Q3 2019 Earnings Call
[noise] [noise] [noise], ladies and gentlemen, thank you for standing by and welcome to the over Q3 2019 earnings Conference call.
At this time, all participants' lines Oriental listen only mode. After the speakers presentation. There will be a question and answer session to asked a question. During this session you will need to press star one on your telephone.
If you require further assistance press Star Zero I would now like to hand, the conference over to Emilie Reuter Investor Relations. Please go ahead.
Thank you operator.
Thank you for joining us today and welcome to were technologies third quarter 2019 earnings presentation on the call today, we have Dar coffee Fahey Nelson check we also have Kent Schofield and this is only writer and Investor Relations team.
During today's call will present, both GAAP and non-GAAP financial measures additional disclosures regarding these non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures are included in the press release supplemental slides in our filings with the FCC each of which is posted to investors <unk> Dot com.
I'll remind you that these numbers are unaudited and maybe subject to change.
Certain statements in this presentation and on this call may be deemed to be forward looking statements, but statements can be identified by terms such as believe expect intend and may you should not place undue reliance on forward looking statements actual results may differ materially from these forward looking statements and we do not undertake any obligation to update any forward looking statements we make today.
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 included in the section under the caption risk factors and management's discussion and analysis, a financial condition and results of operations in our prospectus filed with the FTC in connection with our IPO.
On May 13, 2019, as well as our second quarter Form 10-Q that was filed in August nine 2019.
Following prepared remarks today, we'll open the call the question with that let me hand, it over to Dora.
Thanks, Emily and thank you all for joining.
We used about her continued progress towards unlocking value from our platform and fulfilling our vision of becoming the operating system for consumers everyday lives in cities around the world [noise].
I'll discuss our broad business, which reached two very significant milestones in Q3, we achieved 1 billion and weekly gross bookings and we generated rides adjusted EBITDA of 631 million up 52% year on year.
Importantly rides adjusted EBITDA now more than covers our corporate overhead which consists of 623 million in corporate Gionee and platform R&D spend.
We continue to be the rides leader in every region in which we operate growing or maintaining category position in our most important markets, including the U.S. Latam and the UK, while significantly improving our rise adjusted EBITDA margins from 17.8% of and are in Q3, 2018% to 22%.
And this quarter.
Moving forward, we expect to drive continued topline and margin growth by investing in our marketplace doubling down on our premium product offerings as well as continued financial discipline.
For example investment in our enterprise products has driven Uber for business growth exceeding 70% while expansion of our premium comfort product to more than 150 cities globally has been a win for riders and drivers.
Additionally, we made meaningful progress on a number of our high priority markets, such as Germany, Japan and Argentina.
Our teams are confident that they can drive strong top and bottom line growth over the next several years.
Second our each business continues to expand globally with gross bookings growing 77% in a in our growing 109% year on year on a constant currency basis. As a result of continued improvement our take rate, which grew to 10.7% from 9% this quarter last year.
Our strategy for Isa simple invest aggressively into markets, where we're confident we can establish or defended number one and number two position over the next 18 months.
We believe the scale and strength of our global brand our plant expansion into new local east.
No new local commerce categories like grocery and the power of our platforms cross promote and drive loyalty within our product lines, all afford a superior acquisition and per transaction economics compare to model on local players.
Many of the startups in the food category has been trying to use cheap capital to buy their way to growth.
But we've seen the capital is getting more expensive and can run dry whereas platform leadership is both far cheaper and more permanent when coupled with excellent execution.
We believe the online food delivery category could undergo the same moved to more favorable market conditions, but we've observed in rides as companies contend with public market investors.
A few weeks ago, we announced the majority investment a corner shop, a leading provider of online grocery delivery, Mexico and Chile.
Given the tremendous synergies between restaurant delivery and grocery we see significant value in adding an already established and highly successful grocery after a platform.
Further solidifying Huber as the operating system for everyday life in Latin America and potentially beyond.
