Weekly readings – 15th February 2020

An interesting piece on Lyft vs Uber

An argument for the challenges that Google is facing

This is what a hearing should be. Not the kind that has taken place lately

Spotify is evolving

Oklahoma State’s new identity. In my opinion, the new logo doesn’t look bad at all

This article sheds some light on the secretive S team at Amazon

The government’s revenue depends significantly on the tax receipts from citizens and corporations. So the revenue projection depends much on the assumptions of economic growth which seem too optimistic. It’s important to take into account the feasibility of these assumptions; which the media may not capture fully or an average citizen cares enough about

Thoughts and notes on Uber’s latest earnings

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

Source: Uber

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.

Source: Uber

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

Source: 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.

Source: Uber

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.

Source: Atom Finance

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

Weekly readings – 1st Feb 2020

This post is a little bit late since I have been sick the whole weekend

The decade of the very poor and the super rich

A good read on marketplace and under-utilized assets

How the Dutch Use Architecture to Feed the World. I didn’t know that Netherlands is the second biggest exporter of agricultural products in the world.

Uber tests letting drivers set their own prices. I never thought Uber would, one day, let drivers set up their own price, but apparently they seem to be experimenting on it. I wonder whether Lyft will follow suit and whether this development will pave the way for aspirational startups.

I am very disgusted and disappointed by Southwest. After all the consequences that Boeing has had to face in the aftermath of Boeing 737 Max, Southwest still doesn’t learn the lesson. I hope they will soon

Southwest pilots flew more than 17 million passengers on planes with unconfirmed maintenance records over roughly two years, and in 2019 smashed both wingtips of a jet on a runway while repeatedly trying to land amid gale-force winds, according to the Transportation Department report, reviewed by The Wall Street Journal.

Source: WSJ

An Electronic Heath Records system provider worked with a drugmaker to implicitly encourage more opioid prescriptions to patients, despite an alarming rate of deaths by overdose.

Groundwork for the deal between the companies began in 2013, according to the statement of facts agreed to by Practice Fusion under a deferred prosecution agreement. The idea was to get the opioid maker’s pain drugs to certain kinds of patients: ones who weren’t taking opioids, or those being prescribed the company’s less profitable products. It also aimed to secure longer prescriptions, according to the court papers.

Source: Bloomberg

Weekly readings – 11th January 2020

Commission-free investing with Vanguard. Introduced by a…vanguard like Robinhood and adopted by others like TD-Ameritrade or E-Trade, commission-free trading is now available with Vanguard as well

Analyst, analyze yourself

The environmental impact of today’s transport types

How to lose a monopoly: Microsoft, IBM and anti-trust

Cities Struggle to Boost Ridership With ‘Uber for Transit’ Schemes

How a plant saved a Japanese island

Uber incorporated transit ticketing into its platform

Uber rolled out the feature first in Denver last summer, allowing the city residents to buy public transit tickets straight from its platform. Apparently, it has been a positive experiment so far. The company reported an average growth of 42% each week from May to the end of June 2019. In an interview with Bloomberg Technology today, the Head of Uber Transit said that the feature’s user growth in Denver was 15% week over week. Judging by the difference of the two growth figures, I guess that the latter was taken over a longer time period and a bigger base. Furthermore, Uber announced today that it would bring the ticketing feature to Las Vegas.

Uber also said that the number of repeat ticket purchases has increased every week since ticketing launched. As of the week of June 24th, approximately 25 percent of tickets sold were purchased by users who had previously purchased tickets on the app.

Source: The Verge

I think adding the ticketing option to the platform makes sense.

In the beginning, Uber under Kalanick tried to grow exponentially by reaching as many domestic and international markets as possible. After the change in the leadership, Uber scaled back its presence overseas and sold unprofitable businesses in South East Asia and China. If it couldn’t expand geographically, how growth could be obtained? By going vertically and more deeply in the existing market.

Hence, Uber offers additionally services like Uber Eats, Uber Bike, Uber Freight or Uber Fly. Uber’s transit ticketing is another way to move towards the goal of being a one-stop shop for transportation.

I used to rely on public transit in Omaha a lot. The local bus operator’s website offers a detailed schedule of what time buses approximately will come and leave. However, it doesn’t provide an estimate arrival time and the user interface pitifully leaves a lot to be desired. Map applications such as Apple Maps and Google Maps are fairly helpful in tracking bus movements and giving an estimated arrival time. But it doesn’t provide a comparison between options such as public transit and an Uber ride. Uber’s value propositions lie in its household name, a comparison between options in terms of time and cost, cashless payments and convenience. If you can help users eliminate one click or action on the phone during a user journey, it can be an added value.

Source: Uber

It is unclear whether and how Uber has so far managed to earn revenue and profit from the new feature, though the Head of Uber Transit confirmed that it was a revenue-generating vehicle. Even if there is no money to be made yet, when the application attracts more usage, users and traffic, it will find ways to make more money later on.

