Uber (Minutes): Autonomous ride-hailing is far from profitability, 50% of cash flow will be returned to shareholders

The following is the FY25 Q2 earnings call minutes for$Uber Tech(UBER.US) compiled by Dolphin Research. For earnings interpretation, please refer to "Weak Ride-Hailing, Strong Delivery, Is Uber at a Crossroads Again?"

I. Review of Core Financial Information

1. User Growth: Uber achieved a historical high in user numbers and usage frequency in the second quarter. Over the past 12 months, consumers accessed the Uber app nearly 30 billion times.

2. Engagement Metrics: Trip volume and total bookings both achieved a strong growth of 18%. The company reached historical highs in both user numbers and usage frequency.

3. Total Bookings: Total bookings achieved an 18% growth. Currently, less than one-fifth of consumers are active in both Mobility and Delivery businesses simultaneously, and the company believes this proportion will significantly increase in the future.

4. EBITDA: Adjusted EBITDA reached a historical high.

5. Free Cash Flow: Free cash flow reached a historical high.

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

1. Strategic Initiatives: Uber made significant progress in building the future of autonomous driving (AV) in the second quarter. The company expanded its operational areas with Waymo in Austin and WeRide in Abu Dhabi. Additionally, Uber launched exclusive cooperation with Waymo in Atlanta. The company also announced several new and expanded partnerships, including collaborations with Baidu, Lucid, Nuro, and Wave. These autonomous driving deployments will significantly increase in the U.S. and internationally over the next few quarters.

2. Third Quarter Outlook: The company expects to continue its strong performance in the third quarter. Total bookings are expected to achieve 17%~21% growth, and adjusted EBITDA growth will reach the low to mid-thirties.

3. Strategic Focus:

Personnel Adjustment: Andrew Macdonald has assumed the role of Chief Operating Officer (COO). One of Mac's primary focus areas will be the supercharged launch of the company's platform strategy and its potential growth, with heads of Mobility and Delivery businesses, as well as cross-platform work like advertising and autonomous driving, reporting directly to him.

Capital Plan: The company announced a new $20 billion stock repurchase authorization as part of its ongoing focus on creating value for shareholders.

Business Advancement: The company will continue to focus on its core business while advancing the future of AV, planning to significantly increase these deployments in the U.S. and internationally over the next few quarters. The company is confident in its current performance and numerous future opportunities.

2.2 Q&A Session

Q: When your company considers the success of cross-platform crossover business, how much is still attributed to consumer awareness, broad supply, and even affordability, thus driving cross-platform behavior?

A: We learn by doing through aggressive experimentation. We found that when cross-promoting services to consumers, it must be targeted and add value, avoiding diminishing user experience. The good news is that users who use both mobility and delivery services have a retention rate 35% higher than single-business consumers, and their total bookings and profits are three times those of single-business consumers. This allows us to engage in more aggressive marketing, as most competitors operate a single-business model.

We also leverage AI applications to achieve hyper-personalized promotions by acquiring more consumer context information. Additionally, Andrew Macdonald leads both mobility and delivery businesses, resolving internal optimization conflicts and making the platform strategy more proactive. The Uber One membership program has 36 million members, whose spending is three times that of regular users, making it an important part of the platform.

Q: How does your company view a single super app under the Uber brand, rather than having multiple apps with different consumer utility experiences?

A: In a sense, when you open the Uber App, it is already a super app. Currently, the mobility app generates $10 billion in delivery bookings annually, accounting for about 12% of the annual total delivery bookings. We are striving to achieve the best of both worlds: a highly optimized mobility app and a highly optimized delivery app, both interconnected and cross-promoted at targeted moments. We avoid broad promotions that may appear anti-consumer. This is a long journey, and we believe we are only in the "second inning," with the journey to "fourth and fifth innings" becoming smoother with the focus of product and technology teams and the leadership of the COO.

Q: Were there any changes this quarter that led to faster growth of core platform users (MAPC) and Uber One members? How does your company view the sustainability of this faster growth in the future?

A: User growth rate remains healthy at 15%. MAPC grew by 10 million quarter-over-quarter, and Uber One members grew by 6 million quarter-over-quarter. We expand our user base through various means, including launching low-cost products like Moto (total bookings exceeded $1.5 billion, growing 40%). Meanwhile, high-end business also performed strongly, with total bookings exceeding $10 billion, growing 35%.

The company's strategy is to build products targeting different consumer groups (such as teenagers and elderly users) to attract new users to the platform. Once these new users enter the platform, they use multiple products. Although many believe Uber is ubiquitous, in the top 10 markets, only about 20% of consumers aged 18 and above use our services monthly, indicating significant growth potential. There are currently no signs of slowing user growth.

Q: Regarding Uber One membership growth, what new products or strategies have driven membership growth, especially for mobility users?