Our recent announcement that we will begin showing rides eats and other services side by side in one app demonstrates the clear advantages of our platform approach, we can more quickly and efficiently attract and retain customers as well as deepen their engagement by linking and cross promoting all of our offerings. It's early days, but we've already launched products like Uber.
Pass a subscription that provides all in one savings like Rod protection $0 delivery on delivery fee on erber eats orders and more for customers and 10 cities.
Similarly, Goober rewards, which reached 18 million subscribers in the us in just six months since launch should drive increased loyalty as cup as consumers accumulate and use Uber rewards across our platform.
Finally, we're focused on turning their rods users into each users and as part of the changes we made to our marketing organization have structure teams around seizing high potential opportunities like this.
Lastly award on regulations to ensure the best outcome for riders drivers in the cities in which we operate we continued to be focused on positive productive engagement with regulators all around the world.
It's important to remember where we came from when we launch peer to peer ride sharing in 2013, California was the only place on the world with regulations on the books.
Fast forward to today, just six years later nearly every major market in the world has recognized and license our service.
Nonetheless regulations in California have greater generated a lot of interest over the past few months. So I want to briefly address our situation there.
For context, California represents 9% of our global rise in east gross bookings, but a negligible amounts of arising needs adjusted EBITDA respectively.
We continue to focus on a path that we believe provides a very attractive option for drivers and couriers, where they retain flexibility, but gain important new protections like healthcare subsidies and amendment minimum earning standards.
Other with Lyft indoor Das, we're putting a ballot measure to California voters in November 2020, their proposes just such a model.
I also want to highlight the significant progress we made on policy across the world. This year positive independent contractor rulings from both of US via Department of Labor letter in April and Brazilian Federal governments. The passage of a mobility law in France, which includes a reaffirmation of independent classification and a return to Vancouver after so.
Seven years away.
Generally speaking our priorities remain the same secure regulations that allow the business to grow and enable individuals to fund flexible earnings opportunities on our platform.
Before I turn it over to Nelson for details on the numbers I want to speak to the excellent progress we've made on rod since our IPO is this was our best quarter ever and the first in which we've disclosed or segment level EBITDA in just two quarter since our IPO, we made a lot of progress.
Since Q1, we've doubled Q3 rise in our to 24% on it on a constant currency basis, and our growth 24% on a constant currency basis.
We improved our rides take rate by 200 basis points to 22.8% producing an incremental 300 million in Q3 19 an arm.
Our transaction growth along with a better take rate has improved in our by 500 million 400 of which flowed through to rise adjusted EBITDA.
This represents an 80% incremental EBITDA flow through increasing adjusted EBITDA margins from 8% to 22% in just two quarters.
We've achieved this with an improved framework on capital allocation efficiency capability and cost control.
As an example, we again reduced insurance and payments the two biggest components of our cost of revenue quarter on quarter and the year on year as a percentage of gross bookings.
We did all of this and achieve the same quarter on quarter topline growth rate. This Q3 as Q3 of last year. Despite a 2 billion increase in gross bookings for the quarter.
To be clear, we're not done by a long shot Interide segment, and we are as we speak applying the same level of rigor to all of other segments, including eats we've already made some tough decisions regarding our head count in resource allocation to make sure. We got the very best teams working against the highest return projects and will continued to.
And efficient with our capital.
Our current target with a ton of hard work from all of our teams is to get to total company EBITDA profitability for the full year 2021, as we see the benefits of global scale and efficiency and the best Tech talent out there.
The world's magical companies are the ones that in compound topline growth at massive scale improve margins allocate capital efficiency and do the right thing for all of their constituencies, we're working hard to be one of those magical companies.
And now into Nelson for more details in the numbers. Thanks to our core continuing with our financial results I want US described some of the changes we've made to our reporting.
Now provide greater visibility into our business by reporting on five segments.
For each of these segments, we are providing gross bookings revenue adjusted net revenue segment adjusted EBITDA.