Another benefit that I suspect the new feature will bring to the table is to act as an anchor option for its rides. An anchor offer is one that is presented to make the truly primary offer more attractive. It’s similar to readers, after seeing a package of online and offline access to a newspaper have the same price as the exclusive digital access, choosing the combination package. As you can see in the screenshot above, even though the transit option comes with a saving of $8, it will cost a rider 20 minutes more. In some situations, riders may be more motivated to choose an Uber ride, instead of waiting for a public transit.

Uber may not make any money when it sells bus and subway tickets through its app, but it is seeing an uptick in business as a result. Since Uber launched its transit planning feature in January, Uber trips in Denver that start or end at a transit station have grown 11.6 percent. This helps bolster Uber’s claim that it is helping solve the first mile / last mile challenge that plagues many cities.

Source: The Verge

So the transit option is just one way in which we are increasing our relevance to a greater number of consumers on a global basis. And we are seeing it in higher engagement in the app specifically with London and some of the other areas where we’ve grown transit.

Source: Uber’s Q2 Earnings Call Transcript

Furthermore, The Verge reported a concerted effort by Uber to appear less contentious towards public transit. Working with various stakeholders in the markets in which they operate will earn Uber some goodwill. For a business endlessly engaged in legal issues with local authorities across the world, some goodwill is definitely helpful.

Weekly readings – 16th November 2019

150 years of nature

The Slowness of Literature and the Shadow of Knowledge

It’s Not Enough to Be Right—You Also Have to Be Kind

Wework pitch deck

Wework’s issues with the SEC before IPO. It’s mind-blowing that this didn’t get reported at the time

Uber Hit With $650 Million Employment Tax Bill in New Jersey

If You’re Busy, You’re Doing Something Wrong: The Surprisingly Relaxed Lives of Elite Achievers

Rules that are likely to increase transparency in hospital pricing

How Google turned its back on its own founding philosophy for search results

Credibility of SoftBank called into question

SoftBank has been known for being a big money player. Their investment fund, the Vision Fund, worth of $100 billion is made of mostly money from the Middle Eastern governments. They have poured money into startups around the world, including big names such as ByteDance, WeWork, Uber, Slack, Flipkart and Brandless, as well as established companies such as Sprint in the US.

By all means, being able to the tune of $100 billion is a massive undertaking. It shows the trust of investors in Son, the founder and CEO of SoftBank, and his team. However, three years after the money was raised, there have been concerning signs of SoftBank’s investment strategy and execution.

SoftBank’s most infamous flop is WeWork. After pouring $9 billion into the startup, the Japanese firm had to see WeWork’s IPO scrapped, its CEO and founder ousted and to plan another $10 billion bailout at a valuation that is significantly lower than what Son and his team expected (per WSJ). It’s mind-blowing that billions of dollars were invested with what seemed to be insufficient scrutiny and due diligence

SoftBank executives were alarmed by what they found looking deeper into the company’s financials, people familiar with the matter said.

Source: WSJ

In addition to WeWork, other high profile investments such as Uber and Slack haven’t met expectation either. Uber had to scale back its valudation upon going public and since being on the stock market, neither Uber nor Slack has been trading above its initial price

Source: Financial Times

Six years ago, SoftBank bought a controlling stake in Sprint. This paragraph below from CNBC summarized how the move is six years later

SoftBank successfully engineered a sale of Sprint for $6.62 per share to T-Mobile in 2018. (State attorneys general are in court attempting to quash the deal on grounds that it will unacceptably decrease competition.) But SoftBank acquired its majority stake in Sprint for $7.65 a share in 2013. When SoftBank bought Sprint, it was the third-largest U.S. wireless carrier by subscribers. When SoftBank sold, Sprint was a distant fourth behind VerizonAT&T and T-Mobile.

But Sprint’s annual revenue has shrunk since SoftBank took over, from $35.3 billion in 2012 to $33.6 billion in the latest fiscal year. Recently, subscriber numbers have been dropping, and the company recorded a $1.9 billion loss last year. Still, Claure made over $40 million in compensation from 2015 through 2017, primarily because of stock awards that resulted from keeping the shares above $8 per share, which was only marginally higher than the price SoftBank paid in 2013.

Sprint even acknowledged in April it didn’t have a sustainable path forward in a filing to the Federal Communications Commission, asking for the regulator to approve its sale.

“Sprint is in a very difficult situation that is only getting worse,” the company said in the letter. “Sprint is losing customers — which then reduces revenues and cash flow — further limiting its ability to invest in its network and service its debt. Simply put, Sprint is not on a sustainable competitive path.”

Source: CNBC

Furthermore, troubles have surfaced at other startups that SoftBank invested in. Fair, an online car-leasing startup, announced that it would lay off 40% of its workforce this week. Wag, an on-demand dog walking firm, laid off more than 50 employees this year already. Brandless saw declining revenue by 54% compared to the same period last year and planned to cut marketing budget.

On the other side of all the problems that hit SoftBank lately, the Japanese firm does have success in the form of its investments in Alibaba and Flipkart. Plus, its capital allowed ideas and founders to come into life. Nonetheless, the struggles at companies listed above do call into question its hype, strategy, execution and credibility. When you want to raise an unprecedented amount of money and invest in an unprecedented fashion, you are put under unprecedented scrutiny and expectations.