For the longest time, Uber was one of the
largest private companies in the world. The company IPO'd in May 2019
and made history with the biggest first data loss in U.S. history. Yeah. Ouch. I remember that.
And it's been a rocky start for investors. If you invested $10,000 in Uber at IPO
four years later, you would have. Well, still a cool $10,000. And over that time,
the S&P 500 returned 50%. But, you know,
every company has its growth journey. In a previous video, we actually discussed the different stages
of the lifecycle of a company, and we used Uber to illustrate a company
in a self-funding phase. It's that tricky time
when the company is just breaking even reinvesting in its growth
and fine tuning its business model. And while some investors may perceive
a sinking ship, others will focus on the unit economics and
the long term potential of the business. So is Uber successfully evolving
in its self-funding phase? Well, we got some answers
in the latest earnings report. Right. We have got a packed video for you today. We'll cover Uber's past controversies,
its business model, competition, growth strategy,
its portfolio of investments, key performance indicators
to watch a review of its financials and look at the company's
long term targets. And by the end of this video,
you'll know more than 90% of shareholders. So let's dive in Hey there. I'm Stephanie Tech,
veteran engineer and creator. And I'm Bertrand, founder of App
Economy Insights. from its inception. Uber has been no stranger to controversy,
so much so that there is a TV series about them in various parts of the world. Taxi unions have protested Uber's
perceived avoidance of laws and fees leading to conflicts and legal battles. Notably, Uber lost
its operating license in London in 2017, but managed to secure it back in 2022. And back home in the US,
a major point of contention emerged. Is an Uber driver,
an employee or a contractor. This debate led to significant
legal ramifications and was instrumental in reshaping the gig economy in 2017
was particularly tumultuous. Allegations of a sexist and hostile work
environment were brought to light by a former female engineer. The ensuing scandal saw numerous
top level executives depart. Founder Travis Kalanick faced immense
scrutiny, culminating in his resignation in June 2017 under new leadership with
Dara Khosrowshahi, former Expedia CEO. Uber has been working on transforming its corporate culture is keeping
from the Iranian revolution. 78 hours journey from finance in New York
to the helm of Uber is remarkable. Despite these setbacks, Uber
has shown resilience. While the shadows of the past remain. Today's Uber aims to project a renewed commitment to ethics,
transparency and community engagement. The company's culture has improved
and was even voted as a best place to work in 2023. Uber started with a simple idea
Push a button, get a ride in a first interconnected
apps to go anywhere or get anything. The company uses a massive network
to power movement from point A to point B, and unlike taxi companies,
Uber doesn't own a fleet of vehicles. Instead, it revolutionized transport
by connecting riders directly with drivers using their own cars. This lean approach drastically reduced overheads
and allowed for rapid global expansion. The platform connects riders with drivers. Eaters with couriers and riders. And eaters
are the end users of the service. Meanwhile, drivers and couriers
are earning a living on the platform. Uber is partnering with Alphabet's Waymo
to bring autonomous driving to its apps. But for now, Uber is all about drivers
the same way Airbnb is all about hosts. We covered this in another video. Uber must maintain a large fleet
of happy drivers on its platform to better serve riders. In this regard. Driver metrics have been up
and to the right after the pandemic slump and are at an all time high
well above pre-COVID. On the flip side of the marketplace, riders are showing excellent
retention metrics. Well,
we are creatures of habit, and riders tend to keep using Uber
and spend more over time. Moreover, every new cohort shows higher engagement,
which is bullish for the long term. Uber operates
in a highly competitive landscape with direct and indirect competitors
across its services. Yes. Uber's main competitors in the ride
hailing space include Lyft in the US,
Didi in China Market. Uber exited Ola
in India and grab in Southeast Asia. Traditional taxi services and public transportation options
also compete for customers. Bloomberg estimates Uber's market share at 76%
in the US in the food delivery segment. Uber Eats competes with companies
like DoorDash, GrubHub, Just Eat Takeaway and Deliveroo. There is also indirect competition
from traditional food delivery services and grocery stores. Bloomberg share that market share
in the food delivery services in the US, and Uber Eats, including Postmates
that they acquired in 2020, holds a 25% market share behind DoorDash
and its leading 65% market share. Okay.
