Uber Eats – Minh Quang Duong

Weekly reading – 22nd January 2022

January 22, 2022by MQDuongLeave a Comment

What I wrote last week

Uber Eats lags behind DoorDash in the US. Advertisers made up 18% of Uber merchants

Business

Another gem from Howard Marks. “Superior investing consists largely of taking advantage of mistakes made by others. Clearly, selling things because they’re down is a mistake that can give the buyers great opportunities. So it’s generally not a good idea to sell for purposes of market timing. There are very few occasions to do so profitably and very few people who possess the skill needed to take advantage of these opportunities. Thus, someone entering adulthood today is practically guaranteed to be well fixed by the time they retire if they merely start investing promptly and avoid tampering with the process by trading. On April 11, 2019, The Motley Fool cited data from JP Morgan Asset Management’s 2019 Retirement Guide showing that in the 20-year period between 1999 and 2018, the annual return on the S&P 500 was 5.6%, but your return would only have been 2.0% if you had sat out the 10 best days (or roughly 0.4% of the trading days), and you wouldn’t have made any money at all if you had missed the 20 best days. In the past, returns have often been similarly concentrated in a small number of days. Nevertheless, overactive investors continue to jump in and out of the market, incurring transactions costs and capital gains taxes and running the risk of missing those “sharp bursts“”

Google Misled Publishers and Advertisers, Unredacted Lawsuit Alleges. “Google misled publishers and advertisers for years about the pricing and processes of its ad auctions, creating secret programs that deflated sales for some companies while increasing prices for buyers, according to newly unredacted allegations and details in a lawsuit by state attorneys general. Meanwhile, Google pocketed the difference between what it told publishers and advertisers that an ad cost and used the pool of money to manipulate future auctions to expand its digital monopoly, the newly unredacted complaint alleges. The documents cite internal correspondence in which Google employees said some of these practices amounted to growing its business through “insider information.”“

Shams vs. the ‘Woj bomb’: Sports reporters are duking it out for scoops on Twitter, and their value is soaring. The business of being constantly on the phone for breaking news sounds excruciating and exhausting

Interview: Ryan Petersen, founder and CEO of Flexport. “One thing to remember here is that in America, the ports are owned by the local city that they’re in. Therefore, they’re not managed as a strategic national asset, which they clearly are. The first thing that I would do if I were in charge would be to actually put a team in charge. Right now, there isn’t a dedicated team within the federal government to coordinate all public and private sector activities to help resolve the supply chain crisis. It’s spread across multiple regulatory agencies, jurisdictions and levels of government. The two big bottlenecks are a lack of chassis and a lack of yard space both at the container terminals and in the yards around neighboring cities. We know that the federal government and the state government of California owns a lot of land so we’d love to see them make it available for storing containers and creating off-terminal storage facilities where truckers can pick up containers easily without having to wait in long lines at the gate to the ports.”

What JPMorgan is doing with that $12 billion tech spend. The threat from fintech startups is real. It should be applauded that an incumbent like JP Morgan stays vigilant and is willing to invest a chunk of money to stay competitive. Not every company can do that. With regard to the ROI of this $12 billion investment, I get that folks can be skeptical when the management doesn’t reveal it. But at the same time, there are benefits that are very hard to quantify and the technology roadmap can change all the time.

Google Team That Keeps Services Online Rocked by Mental Health Crisis. A damning account of Google’s working culture, which once was a draw for talents

Peloton reportedly pauses bike and treadmill production because of lack of demand. The darling Covid stock now bears the brunt of ineffective management and operational flaws. They invested a lot in supply, only to find out that they picked all the low hanging fruits on the market and that they couldn’t sign up more customers.

Other stuff I found interesting

Nowa Huta: The city that went from communism to capitalism. An interesting story on how a Polish city transformed itself from a communist ruin into a vibrant city powered by capitalism

Tesla Wooed by India States After Elon Musk Flags Challenges. I am not really a fan of governments at different levels being pitted against one another by rich companies. Companies always go to states that offer them the biggest benefits; which do not often translate into better lives for the constituents and local economies. If Musk and Tesla have to enter India, and if the federal and state governments are unified in how they welcome Tesla, what choice would Tesla have?

How Big Beef Is Fueling the Amazon’s Destruction. “More than 70% of deforested land in the Amazon turns into pasture, the first step in a supply chain that’s among the most complex in the world.”