Our historical total company results remain unchanged.
Our segment adjusted EBITDA measures replace it was previous reported as contribution profit and loss and maintains the same definition and includes all the segments direct costs with Contra revenue cost of revenue support in operations sales and marketing and Gn, a and R&D directly related to these respective segments, which represented.
Giardia of our total Gionee and R&D spend.
For further information on these changes and to address any questions on bridging our old and new segments. Please see the supplemental slides posted on Investor Day Gruber Dotcom.
For the remainder of this discussion all growth rates reflect year over year growth unless otherwise noted.
Now onto our GAAP results for Q3, 2019, our GAAP revenue was $3.8 billion up 30%.
Cost of revenue, excluding DNA of 1.9 billion decreased 48.1% from 51.3% of revenue in Q3 2018.
GAAP EPS was a loss of 68 cents compared to a loss of 221 in Q3 2018.
Further the remainder of than call unless otherwise noted I will discuss key operational metrics as well as non-GAAP financial measures, excluding pro forma adjustments such as stock based compensation and the onetime driver appreciation award associated with the IPO in the second quarter of 2019.
Our total company global trips of $1.8 billion grew 31%.
Global trip growth continues to be a significant driver of our overall growth in gross bookings.
Maxis or monthly active platform consumers were 103 million up 26%, we continue to see strong new maps the additions to the platform via eats and rides.
Total company gross bookings were 16.5 billion growing 29% or 32% on a constant currency basis.
Adjusted net net revenue or an AR was 3.5 billion, which was up 35% on a constant currency basis.
Our and our take rate was 21.5% of gross bookings up 60 basis points year over year, and 140 basis points quarter over quarter.
non-GAAP cost of revenues, excluding DNA decreased to 45% from 47% of NR and decreased to 9.7% from 9.9% as a percentage of gross bookings.
Ensuring some payments as a percentage of the gross bookings improved quarter over quarter and year over year. This was partially offset by an increase in cost of revenue due to freight and nemos gross for merchant model, we're freight partner payments and Nimo scooter hardware and fuel costs are included in our cost of revenue.
Turning now to non-GAAP operating expenses first I'll stop I'll start with operations and support and sales and marketing, which are 100% allocated to our five business segments.
Operations and support was stable at 13% of adjusted net revenue and has been stable at 3% of gross bookings since the third quarter of 2018, reflecting ongoing rides support efficiency improvements offset by mix shift to higher percentage of eats transactions, which carry with them a higher contact rate.
Going forward, we will look to automate a higher percentage of east customer service tickets and already seeing reductions and contact rates month over month.
Sales and marketing increased to 30% from 28% of adjusted net revenue and increased to 6.5% from 5.9% of gross bookings versus the third quarter of 2018.
This increase was primarily due to increased consumer promotions as well as increased advertising and marketing spend prior to our Q3 head count reduction.
R&D decreased to 13% from 14% adjusted net revenue decreased 2.8%, 8% of gross bookings.
Due to slower growth and DCG expenses.
We expect to get leverage on total R&D over the long term.
DNA was flat at 15% of adjusted net revenue and remained flat at 3.1% of gross bookings versus Q3 2018.
It was flat as a percentage of our topline as a result of public company infrastructure investment, we expect the DNA will grow significantly more slowly.
Off line.
Our Q3 2019 total adjusted EBITDA loss.
585 mode.
We handedly beat our internal internal plan due to the strong execution of our.
We know we have a lot more work to do here.
Focus on balancing investment with profitability improvement.
Now I'll provide additional detail under segments.
First on the Rightside brides gross bookings of 12.8 billion grew 22% a constant currency currency led by the us on Latam respectively.
And our 2.9 billion grew 24% at constant currency driven by more favorable market dynamics in the us stability in Latam beginning in the 2019 and improved share of rising efficiency.
Rise adjusted EBITDA was 631 million or 22% approximately.
