Uber: How big is the impact of autonomous driving

The following is a summary of Uber's 2024 second quarter earnings conference call. For financial report analysis, please refer to " Uber: No Fear of Decline, or is the American Version of Didi Impressive! 》

I. Review of Core Financial Information:

II. Detailed Content of the Earnings Conference Call

2.1. Key Points from Executive Statements:

1) Quarterly Performance

① Total Gross Bookings: Increased by 21% at constant exchange rates, consistent with trip growth

② User Base: Expanded by 14%, with a 6% increase in user service frequency

③ Drivers and Couriers: There are 7.4 million drivers and couriers globally supporting Uber's platform operations

④ EBITDA: Adjusted EBITDA increased by 71% year-on-year, indicating a significant improvement in operational efficiency

⑤ GAAP Revenue: Achieved a new quarterly record, demonstrating the company's ability to achieve profit growth at scale

2) Market and Users

① User Data: Both the user base size and service frequency reached historical highs, with no signs of weakness or degradation in any income group

② Countercyclical Nature: Uber's countercyclical nature allows it to perform well even in economic downturns. For example, increased driver supply lowers passenger prices and improves service reliability

③ Growth in Delivery Services: The first-time consumer count for Uber Eats in the U.S. in the second quarter was the highest in the past five quarters, indicating high user stickiness for delivery services

④ Uber One: Membership accounted for 50% of total delivery bookings, further deepening user habitual use

3) Autonomous Driving

① Technological Advantage: Uber has a unique advantage in providing technology for large-scale deployment by autonomous driving companies, supporting approximately 1 million trips per hour with a global average estimated arrival time of 4 minutes

② Technological Complexity: While Uber's business may sound simple, the underlying system is equally complex, with over 10 million predictions made per second; over 25 million lost items were handled last year

③ Asset Utilization: Asset utilization is key to commercializing autonomous driving companies, and Uber can provide significant demand

④ Cooperation Prospects: Uber will be an indispensable partner for autonomous driving companies, and more partnership announcements will be made in the future

2.2. Analyst Q&A

Q: Can you further explain the ride volume seen in the autonomous driving collaboration in Arizona? How to understand the situation related to unit economics?

A: Our partner in Arizona is Waymo, and due to confidentiality reasons, we are unable to share specific details. However, overall, our collaboration with autonomous driving companies shows that by utilizing our network, the utilization rate of third-party (3P) operated vehicles is significantly higher than when they operate as first-party (1P). This is similar to why companies like McDonald's, Starbucks, or Domino's Pizza choose to partner with us. Despite these companies having direct consumer channels, they still opt to use our marketplace to drive more demand to their stores, further enhancing business performance.

In terms of unit economics, our goal is to ensure that the utilization rate improvement achieved by autonomous driving companies through our platform exceeds our global average commission rate (approximately 20%). To achieve this, we need to drive at least a 25% increase in utilization rate. We believe this goal is achievable and even surpassable. Additionally, our dynamic dispatch model is a significant advantage that optimizes pick-up points and routes for autonomous vehicles, ensuring they operate on suitable tasks. If certain pick-up points are too complex or present special circumstances, we can deploy human drivers to handle these tasks. This flexibility allows autonomous driving companies to focus on their core strengths, further enhancing efficiency. Early results from overall data are very encouraging. We believe that as the market evolves, human drivers and autonomous driving companies will coexist, enabling us to maintain the most liquidity and the largest market share in this market. Furthermore, with technological advancements and regulatory clarity, we expect this collaborative model to continue to bring significant economic benefits to both parties.

Q: Can you discuss the driving factors behind the growth of MAPC (Monthly Active Platform Consumers) and usage frequency in the mobility business? This will help us understand the drivers of growth in the mobility business this quarter.

A: In the second quarter, we achieved a very strong 27% year-over-year growth at constant exchange rates. Looking ahead to the third quarter, we expect to once again reach the mid-20% growth range at constant exchange rates. Our confidence in the mobility business stems from several key factors.

Firstly, on the user front, we believe there is still a very large Total Addressable Market (TAM) we can pursue. We continue to drive product innovation, seek out new user groups, and expand into new regions. For example, in our top ten countries, the monthly consumer penetration rate (users aged 18 and above) is less than 20%, indicating significant room for growth. Secondly, frequency is also a key driver, referring to the number of interactions between monthly active users and the platform. We are rolling out new products, improving platform reliability to ensure timely service when users need it. Additionally, our membership benefits are also driving an increase in usage frequency. Currently, about half of passengers use Uber only 1 to 2 times per month, indicating substantial room for improvement in more frequent daily use scenarios.

Overall, the growth in user numbers and usage frequency are the main drivers of strong performance in the mobility business, and we expect these trends to continue to propel stable business growth in the future.

