Uber: How to View the Development and Impact of Autonomous Driving

The following is the summary of the Q4 2024 earnings call for $Uber Tech(UBER.US) . For the earnings report interpretation, please refer to Uber: FSD Wind and Thunder, Small Mistakes Must Be Heavily Punished .

I. Core Information Review of the Earnings Report:

II. Detailed Content of the Earnings Call

1. Management Remarks:

1. Capital Structure: The company has maintained strong liquidity, with unrestricted cash, cash equivalents, and short-term investments totaling $7 billion at the end of this quarter, a decrease of $2.1 billion from the previous quarter. The company redeemed $2 billion of existing debt this quarter. Additionally, the value of equity held by the company is $8.5 billion, most of which is in publicly traded company shares. In the coming years, the company plans to prudently monetize these equities in a timely manner to maximize the long-term value for Uber and its shareholders. The company will continue to use these proceeds according to its capital allocation priorities.

2. Capital Allocation Priorities:

Investment Growth: The company's top priority is to invest in its core business and in capital-efficient opportunities that can further generate sustainable free cash flow growth. The company may leverage the strength of its balance sheet to invest in projects that support long-term priorities, such as building an operational ecosystem for autonomous vehicles.

Maintaining Financial Policy and Adequate Liquidity: The company plans to maintain a financial policy consistent with a solid investment-grade rating and adequate liquidity to support the expanding market and improve cash efficiency.

Evaluating Acquisition Opportunities: The company will continue to assess strategic acquisition opportunities. The company maintains a high threshold for any merger and acquisition opportunities, with a strict focus on successful organic growth efforts to maintain healthy unit economics while continuing to scale globally.

3. Stock Buybacks: The company will continue to return excess capital to shareholders through stock buybacks and plans to gradually reduce the total number of shares. The company repurchased $550 million worth of common stock in the fourth quarter. In January 2025, given the significant discount of the company's stock price relative to its value, the company announced an accelerated stock repurchase program to retire $1.5 billion of common stock. Therefore, within 12 months of announcing its initial stock repurchase plan, the company has repurchased $2.75 billion worth of stock. The company expects to continue to actively and prudently repurchase shares under the existing $7 billion repurchase authorization (with a remaining unused amount of $4.25 billion after the accelerated stock repurchase program)4. Foreign Exchange Volatility Management Concept: Given the significant headwinds brought by the continued strengthening of the US dollar, now is an appropriate time to discuss the company's management philosophy regarding foreign exchange volatility. As a company operating in over 70 countries worldwide, it can naturally hedge profits against foreign exchange fluctuations to some extent, as most costs (especially payments to drivers and merchants) are denominated in local currencies. However, the company is not fully hedged, as some variable costs and most fixed costs (particularly labor costs in R&D and general management expenses) are denominated in US dollars. The company hopes investors will assess total booking growth at a fixed exchange rate and is committed to managing the volatility of foreign exchange-driven costs in the income statement while fulfilling its adjusted EBITDA commitments.

5. Performance Outlook:

Q1 2025 Expectations:

Total Bookings: Total bookings are expected to grow by 17% to 21% year-over-year in Q1, calculated at fixed exchange rates. This translates to reported total bookings of $42 billion to $43.5 billion, as the company's outlook assumes that total reported year-over-year growth will face approximately 5.5 percentage points of currency headwinds (including about 7 percentage points and 4 percentage points of currency headwinds for rides and deliveries, respectively).

Adjusted EBITDA: Adjusted EBITDA for Q1 is expected to be between $1.79 billion and $1.89 billion, representing a year-over-year growth of 30% to 37%.

H1 2025 Expectations: Total bookings for rides are expected to grow by over 20% year-over-year, while the growth rate for total bookings in deliveries remains relatively stable on a fixed exchange rate basis.

Full Year 2025 Expectations: The company is confident in continuing to make strong progress in its three-year outlook for 2025.

2025 Stock-Based Compensation: Expected to be between $1.7 billion and $1.9 billion.

6. Segment Market Performance:

High-End Market: Launched Uber Business Black, combining luxury experience with Uber convenience; total bookings for Uber for Business grew by 50% year-over-year, partnering with 200,000 businesses.

Teen Market: Uber for Teens has been successful in the US, with a 50% quarter-over-quarter increase in orders in Q4 2024, expanded to 50 countries, and further expansion planned for 2025.