This represented a quarterly record on an absolute dollars and margins basis, with 270 basis point, and 420 basis point margin improvement quarter over quarter and year over year, respectively, as a percentage of and our.
During Q3 2019, the adjusted EBITDA margins for the top five rides countries by gross bookings range from 17, 17% to 62% as a percent of NR.
Theres nothing structurally different about the highest margin country that would prevent other countries for matching as market dynamic.
Mix become more favorable overtime.
On the east gross bookings of of $3.7 billion grew 77% at constant currency driven by growth in APAC, and the U.S and Canada, which was our largest absolute dollar growth driver by category growth slowing some core metrics.
He is an art was 392 million up 109% on a constant currency basis through the ongoing benefit from the service fee structure launched and use it in Q1 2019.
These adjusted EBITDA was a loss of $316 million or negative 81% of and are a negative 8.6% of gross bookings.
We have nearly 108 cities that are adjusted EBITDA margin positive with that said given the large private capital inflows into the online food delivery category competition has been tier one markets.
To underscore the levels of promotion and incentives by privately funded players.
Proximately, 15% of our east gross bookings makeup over half of our adjusted EBITDA margin loss.
A decision recently to exit the South Korean market demonstrates our willingness to exit markets with low ROI.
Our freight business grew and our over 78% and adjusted EBITDA was a loss of $81 million freight growth was driven by load volume increases over 100% in spite of soft market conditions.
It continues to rapidly take share in the large us market, while providing excellent service that lays the groundwork for long term shipper partnerships.
Our team continues to automate what were high touch phone driven tasks to scale, our enterprise relationships and increasingly our self serve small shipper platform and to expand our carrier footprint across individual as well as fleet owners.
Our other bed segment had an our 38 million and an adjusted EBITDA loss of $72 million.
Other bets, which consist primarily of our drug jump E bikes and scooters continues to be a strong consumer acquisition channel.
We also continue to achieve improvements to unit economics.
Hcg adjusted EBITDA was a loss of $124 million based on this quarter's level of investment. The recent billion dollar investment in a TG covers about eight quarters of spend.
The first engineers from Toyota and Denso are now co located with our TG teams in Pittsburgh, demonstrating toyota's commitment to our this partnership.
We also announced that hcg will begin manual testing and mapping in Dallas in early November .
In Q3, 2019, corporate DNA and platform R&D of 623 million or bridge, which represents the DNA and R&D not allocated to one of our five segments grew 24%.
This is made up of DNA and engineering functions that support the entire platform, including infrastructure payments brand and customer support technologies.
In terms of liquidity, we ended the quarter with approximately $12.7 billion and unrestricted cash and cash equivalents, an increase of $1 billion over last quarter. The increase was driven by the $1 billion an aggregate proceeds from the investment in a TG and proceeds from our $1.2 billion senior notes offering which closed in September .
Now I will wrap up providing guidance and comments.
We are narrowing our 2019 gross bookings to a constant currency growth of 35 to 30, 33% to 35% year over year up from the 31, the 35% year over year guidance given on the second quarter Conference call.
Based on September month end rates, our currency constant currency growth represents about 60% to 65 billion, we reported gross bookings.
Please note that we expect to provide 2020 annual guidance on our Q4 2019 earnings call.
For your modeling purposes. Please keep in mind that our largest foreign currencies are the Brazilian real UK pound Australian dollar Mexican peso Canadian dollar Euro Indian rupee in Argentinian peso.
Given the rapid improvement and rides take rates through Q3, 2019, we do not expect typical Q4 seasonality to cause quarter over quarter decline and take.
The each market will continue to be competitive as players have raised funds to invest in growth in this fast growing category, we will continue to invest including in Q4 2019.
When seasonal occurring across increases, we expect category take rates to contract quarter over quarter.
We expect adjusted net revenue growth rates to continue to accelerate into Q4 coming in close to 40%.
