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Uber’s food delivery business zooms ahead of mobility segment

COVID-19 continues to trouble Uber’s balance sheet. The company’s mobility business struggled due to lockdown restrictions in various parts of the globe. At the same time, its delivery business grew at a rapid pace, thanks to changing consumer habits.

The company recorded a net loss of $1.1 billion in Q3 2020, slightly lower than the $1.2 billion it recorded in Q3 2019. While gross bookings are on an upwards trajectory, the figure for Q2 was still 50% lower than the same quarter last year. At the same time, Uber’s food delivery business grew at a massive rate, and in fact generated more revenue than the rides business. Uber’s mobility segment which accounts for rides, auto-rickshaws, and bikes, brought in $1.36 billion, a drop of 53% YoY. On the other hand, the delivery business brought in $1,451 billion, a growth of 125% YoY. Overall, Uber recorded revenues of $3.1 billion, down 18% year-on-year (YoY).

Mobility segment continues to suffer

Uber CEO Dara Khosrowshahi told investors: “Unsurprisingly, the mobility recovery continues to be directly correlated with the level of lockdown restrictions in any given city, when city start to move, so too does Uber.” Rides were generally fewer in number compared to the previous year. However, the company hopes things will pick up once the public health situation improves and as people return to work and step out of their homes.

  • US a drag on bookings: The United States has been an overall pain point for Uber’s recovery plans. Khosrowshahi said that gross bookings in the US were down 65% in October (YoY) in the US, while outside the country this figure is nearly half, 34%. Within the US, the company said, New York City has been a bright spot, where bookings recovered to 63%. Globally, Brazil, Uber’s largest market with regard to trips recovered to 87% of October levels.
  • ‘Riders preferring Uber over mass transit’: Khosrowshahi said that across cities, there was one discerning trend — Uber is coming back faster than other transportation alternatives, specifically mass transit. In New York, for instance, Uber was coming back faster than even taxis. However, the CEO was not sure if this prevalence in consumer attitude would sustain on a long-term basis, after the world stars returning to normal.
  • Uber for business sees ‘strong momentum’: 40% of Uber’s enterprise accounts were acquired after March, when the pandemic began.

Delivery does better due to changing consumer habits

In direct contrast to mobility, Uber’s delivery segment benefited greatly from people wanting to stay at home and get food and other parcels delivered to them.

“Consumers are quickly becoming accustomed to the magic of having anything delivered to the door in half an hour, much like the magic of having a car show up in a few minutes” — Dara Khosrowshahi, Uber CEO

  • Annual growth in bookings accelerates: Delivery gross booking growth accelerated to 135% YoY in Q3, higher than the 113% YoY growth registered in the previous quarter. Khosrowshahi said the growth is not just because of new customers, but also from higher engagement from older customers.
  • Triple-digit growth in new global markets: Khosrowshahi said that gross the Uber Eats business saw triple-digit YoY growth in several large markets such as US, Canada, UK, France, Spain, Japan and Taiwan, amongst others. In the United Kingdom, the company is growing outwards from London, with bookings growth of nearly 200%. Even in its home country of US, gross bookings were up roughly 123% YoY. It should be added Uber Eats is no longer a player in India, after it was acquired by Zomato at the start of this year.
  • Uber Eats Pass expanded: Uber’s free delivery membership scheme saw surpassed more than 1 million paid members. The Eats Pass was expanded to four new countries, and will be expanded elsewhere in Q4.
  • Uber freight delivery also grows: The company’s freight shipping business saw a 32% growth in net revenues.

Khosrowshahi indicated Uber’s food delivery business has great potential to expand: “In the US, we have about 30% of restaurants in the US. In the UK, we’ve got about 16% of restaurants. In France, it’s 15% of restaurants. In Mexico, Brazil, it’s about 10% of restaurants. In Japan, it’s less than 5% of restaurants on our service. So that would tell you that the growth that we have going forward is going to be many multiples as we penetrate deeper and deeper into newer restaurants.”

Uber upbeat about Prop 22

Dara Khosrowshahi was pleased with the passing of Proposition 22, a ballot measure in California, US which allows companies like itself to treat drivers as independent contractors, and not full-time employees. Uber had, in fact, heavily backed the controversial ballot measure.

He said that California voters had “listened to what the vast majority of drivers want”. “Going forward, drivers and delivery people in California will be guaranteed a minimum earning standard, healthcare contributions, accident insurance, increased safety protections and more.”

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Uber will, according to Khosrowshahi double down on advocacy of laws like Prop. 22. “Our proposal for a new pragmatic approach is supported by 82% of drivers and 76% of voters. And it’s a priority for us to work with governments across the US and the world to make this a reality.”

How will it affect pricing strategy? An investor asked Uber how Prop. 22, with the prescribed social benefits, will affect the company’s pricing strategy for riders. Khosrowshahi indicated that the prices will not rise to a level that will affect ride volumes. He said, “It may have some implication as it relates to rates, but we think that any effect that it has on rates will not have a significant effect on trip volumes one way or the other based on the kinds of sensitivities that we’ve seen in the past.” Nelson Chai, CFO of Uber, said that Prop. 22 could result in a 5% increase, much of which will be passed on over to consumers.

Earnings snapshot

Revenue (Mobility): 1.365 billion (down 53% YoY)

EBITDA (Mobility): 245 million (down 61% YoY)

Revenue (Delivery): 1.451 billion (up 125% YoY)

EBITDA (Delivery): -$183 million (up 42% YoY)

Revenue (Freight): 288 million (up 32% YoY)

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EBITDA (Freight): -$73 million (up 10% YoY)

Overall EBITDA: -625 million (down 7% YoY)

Net loss: $1.1 billion (down from $1.2 billion in Q3 2019)

Earnings release | Investor call transcript

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