Q: What is the strategy to reinvest in order to balance the growth of autonomous driving and achieve profitability?

A: We tend to use the growth of new products to achieve this strategy. For example, the two-wheeler product Moto launched in Latin America and many developing countries, or the globally promoted UberX Share, these products have grown faster than our core business, despite their lower profit margins. By expanding the scale of these new products and leveraging our cost base and technological improvements (such as target positioning and CPT), we can create profit margins to reinvest in new products such as autonomous driving technology. At the same time, our overall profit margin is also increasing.

We have been following this strategy and see autonomous driving as part of it. While we do not expect autonomous driving to become a major source of profit in the next 5 to 10 years, this does not prevent us from continuing to build liquidity in the market and advancing the development of autonomous driving along the path we have been on for the past five years.

Q: Can you talk more about the importance of cooperation with BYD, especially when introducing new electric vehicles to the global market, and how this cooperation will integrate with autonomous driving technology in the future?

A: Electrifying our fleet is an extremely important initiative. Uber drivers switch to electric vehicles at a rate five times faster than regular drivers, and their mileage is also five times that of regular drivers. Therefore, Uber drivers are a key target group for us. The biggest obstacle drivers face when switching to electric vehicles is cost, and BYD is a leading manufacturer in terms of cost and quality. We are very excited to collaborate with BYD to introduce over 100,000 BYD electric vehicles to the Uber platform, especially in some of the most important markets globally. We have always emphasized that addressing climate change requires teamwork, and BYD's participation is crucial for us to achieve this goal.

In addition, BYD has committed to significant investments in the field of autonomous driving, reaching billions of dollars. Given their achievements in the electric vehicle field, we are also very much looking forward to their success in the field of autonomous driving. We look forward to deepening cooperation with BYD in electric vehicles and autonomous driving technology.

Q: What are the factors driving profitability in the delivery business? The performance this quarter has been very good, what are the key factors in this regard? Also, what gives you confidence in the EBITDA profit path for groceries and retail business?

A: The incremental profit margin of the delivery business in the second quarter reached 10%, showing significant economies of scale. We have reduced operating costs per transaction and per trip through technology developed by the team, and have made significant progress in advertising, with current annualized advertising revenue exceeding $1 billion. Additionally, we have reduced costs such as refunds and compensation through operational and technological means, which have driven the profitability of the delivery business. Despite the faster growth of the grocery business compared to the delivery business, we have successfully increased the EBITDA profit margin of the delivery business, with an increase of approximately 25 basis points compared to the previous period. We leverage the power of the platform to lower customer acquisition costs and drive the realization of these cost efficiencies. Currently, about 15% of Eats customers are also using grocery services, an increase of approximately 200 basis points from last year, while the retention rate of the grocery business is also increasing.

In addition, we continue to improve product selection, reduce consumer promotion costs, and add more and more merchants to the platform, such as Costco. These measures are driving strong growth in the grocery business, which has become an important growth driver for the delivery business. Advertising spending on groceries and retail business has more than tripled year-on-year, which is a very high-margin product category, and we are expanding these products to more countries, demonstrating very strong growth momentum. These factors make us confident in the EBITDA profit path of the grocery and retail business.

Q: With the increase in delivery network supply, how do you view the long-term utility and frequency of use improvement, as well as the impact of improving consumer experience on the platform's long-term growth? Additionally, in the face of global market integration and industry dynamics, how do you view the current delivery asset portfolio and market positioning?

A: We are very optimistic about the long-term growth prospects of the delivery business, especially in expanding into adjacent categories such as groceries and retail. The Total Addressable Market (TAM) for groceries and retail is larger than that of online food delivery, providing us with huge growth opportunities. Currently, we have 1.1 million merchants on the platform, with still relatively low penetration rates, especially in most countries. This means that as we continue to increase merchants, consumer conversion rates will improve, marketing opportunities will increase, driving overall growth. In terms of multi-product users, we see that their spending on the platform is three times that of single-product users, and as we continue to add products and promote the use of membership products, this benefit will further enhance. Currently, over 50% of bookings come from members, transaction volume performance is very strong, and we believe this growth will continue. The delivery business shows strong stickiness and has become a habit for consumers. Data shows that retention rates have been continuously increasing over the past 5 to 6 quarters, similar to what we have seen in the ride-hailing business, indicating a good development trajectory for the delivery business.

Regarding the portfolio, we made a strategic decision a few years ago to exit markets where we could not occupy the first or second position in the market. Currently, our market position in the delivery category in the top 10 markets has been improved, thanks to our team's excellent execution, technological advantages, and platform capabilities. We are very satisfied with our asset portfolio, and the performance proves this.

Q: If we do experience an economic downturn or a larger downturn, how will the ride-hailing business be affected? Will consumers choose cheaper modes of transportation, and what will be the impact on booking volume and profitability?

