Uber Technologies, Inc. 0 Earnings Call

Hello, welcome to Uber's acquisition of Delivery Hero conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star one on your telephone keypad. I would now like to turn the conference over to Alex Hwang, Head of Investor Relations. Please go ahead. Thank you, Sarah.

Thank you for joining us for today's conference call regarding Uber's announced acquisition offer for Delivery Hero. Joining us today are Uber CEO, Dara Khosrowshahi, and CFO, Balaji Krishnamurthy. Dara will begin with a few brief remarks before we open the call for your questions. We expect today's call to last approximately 30 minutes. During today's call, we'll discuss both GAAP and non-GAAP financial measures. Additional information regarding these measures, including reconciliation to the most directly comparable GAAP measures, is available in today's investor presentation, which has been posted to investor.uber.com. Certain statements in this presentation and on this call are forward-looking statements. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, we do not undertake any obligation to update any forward-looking statements except as required by law.

For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today, as well as risks and uncertainties described in our most recent Form 10-K and other filings made with the SEC. Finally, given the purpose of today's call, we ask that questions focus on the announced transaction and its strategic and financial implications. With that, let me turn the call over to Dara.

Thanks, Alex. Thanks, everyone, for joining today. Before we get to your questions, I just want to make three points on this combination. First, we're pursuing this transaction from a position of strength. Uber is delivering durable growth, expanding profitability, and generating significant free cash flow. That gives us the flexibility to continue investing behind high return organic growth and AVs, while also pursuing select acquisitions, like today's, that meet our very high strategic and financial bar. Second, Delivery Hero is a natural extension of the cross-platform strategy we've been executing for years. This is far from just a strategy on a slide. We've proven the power of bringing mobility and delivery together with cross-platform users generating roughly three times the Gross Bookings and profits versus single product users.

This transaction allows us to scale this proven model across many more markets, expanding our cross-platform opportunity by over 50 million consumers. Finally, this transaction is fully consistent with our capital allocation framework. We expect the transaction to be non-GAAP earnings per share accretive upon close with high single-digit % accretion by year three, while we continue to maintain a strong investment-grade balance sheet. In other words, this transaction strengthens our platform while preserving the financial discipline that's been central to Uber's strategy. With that, Balaji and I look forward to taking some questions. Operator, can you open it up?

Yes. Thank you. As a reminder, it is star one to ask a question. Your first question comes from Brian Nowak with Morgan Stanley. Your line is open. Thanks.

My question is maybe a couple. The first one, can you sort of walk us through how we think about the timing of the synergies and sort of some of the executional areas from that perspective on the synergy front? Then just to get into a couple of the markets, talk to us about some of the biggest opportunities you see in the Middle East and in Korea in sort of acquiring this asset potentially.

Brian, I can take the first one. Dara will take the second. I think in terms of the timelines here, we have given some high-level guardrails, so I'll start there. What we said is that this transaction, dependent on regulatory approvals, we expect this to close in the second half of 2027. From there, we would start recognizing the synergies that we're talking about here. First, right out of the gate, we expect that this will be accretive to our non-GAAP EPS modestly right at the close. Then from there on, within 18 months, we do expect that we can generate run rate synergies of $1.2 billion. We're highly confident that we can do more than that. Then by year three, on a non-GAAP EPS basis, you should expect that the accretion here is going to be in the high single-digit %.

Really, there's an integration plan that we have put together that will come through as we go. We'll have more details to provide you when we get to the transaction close, but we've spent time to have a clear execution timetable built out to deliver on those markers.

Brian, we are very excited about a lot of markets, but especially the Middle East and Korea. In the Middle East, for example, we've got the Talabat asset that is partially public as well, which is the leading food delivery player in the market and going into grocery and other categories as well. For example, when you look at the Middle East and compare Uber and Talabat, both last year grew about 30% in terms of Gross Bookings. Uber a little bit above that, Talabat a little bit below that. They have a very large consumer ecosystem in that they both have 8 million monthly active users. Both have about really attractive margins as well, about 7% EBITDA margins as well. That is both businesses on a standalone basis.