Low-Cost Market: Total bookings for UberX Share exceeded $2 billion, having entered 10 major airports, with plans to expand booking options; Uber Shuttle is performing well in New York, adding routes to LaGuardia Airport, with more airports set to launch in 2025.

7. Price Outlook for 2025:

The price environment in the US market is expected to improve in 2025, driven by three main factors: improvement in the US labor market, balanced and growing driver supply, enhancing passenger experience and reducing dynamic pricing; easing inflationary pressures, with declining used car and fuel prices lowering costs; and the company controlling rising insurance costs through technological optimization and policy adjustments8. Insurance Costs: It is expected that the insurance cost per trip will maintain a high single-digit year-on-year increase in 2025 (excluding lower rates in California and New Jersey). To stimulate demand, the company will only pass on the rising insurance costs to consumers, with a slight increase in UberX prices in the U.S. expected in 2025.

9. Future Outlook for Delivery Business: The company will focus on improving price affordability, expanding new categories, and enhancing services in low-density areas:

Price Affordability: Investing in merchant subsidies and low-cost options (such as self-pickup services) to help merchants increase sales and reduce user payment costs. In Q4, merchant funding incentives exceeded $1 billion, a year-on-year increase of 60%.

Groceries and Retail: Optimizing product selection and expanding coverage, adding partners such as Home Depot and Wegmans, and launching the "Shopper Pick & Pack" feature to improve delivery efficiency.

Expansion in Low-Density Markets: Replicating ride-hailing business experience in the U.S. and international markets to drive growth in low-density areas, with active user and merchant growth rates exceeding those in high-density markets.

8. Views on Autonomous Driving Business

Uber believes it has a unique advantage in the over $1 trillion autonomous driving market in the U.S., based on collaborations with technology developers, automotive OEMs, and others. The company expects commercialization to take a long time and points out five key challenges:

Safety: Autonomous driving must exceed human driver safety standards, and Uber collaborates with companies like Waymo to promote transparency in standards.

Regulation: There are significant regulatory differences among states, and the company supports national standards. It has launched autonomous driving services in Abu Dhabi and plans to expand to more international markets.

Hardware Costs: The cost of autonomous vehicles is high, and future automotive OEMs will help reduce costs, with all new cars expected to have L4 autonomous driving capabilities and prioritize access to the Uber network.

Operational Management: Autonomous vehicles have high usage intensity, and Uber has industry experience to support partners in efficient operations.

Demand Fluctuations: Uber's hybrid model (autonomous driving + human driving) ensures maximum asset utilization and profitability.

Uber believes its platform model is crucial for autonomous driving companies, which can leverage Uber's global network to accelerate commercialization. The company is advancing its autonomous driving strategy, planning to launch a partnership with Waymo in Austin and expand services in Atlanta. Users can join the "Autonomous Driving Interest List" in the Uber App to receive the latest updates and increase their chances of matching with autonomous vehicles.

9. Membership Program: The number of Uber One members has significantly increased this quarter, currently reaching 30 million, a year-on-year growth of approximately 60%, with nearly 5 million added since the last quarter. The program covers all countries where delivery services operate, and the company drives growth by enhancing user retention and customer value, offering more attractive membership benefits to strengthen its influence. For example, Uber One members can enjoy priority delivery, be matched with top shoppers when ordering groceries, and new travel and commuting benefits, including premium ride cashback offers and priority pickup for airport tripsPilot multiple new benefits, officially planned for launch in 2025.

2.2 Q&A Analyst Q&A

Q: There are relatively few companies focused on the autonomous vehicle (AV) market in the U.S. How does the company view the future development of the market? Will it be limited to a few companies?

A: In terms of autonomous vehicle business, both the U.S. and global markets have huge potential, with the U.S. market alone expected to reach trillions of dollars. Although the company currently sees excellent enterprises like Waymo entering the market, along with many participants including Tesla striving to advance the maturity of the technology, the company believes that the commercialization process of this technology will take a long time.

The commercialization process of technology is lengthy and requires five key elements: regulatory oversight, superhuman safety records, cost-effective hardware platforms, first-class ground operations, and high-utilization networks. The company believes that collaborating with the ecosystem is key to gathering these elements, and more companies will achieve technological breakthroughs and commercialization in the future. Although currently in the technology development stage with limited participants, in the coming years, as all elements come into place, more companies will enter the mature application stage in the U.S. and international markets.