A: In multiple markets, we have seen similar economic downturn situations, especially in regions like Latin America. Typically, a leading indicator of a downturn is a weak job market. When the job market is weak, we usually see a significant improvement in driver supply. As a flexible work platform, in the United States, Uber drivers earn an average of $33 per hour, making our platform more attractive to drivers during economic downturns. With the improvement in driver supply, surge pricing will decrease, estimated time of arrival (ETA) will improve, and services will become more attractive, so the transaction volume of the ride-hailing business usually remains relatively stable.

In addition, we are actively investing in improving the affordability of services. For example, our membership program has reduced prices for travel and delivery, and we are also promoting products with lower prices such as bicycles, tricycles, and UberX Share, which are 25% to 50% cheaper than UberX. Overall, we are able to perform well regardless of economic prosperity or downturn. Our team has proven their ability to execute under various market conditions, and we will quickly monitor market trends and make adjustments as needed to maintain the stability and growth of our business.

Q: What progress has been made in the independent contractor agreements in Massachusetts and other regions? What impact do these agreements have on costs after signing them? Can these costs be covered by increasing fees? What impact do these agreements have on the business model?

A: We have adopted three broad operating models in different regions. The first is the traditional independent contractor model, which is Uber's main operating model. The second is the IC Plus model, an agreement reached in Massachusetts that provides drivers with certain benefits. Lastly, there is the fleet model used in some countries, where independent companies are responsible for ground operations, and Uber provides demand support. Specifically in Massachusetts, we reached an agreement with the state attorney general, which sets standards for drivers, including metrics for platform time, as well as benefits like health insurance, family, and medical leave. As part of the agreement, the state attorney general dismissed the lawsuit against Uber, and we achieved a successful outcome similar to what we resolved in California. While these new costs will be included in our operating cost structure, we still have enough room to continue reducing other operating costs, such as support costs and payment measures, to maintain Uber's price competitiveness and affordability.

Q: Regarding autonomous vehicles, first, can you help us understand the demand for ride-sharing during peak hours? How much does the utilization rate during peak hours impact the value you provide?

A: Although we have not disclosed specific numbers, there is indeed a significant peak in demand during morning and evening rush hours, including the morning commute peak and the peak after work. We adjust demand during peak times through surge pricing and incentivize drivers to schedule by time or geographic location. For example, we can position drivers when there is a concert. The good news is that our incentive structure is variable. During peak hours, we pay more, and when supply is not needed, we can cancel incentives. This allows us to flexibly adjust supply based on demand. In the context of autonomous driving, vehicles are always present, so fixed costs and depreciation costs need to be paid. We believe that a hybrid network, including both human drivers and autonomous vehicles, can better respond to demand fluctuations during peak and off-peak times than a purely autonomous network.

Q: The partnership model is beneficial for both parties, but if some suppliers choose not to cooperate or directly compete, what is Uber's Plan B? How do you deal with this situation?

A: Regarding the partnership in autonomous driving, we are currently very confident in obtaining autonomous driving technology support on a global scale. We do not believe this is a winner-takes-all market. In the past, we thought Uber needed to develop this technology on its own, but now almost every Original Equipment Manufacturer (OEM) is investing in L2 or L3 technology. In addition, emerging imitation learning technology may introduce a new wave of autonomous driving vehicles at lower capital costs. We expect there to be many autonomous driving providers in the future, and Uber's market covers travel, delivery, and freight, one of the largest markets globally, so we will be in a very advantageous position.

Currently, we have not seen any signals requiring Plan B. Furthermore, we have strategically invested in multiple autonomous driving companies, such as our collaboration with Waymo and other investments in the autonomous driving field, ensuring that Plan A is the right direction for the future. So far, everything is progressing smoothly. As I mentioned in my speech, we will announce more partnerships in the coming weeks and months, and I believe the market will see that we do not need Plan B.

Q: In terms of the continuous progress in the frequency of use in the travel business, what progress has been made in the usage of the American and Canadian user groups in the past year? How does this progress indicate the opportunity to continue increasing the frequency of use through the adoption of multiple products?

A: While we do not disclose specific frequency numbers, it can be said that the usage frequency of low-cost products such as UberX Share, Hailables, two-wheelers, and three-wheelers is significantly higher than traditional products like UberX. Overall, whether it is the frequency of use in travel or delivery services, the year-on-year comparison shows an increase, thanks to the use of multiple products and the promotion of membership plans. This trend is performing well across different user groups, showing an increase in frequency for new customers, high-income, or low-income groups. This indicates that through the adoption of multiple products, we have a great opportunity to continue increasing the frequency of use.