When you combine the businesses, what we've demonstrated over and over again, is that cross-platform consumers spend three to four times the Gross Bookings than single platform consumers. We'll obviously use this to extend the Uber One loyalty program as well. Really, this cross-platform work is one of the highest return growth levers that we run on a global basis. There's very little investment. We've already acquired these customers. All we're doing is cross-selling each other. Now it takes a lot of tech work to do so, but the returns have been proven over and over again. When you also combine our technology stack, the ability of these brands to build out advertising services as they increase their audience, you get to a very, very powerful combination, we believe, as we put these assets together.

Korea is a little bit different in that Baemin is by far, again, the leader in the marketplace. We're in the mobility marketplace as well. We just got started a couple years ago. Hopefully in Korea, we can run a playbook like we did in Japan. We actually had gone into Japan with Uber Eats. Our presence in mobility was pretty modest. Now, a few years later, we believe we're the number one player, as it relates to category position in Japan, with both food delivery and now mobility as well. In that case, we use the cross-platform playbook with a very strong position in delivery to actually grow our mobility business as well. That's certainly going to be the focus of our efforts in Korea as well, which is a very large market with lots of potential.

In the end, we think that we have a lot of these cross-platform and cross-brand opportunities. We've incorporated some revenue synergies into our financial outlook, but we think the estimates that we're presenting you with and the DOS estimates on the ATAN adjusted EBITDA, ultimately, we're hoping are going to prove to be quite conservative.

I just want to add one quick point on the previous question as well, which I forgot to mention earlier. From an integration standpoint, a key attribute here that is attractive to us is that the migration here for us is moving the Delivery Hero brands onto a common technology platform rather than a multi-year re-platforming effort. We already operate the entirety of our Uber Eats offering on a single global tech platform, and Delivery Hero's business is also, with the exception of Baemin in Korea, operates on a common backend architecture. It does materially reduce the complexity of the integration, we do think that will allow us to move with speed once we have approvals here.

To Balaji's point, we've run these integrations before, so the team is quite experienced. We've always run a single global platform. We're kind of re-platforming on the go, so to speak, and continuously reinvesting in our own platform even as we build the business.

All right. Thank you. Next question.

You bet. Your next question comes from Eric Sheridan with Goldman Sachs.

Your line is open. Thanks for taking the question.

With the Uber Eats asset, you've really played out the dynamic of expanding the offering on the supply side into grocery and local commerce. Can you talk to us a little bit about the current state of Delivery Hero's assets and how much there's an ability to expand it to other offerings, away from core food delivery as another layer of growth, post-close? Thanks so much. Yeah, absolutely, Eric.

Uber Eats for us, I think when I joined was less than 10% of our bookings, and now is 50% of our overall bookings and growing faster than our mobility business. Ultimately from a top-line standpoint, it will be bigger. This is quite the expansion to Uber Eats as well. When you put these two businesses together, we're going to be well over $250 billion in Gross Bookings, which is pretty incredible scale. The Delivery Hero assets are leading brands in the majority of the markets in which they operate. They are profitable today. If you see what the Delivery Hero team has done, they have increased the margins of their platform very, very significantly over the past couple of years. We think that that margin increase is going to continue going forward.

On top of it, of course, we are putting the synergies that we think are going to ultimately prove conservative as well. One of the features of Delivery Hero has been that they've been expanding pretty aggressively into non-food categories, into grocery and quick commerce. We don't have a big quick commerce category, and Delivery Hero has built out that business and gotten it to be adjusted, EBITDA profitable, we believe, on a margin basis. We're quite excited to learn from that. Delivery Hero also has built a pretty big advertising business, and their advertising business as a percentage of their Gross Bookings is actually higher than ours. As you know, advertising is a very high margin product. We're looking forward to hearing from them as to how they are building their advertising product as well.

