Uber ($UBER) – CEO Dara Khosrowshahi Interviews with Goldman & Waymo – September 14, 2024
State of the Consumer & Winning:
Just like during the earnings call a few weeks ago, Dara again told investors that consumer trends are “quite positive.” No changes here. Uber’s business is somewhat discretionary (especially delivery). Considering this, how is it faring so well? It could be because its customers are also younger and more affluent on average than the country. 40% of its base is between 18-34 and makes over $100,000 a year. While that makes some sense, its lower income users are also quite healthy and are actually growing faster than its richer consumers. Every cohort and demographic is spending just as liberally as they were a year ago.
While several smaller factors could be at play here, I think this is simply a byproduct of Uber’s unmatched business. Its driver scale is best-in-class, which means lower surcharge rates and better availability. Its product suite is broader than anyone else’s, and includes several low cost products to cater to sensitive customers. Lyft tried to do something similar on shared rides, but had to back away from the offering. It doesn’t have the scale, balance sheet, cost of capital or margin profile to have the luxury of offering these lower-value products. Uber does… which also means it gets all of the demand from this use case, grows engagement and juices cross-selling to its higher-value offerings. Uber then uses this product breadth to augment the value of its subscription and pass even more savings onto customers… and uses its merchant scale to create more delivery promotions for customers. Its massive market presence and focus on affordability and access all make its product offering uniquely value and its macro resilience more understandable.
“We have been growing faster than the category while improving margins pretty significantly on a year-on-year basis. And at this point, there’s no reason to think that that won’t be true going forward.”
Uber CEO Dara Khosrowshahi
Autonomous Vehicles (AV) & Waymo News:
Uber continues to push to be the partner of choice for AV fleets. As I’ve written about frequently, it wants to bring its strengths of demand aggregation and scaled supply to the equation, rather than building out its own fleets. It thinks its world-class data scale will be highly useful for optimizing route matching, customer service and throughput. It also thinks it will be needed for all AV fleets to supplement their supply through the multi-year transition. Why? Because if these fleets were just built to meet peak demand today, most of those cars would sit unused for most of the day and would burn too much cash. That’s where Uber’s driver supplement comes into play, which gives them a great chance to be a key part of this evolution. It also simply provides more demand, which has been shown to already raise utilization rates for fleets.
This is probably why Waymo, the most advanced player in the AV taxi space today, just extended its Uber partnership to more cities while now using it for more services like car cleaning. This partnership continues to tighten, but I question whether Wayma (or Amazon or Tesla) will need from Uber when they finally have their desired fleet sizes. That’s when things get a bit more dicey for this investment case. Sure, Uber can be the transition partner and help on managing supply/demand dynamics and service levels. But can these giants not figure that out on their own over time?
We are still years away from this being an issue, but not decades. Dara sees the software side of this equation (which will unlock hardware growth) being ready in the next 3-5 years. Amazon Prime and Google Maps provide elite network effects just like Uber does and I don’t think solely providing demand will be something these other players can’t do on their own. Waymo is already racking up solid SanFran market share with very finite capacity in 2024.
All of this tees up why I’ve sold a majority of my Uber stake over the last few weeks. I wanted to take triple digit profits and respect the reality that Uber is moving from category domination, to something far less certain as the AV wave arrives. It can absolutely figure things out in this equation and it can absolutely sustainably grow for many more years and decades. I think that’s likely enough to still warrant a smaller holding. The probability of that happening is simply lower than I think it was in early 2023 when I bought the stake.
Uber One:
Uber sees a real opportunity to add more subscription value on the mobility side. It has done a lot on the delivery side, but thinks more focus needs to be paid to mobility. Whether that’s cheaper rides or awards, skipping wait lines etc. there’s a lot more coming here. Uber One penetration is still much higher in its most developed markets like the USA and U.K., with a massive runway to up-sell existing consumers across all other markets.
- It’s also adding a lot more merchants on the delivery side to add more opportunities for sponsored listings and unique Uber One perks.
“Other players have programs. We believe ours is growing faster because we offer programming no one else has, so to speak. We’re like Netflix competing against the other streamers because we have exclusive perks.”
Uber CEO Dara Khosrowshahi