So how is Uber planning to grow? Well, its strategy includes
expanding its services, as illustrated by Uber Eats and now Uber Health
for health care organizations scaling its platform through global
expansion, advancing autonomous driving capabilities through investments and
partnerships, expanding into advertising. Uber's app with its captive
audience, provides a lucrative platform for businesses that target consumers
with personalize ads. And as a result, the company's
entry into the advertising space could diversify its revenue
and contribute to its growth prospects. That's right. Taking a page from Amazon's
book, Uber's venture into advertising is bigger than you might think. They plan to make $1 billion in revenue
from this segment in 2024, and it's a high margin initiative
that has tremendous potential and could unlock more value
from the existing engaged users. All right, let's discuss
Uber's investments. The company has made many strategic investments representing
over $5 billion in equity stakes, and these investments
are currently beaten down in the challenging market conditions,
but they could provide some upside over the long term. so these include, for example, Didi
that we know as the Uber of China, we have grab mobility and delivery company
in Southeast Asia. We have Aurora, a company born
from the minds of self-driving tech experts from Tesla, Uber and Google
And Aurora is at the forefront of autonomous vehicle technology
with a boost from Uber's investment. Now, the company keeps track of two important performance indicators
that indicate engagement on its platform. We have monthly active platform consumers
who completed a ride or order in a given month and they grew 12% year
over year to 137 million and trips grew 22% to 2.3 billion in Q2 2023
good for 25 million per day on average. And next, we have gross bookings. They are the total dollar value
spent by end users on Uber apps. Excluding tips. It gives a sense of the scale
of the platform. And gross bookings reached $33
billion in Q2 2023, growing 18% year over year. Management believes they can maintain
double digit growth through three leverages. Number one is audience
The number of people using Uber. Number two is frequency,
how often they use it. Number three is price,
how much riders spend. Each of these leverages
may be in the single digit individual, but together they can sustain
Uber's double digit growth. Now, look, Uber's take
rate is a percentage of gross bookings for facilitating the connection between
end users and drivers slash careers. In addition, Uber offers subscription
services like Uber one, which includes benefits like price protection
and priority service for a monthly fee. This recurring revenue
stream has the potential to become a more substantial part of the business
as subscriptions gain traction. And this model is comparable to Amazon
Prime Now, if we turn to margins, we have the gross margin
that used to be north of 50%, but has steadily declined
toward 40% in the past two years. So the main reason for the decline
in recent quarters is the uber freight acquisition of Trans Place
at the end of 2021. Meanwhile,
the operating margin has steadily improved since 2019 and it shows the clear path
to profitability. Management breaks down the adjusted EBIT
margins, excluding non-recurring costs and stock
based compensation, among other things. And it's not a fair representation
of the company's profitability, but it is useful to compare it
to expectations over time. Now, look, this chart shows
Uber's adjusted margin in 2021 in its top 20 markets. Uber spends a lot on acquisition, retention
and engagement to grow gross bookings. But these top markets show
that the company can make money at scale, thanks to solid unit
economics in these tough markets. Management believes it's only a matter of time
before the company starts making money. the Gap operating margin trend
also fit this narrative. Now let's look at the most recent quarter. But before we do that,
we have a small favor to ask. If you like this video, remember
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as they go live. And this is going to help us be discovered
and bring more educational content to you So here is
a bird's eye view of the income statement. The revenue is a result of gross
booking and take rate trends. There are three main
revenue segments on the left. First is mobility. It's the Uber ride sharing app. It makes 46% of overall gross bookings
and has a 29% take rate. So delivery includes pick up or
delivery of food, groceries and more. And it makes up 48% of overall
gross bookings and has a 20% take rate. And finally, we have freight. It's the logistics segment
connecting carriers with shippers. It makes 6% of overall gross bookings. Uber's revenue is already net of driver
and merchant earnings. So the take rate can fluctuate based
on incentives or discounts over time. So what can we learn here? Well, first,
the mobility take rate improvement lately is misleading and due to a business model
change in the UK in March. So excluding this change,
it was mostly flat. Our focus should be on gross booking
growth and margin trends. GROSS bookings grew 18% year over year
in constant currency to $34 billion. Mobility grew 28% to $17 billion,
and delivery grew 14% to $16 billion. Delivery gross bookings
growth accelerated from 12% to 14% year over year,
thanks to new verticals. Higher frequency also played a role
and more on that in the second. The cost of revenue includes things
like insurance, cost payment processing fee, data centers, networking expenses
and some delivery cost. The company presents depreciation and amortization
separately from the cost of revenue. profitability arrived
sooner than expected. Earnings exceeded consensus and put the company on track
to meet its FY 24 profitability target. And if we look for what's behind the
margin improvement, you can see that Uber spent less on general and administrative
and sales and marketing costs as a result of the recent layoff
of about 3% of its roughly 32,000 workers. So if we switched to the adjusted
dividend, it improved to 2.7% of overall
gross bookings, and that compares to 1.3% in the prior
year and 2.4% in the previous quarter. this indicates that Uber is driving efficiencies across cost and driver
utilization. Management anticipates
$5 billion and adjusted EBIDTA by 2024 and of course adjusted EBITA is
a non-GAAP metric and that is misleading. For example, it includes stock
based compensation, which is a real cost, but the trend is noteworthy. The long term targets
provided at IPO included 45% adjusted EBIT margin for mobility. That's about 11% of gross bookings. And a 30% adjusted EBIT margin
for delivery or about 4.5% of gross bookings in the near term
management provided a clear goal for FY 24 continued gross bookings
growth of around 22 to 25%, adjusted EBITA reaching 3% of gross
booking versus 1.8% today. And this message has been consistent,
and now we have a clear benchmark to measure success. That's right. And halfway through this three year
plan, whoever is ahead on all metrics. Management remains committed
to exceeding the 7% incremental margin previously forecasted. Yes. And the question is
whether Uber can continue to scale efficiently amidst competition
in the mobility and delivery space. And if it can, it could follow
a trajectory that's similar to Amazon's. As Uber grows, its free cash flow,
streamlines its cost efficiencies and explores more profitable verticals,
it appears increasingly likely to realize CEO drivers consciously its vision
of building a generational company. But keep in mind, regulators
and competitors may not see it that way. Now, to dive deeper in another company
that benefits from the gig economy, head over to our breakdown of how Airbnb
makes money. So see you right there.