Stats

Ho Chi Minh City startups raise $1.1 billion in venture capital in 2021

Apple Card’s balance as of Q4 2021 was $8 billion

7 million or more than 5% of US households are unbanked

Alcohol sales was boosted by Covid. Source: Bloomberg

Business

Uber lags behind DoorDash in the U.S. Uber advertisers made up 18% of its merchants

January 20, 2022January 21, 2022by MQDuong1 Comment

Uber Eats in the U.S accounts for 23% of its total Gross Bookings. Still far behind DoorDash

To prove that it’s a valuable partner for merchants, Uber commissioned what they call Uber Merchant Impact Report. This report is based on internal data between October 2020 and September 2021, as well as an online survey of 727 U.S merchants whose response is anonymous. According to Uber, there are 400,000 active Eats merchants in the U.S alone. Hence, the number of surveyed responders (727) doesn’t seem very representative to me. Nonetheless, the report does have some useful nuggets.

In the last twelve months, Uber Eats facilitated $11 billion in “sales” for merchants in the U.S. The word “sales” here is tricky as I don’t know for sure whether it is Gross Bookings or what merchants actually receive after Uber gets its cut. The difference can be in the region of 25%. In this case, if we assume that the figure is Gross Bookings, it means that Uber Eats in the U.S was responsible for 23% of the company’s total Delivery Gross Bookings (approximately $48 billion) in the last year. Quite a significant piece of the business. However, it still lags quite far behind almost $40 billion in Gross Bookings that DoorDash recorded in the U.S in the same time frame.

Additionally, Delivery has 400,000 active merchants and 2 million active drivers in the U.S at the end of September 2021. In the past year, these merchants and drivers helped facilitate more than 500 million Eats orders. In contrast, DoorDash, if we assume all their Operating metrics are U.S alone, has 500,00 active merchants, 3 million active riders and almost 1.3 billion orders.

	Uber Eats/Delivery	DoorDash
Gross Bookings between Oct 2020 and Sep 2021 (in $ billion)	11 – 13.75	40
Orders between Oct 2020 and Sep 2021 (in millions)	500	1,300
Active merchants as of end of Sep 2021 (in thousands)	400	500
Active drivers as of end of Sep 2021 (in thousands)	2,000	3,000

Comparison of operating metrics for the U.S market

Uber advertising is growing

Uber advertising was first launched in the U.S in Q3 2020, has since expanded to all Eats markets, exceptGermany, and has been seemingly well-received by merchants. The number of active advertising merchants grew from 30,000 in Q3 2020 to 140,000 a year later. As share of total active merchants, advertisers made up 5% and 18% in Q3 2020 and Q3 2021 respectively.

While the growth figures look good, I have a couple of concerns over this advertising business. The first is its outlook. We obviously can’t expect 100% of merchants to become advertisers. If 18% is the adoption rate right now, how much higher can it go? 25% or 50%? In that case, what would be the ramifications of having too many advertisers and too many sponsored listings on an app? We all feel annoyed with Google searched result pages littered with ads. If Uber is not careful, it will risk losing valuable consumers because of inferior customer experience. That’d be too high a price to pay, I’d say.

The second concern I have is whether this segment can actually move the needle. Uber revealed that advertising reached an annualized run-rate of $100 million in Q3 2021. Whether this number was annualized on a weekly or daily basis is unclear; which makes it impossible to really gauge how much revenue Uber actually generated from advertising. Additionally, even the annualized run-rate of $100 million is a drop in a bucket as Uber’s last 12 months’ revenue was almost $15 billion. Is advertising dollars helpful? Yes. Will it be a needle mover soon? I doubt it.

Business

Thoughts and notes on Uber’s latest earnings

February 8, 2020March 20, 2020by MQDuongLeave a Comment

On 6th February 2020, Uber announced its Q4 FY2019 earnings. Below are some of the thoughts I had from reading their press release

Take Rate

Uber defines take rate as the result of adjusted net revenue divided by gross bookings. In a layman’s terms, it is the amount of Uber takes from what riders pay for rides, after paying drivers their share. In Q4 2019, the take rate reached 20.6% compared to 18.7% in Q4 2018. It meant that out of $100 taken from riders, Uber took in more money in 2019 than in 2018

However, if we look at 2019 as a whole, take rate dropped to 19.8%, compared to 20.7% in 2018, almost a full 1% lower.

Overall, in the second half of FY 2019, Uber had higher take rates overall, for Rides and for Eats individually than in the second half of FY 2018. However, the gain was sufficient to make up for the deficit of the first half of FY 2019 to the first half of FY 2018. As you can see from the graph above, Eats provided a terrible take rate, compared to Rides.