For 2019 adjusted EBITDA, we now expect a loss of 2.9 to 2.8 billion, reflecting a 250 million dollar improvement at the midpoint from prior guidance of 3.23 0.0.
We're also providing additional guidance for the fourth quarter of 2019 stock based compensation, we expect to expense.
Of 250 $300 million and we expect our Q4 2019 basic and diluted weighted average share count to be 1.7 to 1.7 to 5 billion.
As we finalize our 2020 plan, we remain particularly focused on identifying additional operating efficiencies across all of our operating expenses.
While we will continue to invest in our business to achieve long term topline growth as Darren mentioned, we are targeting EBITDA profitability.
On a fully consolidated the basis for the full year 2021.
We will confirm our 2020 guidance on our Q4 call with that let's open up for questions.
Thank you at this time I would like to remind everyone. If you do you have a question. Please press star one on your telephone keypad again, Dennis Star one.
Your first question comes from the line is Jason Hill Stein with Oppenheimer. Please go ahead with your question.
Hey, thanks for taking the call.
Maybe the first one and I don't know if you can comment on it but clearly a lot of questions around those lock up.
If there's anything you can say about.
Discussions you may be having with shareholders to try to manage the lock up.
Secondly.
We did see.
Kind of disappointing eating the quarter from a gross bookings basis.
You did allude to competitive factors.
But yeah, we did see a better take rate. So are you kind of managing the outcome in each and our relative to each gross bookings. Thank you.
So Jason I'll take the first and the one thing I did want to say as I made a comment on my guidance.
Regarding the rapid improvement in rides take rates through Q3, 2019, So I just want to clarify so we do not expect.
We do expect sorry, the Q4 seasonality caused some quarter over quarter declines. So I just wanted to make sure I clarify that for the record regarding your first question on lockup, yes.
It is true that there are lot of shares that are going to become unlocked on Wednesday, and yes, you can assume that we've had a lot of dialog very active dialogue with a lot of the shareholders over that we have I can't really comment on what what each in any individual shareholder will do I would tell you that we have very good and constructive dialogue with long term shareholders. As you know there are a.
Number of different holders, who have been in the stock for a long time as issue you should expect that people will react rationally. As you also know we've had a lot of very good long term holders come into the stock.
And again, we've had very very constructive dialogue as while there and so.
Obviously, the Theres a lot of supply that's going at the marketplace and we don't know what's going to really happen, but you can rest assured we have taken whatever steps we can to have the dialogue that we need to with with most of the parties. Yes, I think on on your each questions in terms of the tradeoffs listen there are always trade also you make in terms of investment and growth.
You know taken a perspective, though this is each grew 77% bookings on a year on year basis.
And our was up 109% year on year as well we are still.
Knowing our own numbers the largest player globally ex China. Despite some.
Some some Twitter speak from some of our competitors.
So the scale of each is still very significant.
And we will actively make tradeoffs in this business, we absolutely believe in.
The ultimate size of the each platform.
But as we said we are going to make trade offs, we're going to shoot to get to number one and number two in every market that we're in.
If we can make it to that level, we'll we'll look to dispose or will get out of a market and once we get to that number one number two position. We think the power of the platforms that LIBOR brand our ability for the rise business on the each business to work together to acquire customers than to retain customers will just be advantage over the other compare.
Owners out there so are we going to be disciplined about growth absolutely.
We did lead in in Q3 and needs will continue to lean in for the balance of the year.
But we are seeing some of the market rationalization some early signs of market rationalization.
And discipline, and we think that will be a positive factor for everyone involved.
Thank you.
You're welcome next question.
Next question is from the line of Brian Nowak with Morgan Stanley .
Thanks, taking my question I've I've two hey.
Just a the first the first question just on the the comments around full year 2021 profitability was there any sort of talk us through a little bit the biggest sources of leverage you still see in the piano on just kind of go down the consolidated piano to to get us to profitability in 2021, and how do you think about rides profit.
Stability, improving and eats gain to breakeven over that period, and then Darren just kinda back to your question about potential rationalization in eat.
