also ensuring that this growth brings significant profit leverage.

Q: The incremental profit rebound in the mobility business is quite impressive, close to 10%. Last quarter, you mentioned that this number might fluctuate. How should we view the future situation? With new businesses like bookings entering the market, which have higher profit margins, but lower profit margins for taxis or ride-sharing, as these businesses increase, the product mix is changing. How should we view the incremental profit of the mobility business in the future?

A: Before I discuss incremental profit, perhaps I can take a minute to talk about our future focus. Considering the strength of our platform and the leverage we gain from revenue growth, we prefer to focus on EBIT growth. We are very excited about the absolute growth in EBIT that we can achieve in the next few quarters. We believe this is a better indicator for us as it better reflects our ability to generate cash flow.

That being said, I do want to specifically address incremental profit. In the fourth quarter, there was an increase in incremental profit in the mobility business compared to the previous quarter. It is important to note that this number may fluctuate due to changes in the product mix and investment decisions we make, so I will not overly focus on the continuous expansion of incremental profit. We are very confident that the overall incremental profit of Uber will continue to drive the company's overall profitability.

However, please remember that we will always be investing in certain areas, such as the growth bets you mentioned, whether it is in terms of acceptability or in new geographic regions. These investments may put some pressure on our incremental profit. But overall, we expect EBITDA margin to continue to grow, although the growth rate of incremental profit may slightly slow down.

Q: We have received many questions about mobile travel, pricing, and growth-driving capabilities. How do you think UberX is performing in these areas? What is your view on pricing in 2024? Do you think this could become a growth obstacle or any issues? And regarding insurance, can you confirm if the guidance for March includes higher rates? And what are your thoughts on the improvement in the second quarter? If any, what should we consider?

A: In terms of mobile travel pricing for the whole year, it has remained relatively stable and is basically on par with the same period last year. Compared to before the pandemic, our pricing has increased by about 20%, but I believe Uber's costs have also increased compared to many other products. Therefore, we are actively working to ensure that our supply is in the right position. We are actively working to make our own cost leverage and other aspects more efficient so that we can maintain existing prices and drive the majority of growth from transaction volume growth.

Looking at the overall data, the company's overall transaction volume has grown by 24%, and gross bookings have grown by 21% in fixed exchange rates. We are actively seeking to control prices. It can be said that in terms of positioning for different groups of people, some are willing to pay a premium for higher reliability or better vehicles, such as choosing black cars or booking services. Of course, for consumers who are more price-conscious, we also offer UberX sharing and other products, such as two-wheelers or three-wheelers, which are also available in some developing countries. Therefore, we currently do not see price as a limiting factor for growth.

Of course, in addition to the basic services, we are also building new products, such as Uber for Business and scheduled taxis. The current annual revenue of this product portfolio has reached $11 billion and has grown by 80% year-on-year. Therefore, we believe that we have built strong growth momentum and look forward to the company increasing revenue at a very good pace in the coming year while improving the profitability of the delivery service.

In terms of insurance, we provide car liability insurance on behalf of our drivers, which is a benefit we offer them, and in turn, we incorporate it into our pricing. There is no doubt that this is an area facing significant cost pressures, and you will see similar cost increases in personal and commercial auto insurance companies. Data shows that the latest consumer price index shows a 20% year-on-year increase in auto insurance. Therefore, in this more inflationary environment, we are taking a series of measures to actively manage our costs. Finally, in terms of regulation, we have a very strong policy team that is pushing for reforms in each state. As a result, we have seen some positive legislative progress in Florida, Virginia, and Georgia. We have expressed our willingness to invest up to $30 million in our Uber Innovation Fund, which focuses on helping to set the benchmark for business-friendly legislation in California.

Overall, insurance costs for ridesharing in the United States will definitely be a disadvantage in 2024. We have several cost mitigation measures in place that will continue to be effective. All of your questions have been taken into account in our guidance.

Q: First, regarding the growth of advertising revenue, it has exceeded everyone's expectations from one or two years ago. What do you think is the biggest growth surprise? Which parts of the advertising platform have performed the best for you? Secondly, about Uber One, you have 19 million users, which is a very good number. I know it is a product similar to Prime, can we add more features to it over time, rather than just fancy appearances? Can you briefly introduce some new incremental features and functionalities that consumers might appreciate?

A: We are very pleased with the progress of advertising. The biggest advantage of advertising is still for small businesses to advertise on our platform. These could be restaurants near you, who want to increase their business by 20% by investing a certain amount in our Uber advertising system, and we bid for them. The average return for these advertisers is eight times their investment.

There are about 550 to 1,000 businesses advertising on our platform. This is a 75% increase from last year and accounts for a large portion of our advertising revenue. Our goal is to attract more advertisers to join the platform or increase their spending. If your investment can generate an eightfold return, you might consider increasing your weekly spending from $200 to $300 or $400.

Some of the fastest-growing areas in advertising are enterprise customers and CTG customers. Enterprise advertisers sometimes seek additional features. They may want to target specific demographics or specific time periods. For example, one of our large enterprise customers wanted to target the breakfast time period, or they may only want to attract new customers who have not dined at that enterprise before. Therefore, we are building a more mature set of tools for these advertisers and providing more reports on advertising spending growth. This is particularly true for CPG companies in our grocery business, which is one of the fastest-growing parts of our business. We provide sponsored product placements for groceries, and these CPG companies are advertising on Albertsons and Grocery.