Q: From a portfolio perspective, how does the company view further investment in autonomous driving-related assets?

A: In the autonomous driving business, the company is in a favorable position and is making significant investments across various aspects of its asset portfolio. With each new product launch, the company first invests in the supply side to build liquidity on the supply side. Only with this critical liquidity can supply and demand be matched, meet changing demands, and provide a stable estimated time of arrival (ETA) of 5 to 6 minutes, thereby leveraging the company's local network effects.

Currently, the company is 1. investing in fleet supply, with the fleet accounting for about 15% of capacity. 2. acquiring parking lots equipped with charging facilities. 3. actively establishing technical partnerships with multiple autonomous driving companies and negotiating supply matters with original equipment manufacturers (OEMs). This is a long-term investment, and although it is not currently evident in the profit and loss statement, as autonomous driving technology scales and economic benefits become apparent, it will prepare the company well without affecting the previously provided three-year performance outlook.

Q: In the company's collaboration with Waymo in Phoenix, how does it improve the utilization of autonomous vehicles?

A: The current deployment scale of autonomous vehicles is relatively small, making it difficult to summarize patterns. However, preliminary experiences from the company in Phoenix and other projects show that leveraging Uber's network scale and market demand diversity can significantly improve the utilization of autonomous vehicles, with high user satisfaction and a high acceptance rate for repeat rides, as well as pricing that has room for premium. Later this year, the company will expand its deployment scale in Austin and Atlanta, and is confident in the results.

Q: In the long term, how does Uber view the business model of autonomous driving?

A: In the initial stage, Uber may bear balance sheet risks by purchasing vehicles to promote the development of the autonomous driving industry. Over time, fleet partners will begin to purchase vehicles directly and obtain funding through existing financing channels. Due to the lack of a clear financing structure and residual value estimates, early on, Uber and fleet partners will need to share certain risks togetherUltimately, vehicle ownership may be jointly held by fleet partners, financial institutions, infrastructure investors, and small businesses, with ownership gradually financialized to reduce the risks borne solely by Uber.

Q: How does Uber assess the impact of autonomous driving technology on the global mobility market? In which regions will the autonomous driving market penetrate first?

A: As the construction costs of autonomous driving technology are close to those of traditional drivers, the earliest penetrating markets will depend on the regulatory environment and revenue per mile. Initially, autonomous driving services will primarily enter high-income markets such as the United States and Europe, focusing on urban centers. Due to the limited operational range of the technology, these markets are expected to gradually expand. In the next five years, autonomous driving is expected to account for only a small portion of the market, but as technology advances and the market matures, the penetration rate will gradually increase.

Q: The total booking amount for 4Q24 is expected to grow by 21% year-on-year at constant exchange rates, and is projected to be between 17%-21% in 1Q25. What factors could cause a decline in growth rate, and what factors could drive it to reach 21%?

A: The performance in 1Q25 faces some adverse factors, such as the previous year's leap year quarter, as well as the impact of the Los Angeles wildfires and abnormal weather. Excluding these factors, the growth rate of the total booking amount could increase by 1-2 percentage points. The growth in 1Q25 will still be driven by user growth, similar to 4Q24. At the same time, it is expected that foreign exchange factors will have a greater negative impact on revenue in 1Q25, about 5.5 percentage points, compared to about 3 percentage points in 4Q24, mainly due to currency depreciation in some Latin American countries. Although the company has a natural hedging mechanism, dollar-denominated costs are still affected by foreign exchange fluctuations on profits. The company will strive to absorb these impacts to promote stable profit growth. In fact, the company's GB growth rate this year is faster than last year, indicating significant business growth potential.

Q: What is the company's view on the profit increase or decrease, marginal profit, and profitability of the ride-hailing business for the first quarter and the entire year of 2025?

A: This quarter presents many investment and growth opportunities. The EBITDA profit margin for ride-hailing accounts for 7.8% of total bookings, an increase of 30 basis points year-on-year. Supply incentives and operational cost leverage bring benefits, although some are offset by rising insurance costs. The company is vigorously developing its membership business in the United States, with an increase in Uber One membership numbers and the number of countries covered. The company will continue to invest in the mobility services business according to the overall profit framework, achieving mid-to-high single-digit growth in total bookings and a profit margin of over 30% to 40%, ensuring continuous revenue growth.