Driver Incentives and Driver Referrals

The incentives and referrals help reflect the health of the brand and business. Low payout for incentives and referrals means that Uber spent less money to recruit drivers and increase rides. Incentives and referrals are usually presented in this manner by Uber

I calculated the ratio of Adjusted Net Revenue (ANR) over revenue in 2018 and 2019 for both Rides and Eats. The higher the figures, the better for Uber

Apparently, it keeps getting better and better for Rides. On the Eats side, Uber seemed to recover from the slump in Q3 and Q4 2018.

Rides

Rides continues to be the silver lining in the EBITDA area for Uber. It is the only segment with positive EBITDA in Q4 2019 or FY 2019 as a whole.

It’s even better for Uber that YoY growth for Rides EBITDA (34%) is bigger than that for Rides Bookings (18%), Revenue (27%) and ANR (30%).

Eats

Eats registered the biggest loss among Uber’s segments in Q4 2019. Uber may find it encourage the fact that Eats’ Q4 loss is only 111% of ANR, compared to 168% in the same period last year.

Uber recently announced the divestiture of Uber Eats in India. Since Uber Eats was losing money and users in India, the decision looked a wise one and in line with the strategy pursued by the company.

CEO of Uber revealed on the earnings call that Uber Eats in the US made up almost 39% in gross bookings of the global Eats GB ($1.7 bn out of $4.374 bn). There are 400,000 active restaurants in the US on the Eats side, up by 78% YoY.

Freight

Freight’s Q4 loss was a tad more than 25% of its ANR, compared to a bit more than 18% of the same period last year. Not a trend that Uber would want in their quest to become profitable.

Cost structure

On a full year basis, only depreciation as % of revenue decreased in 2019, compared to 2018. Overall, operating cost and expenses increased significantly in 2019, reaching 161% of revenue in 2019. However, Q4 2019 provided a brighter picture for Uber. Only R&D as % of revenue went up in the quarter, compared to the same period last year, especially given that operating expenses as % of revenue in Q4 2018 were higher than those of FY2018.

Good bits of information here and there

Uber for Business’ Gross Bookings made up 9% of the total GB
In Q4 2019, Uber Rewards Program had 25 million subscribers from multiple markets, up from 18 million from the US alone reported in Q3 2019
Multiple-app users had almost 3 times the number of transactions as single users

Thoughts

Though challenges remain, including those posed by local authorities threatening to impose infavorable regulations, driver/rider safety and competition, Q4 2019 seemed to offer the team at Uber and bull investors something to be optimistic about.

In an ideal world, I would love to see more transparency regarding:

Margin of products such as Uber for Business, Airport, Helicopter, Comfort, Scooter
Margin of Eats in the US or products in the key market
More details on subscriptions
Engagement data regarding the use of multiple apps per user

Business

Notes from Uber’s earnings call

August 9, 2019by MQDuongLeave a Comment

Uber released their 2019 Q2 results and earnings today. Below are a few things that are worth noting to me

Take rate

Uber defines take-rate as adjusted net revenue divided by Gross Bookings. Basically it is how much Uber takes out of your trip’s fare. Compared to Q2 2018, all take rates went down

	Q2 2018	Q2 2019
Ridesharing Take Rate	21.86%	18.99%
Uber Eats Take Rate	12.4%	9.95%
Total Core Platform Take Rate	20.96%	17.20%

Part of the reason for the drop in take-rate is the rise of Excessive Driver Incentives. For instance, Uber Eats’ Excessive Driver Incentive this quarter went to 43% of the revenue, compared to 36% in Q2 2018.

Story of Growth?

It’s no secret that Uber is not profitable and likely won’t be for a while. Their story is one of growth, which is not the case in this quarter as far as I am concerned

	Gross Bookings	Core Platform Gross Bookings	Monthly Active Platform Consumers
Q2 2019 YoY Growth	29.67%	30.44%	30.26%
Q2 2018 YoY Growth	48.64%	47.92%	33%

	Trips	Adjusted Net Revenue	Core Platform Adjusted Net Rev
Q2 2019 YoY Growth	35.02%	12%	7%
Q2 2018 YoY Growth	39.71%	58%	54%

Every metric saw a smaller growth this quarter compared to last year. I do get the laws of big numbers, but when your story is one of growth, this may raise a few concerns.

Among important markets, Latin America saw a 24% decline this quarter despite Buenos Aires becoming the fifth largest city based on trips

Spectacular loss

Uber reported a $5.5 billion loss from Operations. If we take away the stock-based compensation, the loss is still $1.4 billion. While revenue grew by 31%, the operational loss increased by some 89%.