A: Uber One membership now has 36 million, and we are very satisfied with its growth. The membership program is popular in delivery, but introducing mobility users faced challenges. Incremental usage in delivery was evident from day one, but mobility required effort. A new product we are very excited about is "surge savings," which is the most requested product by mobility consumers. Surge pricing is necessary for improving network reliability, but users generally dislike it. "Surge savings" allows members to save money during peak times, paying close to the price they are accustomed to. We believe this can also drive membership growth. Membership services are highly optimized in delivery but are still in the early stages in mobility, with great potential.

Q: Regarding autonomous driving (AV) deployment, does your company have any latest data or quantification on Waymo's utilization on the Uber network?

A: AV is still in a very early stage of development, and commercialization will take time. Deployment in Austin continues to perform well in terms of utilization, and deployment in Atlanta also shows excellent performance. In these two cities, the average number of trips completed by each Waymo daily is more than 99% of our drivers. Incorporating Waymo into our product seems to have a positive "halo effect" on the entire system, with consumers excited about using AV.

Besides Waymo, there are many participants in the external ecosystem, such as May Mobility, AvRide, Volkswagen, Nuro, Lucid, WeRide, Pony, Baidu, Wave, and Momenta. The current focus is on how to bring this product to market as quickly as possible, as it is popular from both consumer and safety perspectives.

Q: Investors are concerned about partnerships with Lucid and Nuro, especially regarding capital investment. Is this the best framework for viewing these partnerships?

A: We are very excited about our partnerships with Nuro and Lucid. Nuro is a leading software company, and Lucid is a leading electric vehicle manufacturer with excellent technology. We are a supply-driven company, and the more drivers integrated into the platform (including robotic and autonomous drivers), the better our service. We are investing in software and hardware companies to drive their development. From our cash flow and capital allocation perspective, we have the ability to actively invest in autonomous driving while returning substantial capital to shareholders, which is not a choice between one or the other. In the early stages of autonomous driving, when validating market economic benefits, you will see more of these transactions. Waymo's daily trip volume reaching 99% utilization level is very good news.

Q: How does your company envision owning autonomous driving (AV) assets and divesting them to fleet operators, and how should investors view this development in the coming years?

A: Once we validate the revenue model, i.e., how much revenue these cars can generate daily, there will be substantial third-party financing. We have been in talks with private equity firms, banks, etc., and believe that autonomous ride-hailing assets can be financed. We can leverage a relatively small portion of cash flow to fund AV technology development to gain a competitive advantage.

When investing in AV, we aim to acquire equity in software companies or ecosystem companies with capital to help them start development and enhance their credibility with Uber. We will continue to fund these investments with minority equity. We will also use part of the cash flow in a more capital-structured way to invest in real estate, facilities, or vehicles to build a learning foundation and accumulate enough information to collaborate with financing partners.

AV is currently unprofitable, which aligns with Uber's consistent investment approach of launching new products with initial losses and achieving profitability as scale expands. Today, we announced a $20 billion stock repurchase authorization, clearly indicating that returning cash to shareholders remains a top priority, and AV investment pales in comparison.

Q: Your company mentioned "increasing focus on expanding OEM partnerships" in the letter. Can you elaborate on this aspect and the partnership pipeline over the next six months or so?

A: AV software development has been greatly accelerated by large AI models, and the time to market is accelerating. We believe the more challenging part of commercialization will be hardware, i.e., launching hardware partners capable of building these platforms at scale and cost-effectively, as AV vehicles currently deployed at scale are quite expensive. We have announced a partnership with Lucid and are in talks with all major OEMs in the field. We believe we will have OEM partners within the next few years. Given the substantial demand we bring and our strong balance sheet to invest in validating financing feasibility, we are in a favorable position. Stay tuned, and you will see more announcements with OEMs. Additionally, companies like Baidu have mature software platforms and cost-effective hardware platforms, such as Apollo Go.

Q: How does your company view Tesla's autonomous driving expansion? Can you update on your company's market share and growth in the San Francisco and Los Angeles markets?

A: We do see Tesla vehicles on the street. The deployment scale we observe is very small, so no trend changes have been measured in the Austin or San Francisco areas. This is a very, very large market, and there will not be a winner-takes-all situation. There will be many different model experiments in the early stages, such as Waymo cooperating with us and Waymo operating directly. We believe that based on our platform and our ability to balance supply and demand peaks and troughs, we will be the leading third-party platform. Given that AV is expected to grow and expand the market in this way, we believe we will be winners, but not the only winners.

Q: In terms of mobility, how do consumers react to the slowdown in pricing growth due to insurance pressure relief? What is your company's confidence in accelerating growth in U.S. mobility trips in the third quarter?