Q: How significant is the impact of foreign exchange on EBITDA guidance?

A: Foreign exchange does indeed affect the company's profits, especially when repatriating overseas earnings to the United States, as exchange rate fluctuations can lead to reduced profits. The strategy the company adopts is to control foreign exchange fluctuations internally and maintain stable gross margin improvements in different market environments through existing leverage tools, without directly passing the fluctuations onto investors. Therefore, the impact of foreign exchange mainly manifests at the revenue level, with specific responses managed by the management teamQ: Why won't implementing more economical pricing models become a resistance to profit margins?

A: Most of the past pricing adjustments occurred in the U.S. market and were primarily a pass-through of insurance costs, which is neutral for the company and does not affect the profit model. The company has been committed to developing high-end products (such as U4B and Business Black), using the profits from high-margin products to support low-cost products (such as UberX Share and Shuttle), thereby balancing revenue and costs. The company has consistently demonstrated the ability to maintain profit growth alongside revenue growth. Looking ahead, the company expects to achieve mid to high single-digit revenue growth, with bottom-line growth reaching 30% to 40%, and will continue to drive dual growth in revenue and profit.

Q: How does the company view the sustainability of insurance costs, and what is its perspective on the slow growth of insurance costs this year?

A: Insurance costs are a major factor in the U.S. ride-hailing business. The slowdown in insurance cost growth is attributed to improvements in risk assessment and management, utilizing advanced data analysis and technology to accurately assess risks, optimize pricing, and the competitive insurance market within the industry prompting insurance companies to offer better prices and services. However, the sustainability of insurance costs still faces challenges, as the expansion of business scale increases potential risk exposure, and external factors such as regulatory changes and fluctuations in medical and vehicle repair costs can also increase pressure on insurance costs. The company will continue to monitor the dynamics of insurance costs, optimize risk assessment and management strategies, and explore innovative insurance solutions, such as usage-based insurance products, to manage costs and ensure sustainability.

Q: What is the progress of expanding the network to stimulate user growth and increase supply density, the methods of scaling, and its role in driving business growth in 2025 and beyond?

A: 1. Factors affecting business growth and strategic direction: The company's business growth depends on the number of users, interaction frequency, and pricing. The core business growth framework aims to achieve a growth rate of 10% - 15% before 2026 and to elevate it above 15% through growth initiatives. The current focus is on areas with lower population density, increasing market penetration in these regions to extend the rapid growth period of the core business. In densely populated areas, where market penetration is high, growth has begun to slow down, and expanding into new regions can compensate for this shortfall. This strategy is derived from the U.S. food delivery business and has now been promoted globally, showing high growth potential in non-dense areas for both ride-hailing and food delivery, where growth rates are often more than 1.5 times faster than in dense areas.

1. Ride-hailing business expansion initiatives: The key to the ride-hailing business lies on the supply side. The company attracts new drivers to low-density areas through incentives, expanding into new cities and locations, such as focusing on cities like Liverpool and Manchester in the UK, and also increasing taxi capacity to support business in sparse areas. Once supply is established, pricing is optimized using incentives to stimulate demand, initiating the growth flywheel effect of the Uber market. At the same time, options are provided for consumers in low-density areas to pay by price or time. When choosing to pay by price, users can utilize booking products to know the exact arrival time of the vehicle; when choosing to pay by time, waiting times are extended, and algorithms are used to match drivers, with suburban consumers being more accepting of longer wait timesQ: Changes in user behavior in the takeaway business, and the impact of supply on user behavior, order frequency, and order amount?

A: In the takeaway business, similar to the ride-hailing business in the past, the market was initially expanded from the supply side. Currently, there are over 1 million active merchants, a year-on-year increase of about 16%, but in some markets, the merchant penetration rate is only about one-third, indicating significant growth potential. The increase in merchant-funded discounts has led to a membership count of 30 million, with a year-on-year growth of 60%. These factors influence user behavior, order frequency, and order amount. The expansion of supply has enriched product choices, attracting new users and increasing order frequency; merchant discounts and membership benefits affect prices, promoting consumption and increasing order amounts. The company focuses on delivery quality, driving market indicators to balance cost, efficiency, and quality, ensuring the healthy development of the business.

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