Q: The annualized run rate of advertising revenue has reached $1 billion, showing over 50% growth, but it has slowed down compared to around 80% at the end of last year. How does the restaurant balance investments in sponsored advertising and merchant-funded discounts? You mentioned that merchant-funded discounts grew by over 70% year-on-year within the quarter.

A: The impact of merchant-funded discounts on the business is very significant. Firstly, merchants use these discounts to drive demand very effectively, helping them address affordability issues. For example, they can offer buy-one-get-one-free or discounts after reaching a certain amount on the platform. We have seen strong growth in the use of merchant-funded discounts, and technology allows merchants to be quite creative in applying these discounts anytime, anywhere. While large corporate clients face greater macroeconomic uncertainty, we see very high engagement from small and medium-sized enterprise clients, with strong growth in this area. Additionally, we observe that consumers are shopping more in the more expensive "double-dollar sign" categories rather than in cheaper categories, partly due to the push from merchant-funded discounts; regarding the sponsored advertising business, growth remains very significant. Currently, our advertising revenue in the delivery business accounts for slightly over 1% of total delivery bookings, with a target to exceed 2%, a target that is entirely achievable In particular, in the grocery and retail business, we believe this ratio can far exceed 2%.

Currently, we are focused on increasing the monetizable display frequency per user session, launching new ad formats and placements, and intelligently increasing the monetization of searches to ensure it does not harm the core consumer experience. Sponsored ads typically increase the audience for specific merchants, while merchant-sponsored discounts increase conversion rates through price advantages. Although the profit margin of sponsored advertising business is higher, merchant-sponsored discounts are an important strategic part of driving overall market affordability. We are increasingly working with merchants to strategically allocate funds between sponsored advertising and merchant-sponsored discounts to achieve their goals. The team has performed well in this regard, and we continue to invest in the sales team and technology team, who are rolling out some impressive products. Global merchant-sponsored discounts have grown by 70% year-on-year, which is a very important indicator.

Q: Regarding follow-up questions about advertising. How is the situation with travel advertising recently? Also, could you provide more details about the Instacart partnership?

A: Regarding travel advertising, we have not set a specific target as a percentage of total bookings. We are very focused on passenger experience, ensuring that the introduction of ads does not affect users' main purpose of finding travel services. Therefore, we focus more on ad quality rather than quantity. Our click-through rate exceeds 2.5%, well above the industry average of less than 1%. The contribution of advertising has been very positive in the launch of new ad formats, improvement in targeting capabilities, and measurement and attribution of ad effectiveness. We are satisfied with the progress in this area, but passenger experience always comes first, so no specific targets are set.

Regarding the Instacart partnership, we are very encouraged by the initial trends. Instacart's basket size is 20% larger than our base basket, with the main demand coming from suburban markets, matching Instacart's geographical penetration. Overall, this partnership has been very successful. It is worth noting that Uber Eats only recently launched the Instacart app in the second quarter of 2024, so this is still in the early stages.

Q: Regarding the TAM (Total Addressable Market) you mentioned, you stated that your market penetration is less than 20%. About a year ago, you mentioned a penetration rate of less than 10%, so you have achieved good growth. What are your leading markets? How high is the penetration rate in these markets? What clues do you see in existing markets that can tell us how high the penetration rate can reach?

A: A good reference example is that if the penetration rate in the US could reach the level of the UK, this would mean an additional $13 billion in total bookings. So, raising the penetration rate in the US from the current 8% to a higher level is a very significant growth opportunity.

Brazil is another very good example, where we have seen explosive growth and very impressive usage frequency. These are reasons why we are confident in continuing to expand into more markets. We plan to continue expanding the availability and reliability of travel services to more geographical areas to provide ongoing growth opportunities.

Q: Can you talk about the overall situation of subsidies and incentives for drivers and consumers at present? Will these expenditures remain stable? How do you view the development of these incentives and subsidies in the future?

A: When we consider balancing supply and demand, the current overall situation is that the global supply situation is better than in the past. Although this may not hold true in all markets, it is indeed the case globally. This allows us to shift incentive funds towards driving demand. One of the challenges we face as a leadership team is that there are many areas where we can invest these funds, but they far exceed the scope our financial framework can support. Therefore, we spend a significant amount of time on capital allocation to ensure we make the right decisions in the short term, maintain market liquidity, and provide appropriate incentives to support growth-oriented products.

For example, our recently launched product for teenage users has seen a 100% growth in its user base. This requires some investment to increase awareness of the product, and once achieved, the related number of trips also increases. These are the factors we need to balance when making decisions. This quarter, we launched services in Luxembourg, and the previous quarter in Hungary. We will continue to expand our business in new geographical areas while expanding into new areas in existing markets. We will strive to maintain the growth framework we have set while continuing to make these balanced decisions, aiming for double-digit total booking growth and 30% to 40% EBITDA growth in the next 3 years.

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