Thoughts

In my opinion, there is nothing in the earnings call from Uber that conveys something remotely close to a clear path to profitability. The story of growth is challenged in this quarter. Perhaps, this is just a bad quarter and the next ones will be better. Or worse. Who knows? Self-driving cars are years and years away, not even 5 years from now. Uber also faces heightened competition in food deliver like Post Mates or Door Dash, companies that attracts big private money as well.

Weekly readings

Weekly readings – 13th July 2019

July 13, 2019by MQDuongLeave a Comment

Apple: Misunderstanding Design And Jony Ive’s Role

OTT Surpassing DVR, But Growth Is Slowing

Deaths and injuries don’t slow Uber Eats’ rapid expansion in Mexico

Nintendo Switch to be made in Vietnam. A positive sign for Vietnam, but it’s far too early to say that it will become some real advantages in the long term for my country

Costa Rica has just run on 100 percent renewable energy for 300 days

In Cairo, the Garbage Collector Knows Everything

Business

Uber’s Earnings – Is It On The Right Track?

June 1, 2019by MQDuongLeave a Comment

Uber released its first quarterly earnings as a publicly traded company. Let’s take a look how they did.

First of all, I have to say that reading Uber’s earnings isn’t a straightforward task. They make it incredibly confusing and complex. For instance, there are multiple variables concerning the company’s money-generating ability such as Bookings, Revenue, Core Platform Adjusted Net Revenue, Adjusted Net Revenue. I wish they could make it easier for the audience to absorb the information.

The company lost more than $1bn in the first quarter mainly due to bigger cost of revenue and S&M expense

Bookings, revenue and net revenue increased, but at a much slower clip than Q1 2018

Monthly trips per user are stagnant while contribution margin is negative

Uber Eats revenue grew by 89%, but Uber tripled the driver incentives for the segment

In terms of segments, Vehicle Solutions and Latin America market performed poorly compared to Q1 2018

Ride-sharing’s revenue grew while incentives contracted; which is good news

Thoughts

Uber seems to be a story of contradiction. While the CEO claimed that “Sometimes simplicity is a beautiful thing”, the business, by no means, is presented in a simple fashion. It’s complex and the terms used by the executives don’t necessarily facilitate easy understanding.

Uber CEO also said “Our job is to grow fast at scale and more efficiently for a long, long time.” Bookings, users and all metrics increased indeed. Yet, as presented above, they grew at a slower clip than one year ago. The tripled incentives used to fuel growth in Uber Eats aren’t exactly evidence for the efficiency he mentioned, and neither is the S&M expense.

The company lost $1bn and the business model doesn’t seem to change much. Also, I don’t believe in the short term feasibility of autonomous vehicles’ impact on Uber. It’s unclear how the company can tackle the profitability question. On the earnings call, Dara mentioned competing on brand and products instead of pricing with competitors. Well, whether that plan comes into beings still remains to be seen.

Business, Technology

What I learned from Uber S-1

April 14, 2019by MQDuongLeave a Comment

Its filing is packed with a lot of information. Below are my take-aways so far from reading it

It’s doing a lot of things

Apart from the ride-hailing business that it has been known for, Uber also offers Uber Eats, Uber Freights and New Mobility, including e-bikes, e-scooters. Additionally, it has been investing in autonomous driving cars as well.

Personal Mobility

In the quarter ended December 31, 2018, the average wait time for a rider to be picked up by a Driver was five minutes.
The rapid growth and scale of our Ridesharing products, which to date have accounted for virtually all of our Personal Mobility offering, demonstrates the size of our opportunity:

• Revenue derived from our Ridesharing products grew from $3.5 billion in 2016 to $9.2 billion in 2018.

• Gross Bookings derived from our Ridesharing products grew from $18.8 billion in 2016 to $41.5 billion in 2018.

• Consumers traveled approximately 26 billion miles on our platform in 2018.

Uber Eats

Our Uber Eatsoffering allows consumers to search for and discover local restaurants, order a meal at the touch of a button, and have the meal delivered reliably and quickly. We launched our Uber Eats app just over three years ago, and we believe that Uber Eats has grown to be the largest meal delivery platform in the world outside of China based on Gross Bookings. For the quarter ended December 31, 2018, the average delivery time was approximately 30 minutes.
Of the 91 million MAPCs on our platform, over 15 million received a meal using Uber Eats in the quarter ended December 31, 2018, tapping into our network of more than 220,000 restaurants in over 500 cities globally.