Of course, there is also our travel advertising, which is done on mobile devices. These are people who are out and about and may see higher-level brand advertisements in the Uber app. This part of the business continues to grow, and the team has performed well in the fourth quarter. When it comes to our membership services, we are truly satisfied with the performance of this business segment, especially during the year-end period. We launched some promotional activities offering free trials during holidays and festivals. We successfully converted a large number of Uber One members into annual members, which reduced the churn rate and increased member retention. Therefore, our team's focus now is to expand our services to more countries. We are already operating in 25 countries and ensuring that features like annual membership, which can enhance retention, are available globally. Next year, you can expect to see some new features and surprises on the mobile platform that will delight our customers. Please stay tuned.

To summarize, let me provide some numbers. Currently, we have 19 million members in 25 countries, and approximately 45% of the total food delivery orders come from our members. Therefore, membership indeed drives transaction frequency, which is crucial for our growth algorithm.

Q: I would like to continue discussing the issues related to grocery and retail delivery. I remember seeing that the total booking volume has reached $70 billion per year. Can you talk about the progress in the grocery sector? Now that the infrastructure for grocery delivery has been established, how will you integrate grocery into future delivery and food services? I understand that you are expanding into new markets. Can you talk about the demands and potential directions for the Uber team?

A: As for grocery retail, we are very satisfied with the progress, as you mentioned, the total booking volume has reached $7 billion. Now, our focus for grocery retail is to sell through Uber Eats. Our grocery retail business is fully integrated with Uber Eats, and we have discontinued the Cornershop app globally. However, we have not stopped the work of this team. In fact, this team is now responsible for many aspects of our grocery retail business. Sales promotion is about showcasing grocery retail products to customers at the right moments, such as after they complete their food orders. It is in these moments that we can naturally introduce grocery retail products to Uber Eats customers.

We are doing a lot of foundational work, including attracting more retailers to join us. And we are gradually increasing the number of users who order both food and grocery retail products, which has already reached 14%. This proportion will continue to rise within this year. So, this is what we are currently working on, and we have high hopes for grocery retail.

When considering the unit economics of grocery, we are very satisfied with our development direction and how we can turn it into a profitable business. Given the scale we have and the operational network we have built, there are leverage points that we can clearly utilize. The power of our platform enables us to achieve high efficiency at the fulfillment level, which is difficult for others to obtain. In addition, with approximately 1.5 million monthly users, we can provide advertisers with a highly attractive platform to advertise their grocery business, and potentially expand into broader services. Therefore, we believe that the unit economics will reach a level that makes this a very good business for us. What I want to say is that in 2024, although this business will not be profitable, its performance will be better than in 2023, so the development trend is correct.

Q: Pre-pricing has been running in the United States for several quarters, which is undoubtedly a huge factor in 2023. Can you talk about expanding it to more international markets and the opportunities to integrate with a wider range of ride-hailing products beyond UberX? In the vertical field of grocery, what are the key product plans for 2024? Do you see opportunities to accelerate product development or establish retail partnerships through acquisitions?

A: We are very satisfied with the launch of pre-pricing. In the United States and some other markets, we actually initially launched pre-pricing in the delivery business. The delivery business was built on the basis of pricing. Given that couriers know where they pick up and deliver, how the fees are determined, etc., we determined that the product also applies to the ride-hailing business because the drivers' primary concern is knowing where their destination is, which is unknown.

In the ride-hailing field, we are the first company in the United States to introduce pre-pricing, and drivers really like the destination information they receive. I think in terms of pre-pricing, we don't actually focus on global rollout. In the process of adjusting the product itself, now that drivers already know where they are going and whether they accept certain trips or not, we understand that drivers' preferences are very personalized. Some drivers want long trips, some want short trips, some want to go to the airport, and some don't want to go to the suburbs, and so on.

I think what we can do better is to provide different travel services to different drivers based on their preferences or behavioral patterns. This is the future focus. Providing suitable trips to suitable drivers at the right price is a win-win result, with shorter waiting times for passengers. Drivers can find the trips they want at the right price, and network efficiency will continue to improve. I think the essence of pre-pricing has evolved from simply charging based on time and distance to now using a driver-based estimation for each trip.

These skills and data volume have an impact on players who have the data skills and volume that we possess. We have more of these estimation points than anyone else. We are

In the grocery business, the company is launching or planning to launch new products. The focus is actually on continuing to build our merchant base. We continue to sign up new merchants globally. In the United States, examples include some large chain stores, Sprouts Farm's victory, and former market Italy. Therefore, the focus is on driving the market to make choices. Then, in terms of our product catalog, I believe one aspect we are very focused on is ensuring that the catalog is mature and searchable. When you search for chocolate milk, you get exact search results. I think the searchability of the product catalog and the foundation we have laid in this business will make it better and better. We are confident in this. As we continue to add more merchants globally, we believe this business will continue to grow and eventually become profitable.

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