…Shares fall as company says ride-hailing and delivery businesses grew while freight shrank
Shares of ride-share company Uber drop after reporting a mixed earnings report. Missing on revenue, Uber’s cost-cutting strategies and layoffs offset cash flow concerns, ultimately turning a profitable second quarter. Kindred Ventures Founder and Managing Partner Steve Jang — who is an early investor and advisor at Uber — sits down with Yahoo Finance Live to discuss Uber’s path towards consistent profitability under CEO Dara Khosrowshahi. Jang highlights Uber’s third-quarter guidance citing travel demand, expansions into other regions, and its grocery delivery service.
Video Transcript
– Uber shares jumping, jumping, this morning as Destiny’s Child would say, after its second quarter results show that the company posted its first ever GAAP operating profit results for the rideshare giant. On the top and bottom line were mixed with revenue missing expectations at $9.2 billion and adjusted earnings per share beating estimates at $0.18 a share.
Joining us now, we’ve got Steve Jang who is the Kindred Ventures founder and managing partner here. Steve, great to have you here with us this morning. First, got to just get your top line read here on Uber.
STEVE JANG: Sure, I think this is a Seminole quarter for the company in its entire history, it being $1.1 billion of free cash flow in this last quarter, a huge milestone for the company, also on a GAAP basis an operating profit of over $300 million. So it’s well on its way to the next chapter of its story, which is as a profitable company is not only a technology company but a high executing operating company. And I think this is something that the company’s been looking forward to for the last 14 years since its inception.
– And you were one of the early investors in the company, we should mention. So you’re well-acquainted. What do you think Uber has done right particularly in the last two years under Dara Khosrowshahi to sort of get it to this point?
STEVE JANG: Sure. Prior to Dara coming on board in the company five years ago, six years ago actually now, the story of the company was growth and innovation. And I think after going public under Dara’s stewardship, the market’s Wall Street investors wanted profitability. They wanted to see that the pioneer of the sharing economy marketplaces could actually be profitable. And I think Dara has done that now and has proven that. And that’s really important for this company in terms of the next stage.
The growth that we see today is measured, right? It’s measured by the need to be profitable. Not only gross profits but operating profits and net profits. And I think the challenge through COVID was to keep the ship floating and moving forward. And now that the economy is rebounding, Uber has become not only a utility and an operating system for transportation and Logistics, but it’s also somewhat of a bellwether and a marker for how the economy is doing.
So my belief is that we are not in a full recession. That we are actually doing quite well fundamentally, at least in the US, and we are on the up and up. And I think if you look at Uber’s performance over time, it reflects that. And so the goal of the company has been to reach this profitability. I think the next step here is to see how we can turn on growth again.
And I think growth will come in in several forms. I think growth will come in international regions where Uber is strong. Again, Uber is the only global ride sharing and logistics company that is of note. Right now, Lyft is only domestically available. DoorDash on the delivery side is only domestically available. It’s in main international competition, DiDi is quite hampered right now with what’s going on with China and the growing pushback internationally to their growth.
So I think Uber is well positioned today. India is a bright spot. I think there’s a huge opportunity in India for Uber. I think Uber’s early investment internally on its own systems and marketplace using AI will continue to pay off quietly and will become a little bit more loud and pronounced in the moving future. I think it’s divestitures of its innovation businesses in terms of self-driving cars and aviation, I think that was probably smart in hindsight in that the markets have been pretty brutal on those companies.
I think as the stock price goes up at Uber, I’d like to see more reinvestment of the company into those innovation areas, including AI, including self-driving vehicles. You see great partnerships right now with Waymo that are at the very beginning. I’d like to see more of that as with Uber at the center nexus of self-driving vehicles in every major city in the US.
So there’s a lot of growth opportunity, a lot of headroom still. The business today has 137 million monthly active customers. I think that’s just at the very beginning of a growth curve globally.
– I love the perspective that you added there a couple of minutes ago about Uber as an economic bellwether here. But even more as you think about some of the growth and their role that they play in the economy, how much as a company do you expect them to spend in order to really elicit that growth that you were talking about in some of the key areas of the business? And what does that mean for pricing strategy too for consumers?
STEVE JANG: I think the pricing strategy has pretty much settled down. I mean, there was a cost– there was a price war happening between ridesharing companies over the last three, four years that was pretty heightened.
I think the thing that Uber has done well, to answer the prior question again, is Uber really focused in on the supply side of the marketplace. Ridesharing and delivery, it’s a supply side marketplace dynamic for sure. I mean, it’s been proven over the last six, seven years that this has been the case. And that’s why you saw a lot of the pricing wars between driver subsidies and other marketing expenses like that. And that has all settled down. Lyft is hampered right now and has reduced costs, and that has stopped there. DiDi, same thing as well globally.
So I think right now, I think Dara just went on the air and said, hey look, we’re seeing pricing really settle down, we’re competing now on brand and service quality. And I think that’s the name of the game.
The growth that you’ll see moving forward, I think, comes from just day in, day out operational excellence. The company has done a really good job of cost cutting, they’ve done a great job of servicing drivers. The Uber One program allows for customers of delivery of Uber Eats and Uber ridesharing to be able to have an elevated experience. I think more and more of these efforts to take a lot of the multi-modal transport and a lot of the cross-selling between services.
And drivers, having drivers graduate from being a Uber Eats driver on the delivery side into ride hailing, which is much more profitable for the drivers. I think that this constant progression is really important for the growth of the business. Outside of that, technology innovation needs to be stoked again. I’m sure that– I know that the management team is already focused in on that. That’s a three to five year story arc. We’ll see how that plays out. But I’m really excited to see equity value increase, balance sheet strength increase, and to see reinvestment into those technology innovation areas like AI, also international development as well.
– I know that the company has also talked about focusing on grocery and that as a growth area. Does that make sense to you? Do you think that’s going to be a big area of opportunity also?
STEVE JANG: I think grocery as a standalone business is not a great business today. I think there were a lot of COVID tailwinds that came into grocery and delivery. I think the unit economics today as a standalone business aren’t great. But I think that as a part of a larger multi-service operating system or a platform, I think it does make sense. It increases average order value, increases ARPU of a Uber customer today. So I’d like to see more expansion in that.
I think is there at acquisition available to the company? I think there is. I think we have to see buyer and seller prices kind of come into better alignment. But I’d love to see that. That’s an area of growth in GMV that would be tremendous. And I think that fits into the story of is Uber the operating system for all of these things in your daily life that require transport or logistics? And in terms of international growth, I think that’s also a huge greenfield opportunity.
– Steve, thanks so much for the time here today and helping us break down some of the Uber results as well as the forecast and perhaps, even the growth pathway here. Steve Jang who is the Kindred Ventures founder and managing partner, appreciate it.
STEVE JANG: Thank you for having me.
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