Uber Freights

We serve shippers ranging from small- and medium-sized businesses to global enterprises by enabling them to create and tender shipments with a few clicks, secure capacity on demand with upfront pricing, and track those shipments in real-time from pickup to delivery. We believe that all of these factors represent significant efficiency improvements over traditional freight brokerage providers. Since Uber Freight’s public launch in the United States in May 2017, we have contracted with over 36,000 carriers that in aggregate have more than 400,000 drivers and have served over 1,000 shippers, including global enterprises such as Anheuser-Busch InBev, Niagara, Land O’Lakes, and Colgate-Palmolive. Uber Freight has grown to over $125 million in revenue for the quarter ended December 31, 2018

Impressive growth has slowed down

Really impressive growth, but a further look reveals that the growth seems to slow down

Their market map indicates that there is not much room for further horizontal expansion. What Uber can do is to dig deeper in each market to gain more market share. Uber said that as of the quarter ended December 31st, 2018, 74% of their trips and 52% of their Gross Bookings were from outside of the US.

It hasn’t made money operationally yet

Operationally, Uber hasn’t made any money. A positive sign is that their revenue grew faster than their operating loss. In 2018, their operating loss was more or less at the same level as it was in 2016 even though revenue grew significantly in the same period

Regulations, Regulations, Regulations

Throughout the filing, regulatory challenges are repeatedly mentioned and for a good reason. Uber’s struggle with authority bodies around the world has been well documented. Below is what Uber said specifically how regulations restrict their ride-sharing operations in a few countries

We plan to grow our current SAM by expanding further into our six near-term priority countries, Argentina, Germany, Italy, Japan, South Korea, and Spain, where our ability to grow our Ridesharing operations to scale is currently and may continue to be limited by significant regulatory restrictions

In 2018, we derived 24% of our Ridesharing Gross Bookings from five metropolitan areas – Los Angeles, New York City, and the San Francisco Bay Area in the United States; London in the United Kingdom; and São Paulo in Brazil. Over the same period, we generated 15% of our Ridesharing Gross Bookings from trips that either started or were completed at an airport, and we expect this percentage to increase in the future.

If some regulations are imposed in those important markets or around airports, however likely or unlikely, it may meaningfully affect Uber’s revenue.

Another aspect related to laws is how Uber classifies its drivers. Here is what it said specifically on the matter

Our business would be adversely affected if Drivers were classified as employees instead of independent contractors

If politicians in the markets where Uber has operations decide to force the company to treat its drivers as employees and give them minimum wage, it may be an issue

Culture

The first of the norms Uber laid out in “How We Approach The Future” section reads: “We do the right thing. Period”. Not really surprising, but a welcoming sign from a company that endured a public backlash symbolized by the hashtag #DeleteUber not so long ago.

In the filing, Uber promises to “release a transparency report, which will provide the public with data related to reports of sexual assaults and other safety incidents claimed to have occurred on our platform in the United States.” this year. Another welcoming sign.

Furthermore, unlike other tech companies, Uber won’t have dual share structure which is implemented to give the founders, usually, more voting rights. For example, Mark Zuckerberg has more than half of the voting rights at Facebook.

Their stakes in strategic partnerships

In August 2016, we completed the sale of our operations in China to Didi in exchange for an approximate 18.8% interest in Didi, which, based on our current information, we estimate to be 15.4% as of September 30, 2018. In February 2018, we consummated a joint venture with Yandex whereby we and Yandex each contributed our operations in Russia/CIS to a joint venture which we refer to as the Yandex.Taxi joint venture. We received a 38.0% interest in the Yandex.Taxi joint venture at the closing of the transaction, which, based on our currently available information, we estimate to be 38.0% as of December 31, 2018. In March 2018, we completed the sale of our operations in Southeast Asia to Grab in exchange for a 30.0% interest in Grab, which, based on our currently available information, we estimate to be 23.2% as of December 31, 2018. We measure our interest in each of our minority-owned affiliates based on the outstanding shares of capital stock on an as-converted basis but without taking into account securities exercisable or exchangeable for shares of capital stock or its equivalent (including outstanding vested or unvested stock-based awards and any reserved but unissued stock-based awards under any equity incentive plan of our minority-owned affiliates).

Its business deals with Google

According to the filing, Uber paid Google from Jan 1, 2016 through December 31, 2018, $631 million, $70 million and $58 million for Marketing & Advertising (Ads), technology infrastructure & enterprise services (which I believe is Google Cloud Platform), and Google Maps respectively.