A: Consumers react very positively to pricing. There is sensitivity to pricing at the conversational level, but users who see lower-priced trips are more likely to use us again a few days or weeks later, showing a delayed reaction. The good news is, we are simply passing on the savings from insurance to consumers, so our profit per trip in the U.S. is growing year-over-year.

This was absolutely evident in July, with transaction growth significantly accelerating compared to the second quarter. We expect this trend to manifest throughout the remainder of the quarter, with overall trends improving as the quarter progresses, giving us confidence in the third quarter and likely extending into the fourth quarter.

Q: Regarding stock repurchase, can your company provide more details, such as how you roughly view the overall time frame?

A: Returning cash to shareholders is our top priority as the business grows and generates substantial cash flow. We have executed over 60% of the repurchase authorization initially authorized last spring. Today's $20 billion is an additional authorization, on top of the approximately $3 billion not yet executed, so the total repurchase amount executable in the coming periods is about $23 billion. This accounts for about 12% of our market capitalization, truly reflecting our positive sentiment about future cash flow generation. We have used approximately 50% of free cash flow for repurchases.This should be viewed as a multi-year plan, and we will actively act each quarter. We are committed to reversing the trend and starting to reduce the number of shares, having reduced the number of shares by 1% in the second quarter, and expect this trend to continue.

Q: Can you quantify the vehicle commitment amount in OEM partnership transactions over the next few years, or how does your company view its investment framework? For example, how many of the 20,000 vehicles in the Lucid transaction do you think Uber will undertake?

A: We are committed to using at least half of our cash flow for stock repurchases over the next few years, which is clearly communicated through the $20 billion stock repurchase authorization. We will recycle minority equity proceeds to fund our equity investments in autonomous driving companies based on opportunities. For us, modestly redeploying free cash flow is significant for partners. I cannot provide specific numbers, but rest assured, most of our cash will continue to flow back to shareholders. We will also continue to consider inorganic growth initiatives that make sense for us, such as the Trindle Go transaction completed last quarter. Additionally, purchasing vehicles (such as Nuro and Lucid transactions) may instead bring better economic benefits, as it is a holistic transaction that can gain efficiencies from owning vehicles and software integration.

Q: The Waymo partnership seems to be a lighter asset version, so how important is expansion into new cities beyond the two announced cities with Waymo?

A: For Waymo, we are truly focused on ensuring that deployments in Austin and Atlanta are executed very well, both progressing smoothly. We are very eager to have more Waymo vehicles on our platform, whether in Austin, Atlanta, or other cities. Waymo on the Uber network is very busy and is generating economic value. There are generally three different business models, depending on who we partner with:

1. "Merchant Model": We pay partners a dollar amount per trip or per day, partners receive predictable income, and we bear the network monetization risk.

2. "Agency Model": Revenue sharing, similar to our partnership model with driver partners, with both parties sharing risks based on market performance.

3. Asset Ownership and Licensing Model: We or financing partners own the assets, and there is a licensing model related to software, such as monthly licensing fees or per-mile licensing fees. We expect all three models to appear in the market within the next five years, depending on partner needs.

Q: Your company mentioned the "barbell strategy" for U.S. mobility. Across the entire opportunity, where is the largest incremental opportunity for U.S. mobility? Is it more in low-cost products, or is there still room for growth in high-end products?

A: The "barbell strategy" balances low-cost and high-end. High-end products are easier to execute, with consumers willing to pay more for higher reliability (such as reservation products) or better vehicles (high-end products). Our Uber for business is also growing steadily, with over 30% year-over-year growth. High-end products have higher potential for short-term profitability, arguably within the next three years.

Low-cost products are more challenging for us to achieve because they require improving the efficiency of the entire network, such as "wait-and-save" and Uber Share. Low-end products ultimately have greater opportunities in trip volume and total addressable market (TAM), and we are investing for the future. A similar barbell strategy is also applied to our delivery business.

Q: Can your company delve deeper into the externalization of technical capabilities mentioned in the letter? Does this refer to data licensing opportunities in the autonomous driving (AV) field? If so, how large can this scale grow?

A: Externalizing technical capabilities is something we are very excited about. A simple example is our advertising business and direct delivery business. The value of Uber Eats is divided into the advertising business (healthy growth, high profit margins) and direct delivery business (providing on-demand delivery services to customers). Collecting data for AV is something we are working on, but it is not expected to be a profitable project, rather helping AV enter the market faster.

Another exciting area is Uber as a work platform. There are nearly 9 million people on our platform making money in various ways. Uber AI solutions are a rapidly growing part of our business, although currently small in scale. The team is engaged in data annotation, translation, map annotation, algorithm adjustment, and other work.

These workers are sometimes our platform drivers, sometimes experts we bring in, leveraging Uber's core capability of assigning tasks to earners worldwide. Different types of earners are expected to emerge, working for global AI development. We are discussing with technical teams what else can be done with global platform capabilities.

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