We think it's about 3% of GMV that they have built out their ad product, which is higher than ours. It shows us, one, that our core advertising business can continue to grow, and we're looking forward to working with that ads team as well. You add all that as a multi-platform potential, both across mobility and delivery, but then multi-vertical users at Delivery Hero who are buying food and grocery and maybe quick commerce, they actually spend five times higher than single vertical users as well. You see that inside of the Delivery Hero ecosystem, and you're certainly going to see that continue within our ecosystem as well. All right. Your next. Can we get another one?

Just your next question comes from Mark Mahaney with Evercore. Your line is open. Thanks.

Two more questions on synergies. First is, the biggest driver of these synergies at over $1 billion in synergies, that's the cross-platform, the ability to cross-sell to create this unified platform for mobility and delivery. Just wanted to confirm that you think that is the biggest driver of that synergy number that you put out there. Secondly, talk about any cost synergies that you think you could discover. Thank you very much. Thanks, Mark.

I'll take this. I think, as we think about the synergy math here, what we want to embed is our items that we have high conviction line of sight to as we execute this transaction. We have layered in sufficient areas where we do have confidence that we can deliver on further improvements. Until we take ownership of the asset, we don't want to get ahead of ourselves. I'll just talk through what we have baked in and what we have considered leaving out of the equation for now. I would say the first and the biggest item that you should think through here, is the impact from migrating to a common technology platform.

When we think about Delivery Hero's margins versus Uber's delivery margin structure, the biggest delta in why we are able to deliver a better margin structure is because of the tech cost leverage we can get on our global scale, and we can bring that power to Delivery Hero as well. That's the first. The second area is on broader costs and think through the all aspects of cost, including headcount, the sort of support and shared services that we have as well, and we do think there'll be significant opportunities there as we go. Finally, the cross-platform efforts we have baked in what we believe to be very conservative assumptions here, and we do think that there could be more opportunity here as well.

As we look at those items, that's the order of operations that we are thinking through in terms of the impact to that $1.2 billion number.

Next question, please. Thank you.

Your next question comes from Shweta Khajuria with Wolfe Research. Your line is open. Thanks a lot for taking my question.

I guess I'll ask two, please. Balaji, just to follow up on your prior answer. The biggest driver is this tech platform where Uber has higher cost leverage than Delivery Hero. Could you please talk about what those areas are that would allow Delivery Hero to see more leverage with the tech re-platforming or I guess the combination of the tech re-platforming as you do it? The second one is, how confident are you in the regulatory hurdles? I am assuming you have done all the due diligence that the likelihood of approvals is high. Could you please talk to that? Thank you. Sure. I think if you zoom out and think about just the high level P&L structure for Uber Delivery versus Delivery Hero.

Right now, Delivery Hero is operating with a net take rate that is higher than Uber's, and yet the margin output that you see for the business is significantly lower than Uber's. When you drill down into the areas where the biggest deltas are, I would say the most meaningful item is the cost of tech on a percentage basis of Gross Bookings relative to Uber's cost of tech. When you think about that migration onto our tech platform, you are effectively looking at getting that sort of leverage for a business that has not seen that so far. We bring best-in-class global modern technology to the markets that Delivery Hero operates in. That is going to be a big area.

As I said, shared services such as cost of payment, support, insurance costs, et cetera, again, we get that savings as we migrate onto our platform pretty quickly.

In terms of regulatory, we think we have a clear path to closing, and we've structured the transaction to facilitate the regulatory process while at the same time, we're preserving the strategic value of the combination. We spent a lot of time evaluating the regulatory framework as part of our diligence. For us, this is fundamentally about expanding Uber into highly complementary markets rather than combining two delivery businesses everywhere. These are mobility markets, delivery markets that operate separately. We need a synergy in that, but we don't have any overlap as it relates to delivery business on top of delivery business. We think there's a lot of certainty that this structure provides. Listen, we'll continue engaging constructively with regulators throughout the process, but we're quite confident in both the strategic merits of the transaction, and then, of course, the path to completing it.

I'll just add that the German takeover process, while it's complex, it includes several steps. These are all well-defined steps, and we are quite confident in both the path to completion and our ability to realize that value creation over time. It's a framework from a German takeover standpoint. It's a framework that has been successfully navigated by many international acquirers before. When you think about our current position, we already have economic exposure to 37% of Delivery Hero, and as part of our announcement today, you saw that Prosus has also irrevocably committed to tender at stake, which brings our economic ownership position to over 50% following a successful offer. From there, we will evaluate the most appropriate ownership structure based on the outcome of the tender offer and the options available under German corporate law.

The bottom line is we don't view the legal process as detracting from the underlying value creation opportunity. We have a robust plan here to march through the steps here.

Take the next question, please.

Thank you. Once again, ladies and gentlemen, if you have a question, please press star one on your telephone keypad. Again, it is star one to ask a question at this time.

Sarah, do you have any more questions in the queue?

My apologies. Yes. Your next question comes from Michael Morton of MoffettNathanson. Please go ahead. Good morning, guys.

Thank you for the question. Sorry to beat this synergy question to death. Are you able to bucket the synergies inside that are operational versus what your expectations are for revenue synergies? Thank you. Martin, I'm not going to get into that level of granularity, but I will say that the revenue synergy piece embedded in here is quite small relative to the $1.2 billion.

I think as we look at the overall final delivery, my instinct with Dara shares is that likely that number will be larger.

Yeah, I think just to make sure, we underline that. We've been very consistent with you, with the Street, with our investors as to what expectations are in terms of our performance, whether it's a long-term plan that we put into place or it's a quarterly guidance that we give you. This is a team that delivers. I think the Delivery Hero team has built an incredible standalone asset, so to speak. We think that the synergy value here is compelling, and we wouldn't be putting up a number like that unless we were highly confident to be able to deliver that number and hopefully more.

Take the next question, please.

Appreciate it. Thank you. You bet.

Our next question comes from Jason Helfstein with Oppenheimer. Your line is open. Thanks for taking the question.

There has been some investor concern about competitive dynamics in the sector over the past year. How do you think about this transaction impacting just that overall and perhaps post synergies, your desire to be even more aggressive around growth, particularly around Uber One? Thank you. Yeah, Jason, we operate in a super competitive market.

Any place that we operate, there isn't a single market where we don't compete against multiple competitors. The same is true of Delivery Hero. You could argue we'll have more competitors because we'll be both in the mobility and delivery space. I do think that generally, and I would say in 95 plus percent of our marketplaces, our competitors are model-on businesses. They're either a pure-play mobility business or a pure-play delivery business. They don't have what we have, which is the ability to build out products and promote on a cross-platform basis. They don't have an Uber One membership program that has benefits both on the delivery side in terms of free delivery and on mobility as well.

We've proven over and over that the scale that we have on a global basis, the technical wherewithal that we have in terms of how we build, the scope of the technical platform that we built, along with the platform that we have and the cross-promotion and the membership program that we have, gives us the ability to thrive in highly competitive markets, to generally grow our category position in those markets, and to continue to improve margins in those very competitive markets. I think the same will be true. We respect our competition, we're always kind of paranoid about them. I think Delivery Hero is the same, I think when you put the companies together, the competitive position of the businesses together are going to improve. We also recognize that's going to take a lot of work to get there.

That is all the time we have for questions. I will turn it back to management for closing remarks.

All right. Thank you very much for joining us today, a big thank you to the Delivery Hero team for entrusting us as it relates to this potential transaction, also the Uber team for getting us here. It was a lot of work in the background, I really appreciate the work that everyone put in. Now we all know we've got more work to do as far as making sure that the potential value in this transaction comes out, we continue to build a lot of value for our shareholders. Thanks, everyone, for joining. This concludes today's conference call.

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