Any help at all on what signs you are seeing what regions of the globe you are seeing early encouraging signs of rationalization there. Thanks.
So I'll take the first part and our I'll take the second part so.
With the new disclosure you can get a sense of the big pools that we're investing in the five different segments.
Yes, we have seen the markets continue to improve on the rise side of the business. We believe that they will continue to be constructive and so I think you'll see a further improvement there.
We do believe that Darwin's comment as a little bit on on where we think piece will go over time.
I would caution and say that lease over the next couple of quarters, we still see a lot of money flowing into that segment, but as you know when we were on the road, we talk investors about the opportunity to the potential for the rides business to become much more constructive and we've seen over a couple of quarters. How quickly. It has improved and so we think theres a roadmap out there.
Regarding that im regarding some of the investments, we're making a whether it be in E bikes, and new scooters or freight and others. As you know we are investing in a number of different.
Thats is like we call them internally and we do expect some either rationalization or optimization of those bets as as we continue to go down and move towards 20, 2021, and so we're installing the middle of our planning mode, but that is definitely where we're headed.
I think for on the on each side certainly one sign that we're seeing thats encouraging is our take rates continuing to move up or eats and we think ultimately the mature business model for each will have take rates that are significantly higher than the take rates that you see now.
We're not counting on rationalization near term in Q4.
Well, we do think that all of these markets need to rationalize and as.
As Nelson talks about the rise rationalization has happened much faster I think than anyone expected and we have a ton under on control as far as our own business model, how we use technology and automation to drive a per unit margins.
How we make sure that we scale on operating basis in terms of our overheads NRG M&A and how we get more efficient I think we've demonstrated some of that in and our rides EBITDA improvements in Q3, and frankly, we think that there's a long way to go both for a ride segment and our each segment going forward.
Board, we've got plans and now we've got to execute but we're confident that we can do so.
Great. Thanks, guys.
Sure.
Your next question is from the line of Heath, Terry with Goldman Sachs.
Hi.
Okay.
Keep your line is ramping on you sorry, Oh, yeah I'm here. Thanks.
Button I'm.
Just one thing I wanted to clarify on the 2021 coffee profitability was was that 20 profitability in 2021, meaning meaning for the full year or for a quarter or or at some point in 2021.
And then Nelson when you when you look at.
The expense reduction that you've been able to take during during the third quarter is the way. There is there way that you can you quantify for us sort of where the run rate efficiencies that you've been able to achieve our so not what we saw in Q3, but if you were to look at sort as the full quarter.
Or maybe even sort of full year impact as a those efficiencies are those cost reductions sort of where you where you are now in the way it is your.
What you what you've been able to two to achieve there and then I guess back on the profitability. In 2021 question is there a a level of revenue revenue or level of scales that was assumed in that.
In that math, the Oh for the company that you'd be willing to share that that's implied or for that degree of profitability.
Well first of all Heath to the.
Just to clarify the point in terms of the profitability, we for the whole year on a fully incorporative basis.
Is the statement.
In terms of actually seeing some of the benefits actually incorporated into the guidance and so as you know we've improved our guidance for the full year and as we think about walking towards for the 2021 target I'm. Obviously, that's included as we think about efficiency or where you really see some of the benefits from it as this leverage we're going to get over our corporate infrastructure. So.
The company has been building and the corporate overhead has been building to catch up to the growth of the company and so you've seen as I mentioned, 24% quarter, our year over year in third quarter versus the third quarter of last year Youre going to start seeing those numbers starting to grow a much smaller digits and youre going to see the growth continue and so you will start getting some of.
Our leverage are you heard darice say, you know insurance costs and costs like that continue to improve and payments costs and so we'll continue to grind it out and you've heard me talk about it we don't think Theres a big Magic bullet, we're just continue to grind it out quarter over quarter.
You won't see us take big charges for insurance like others do and we're going to say it's included in our EBITDA on and we're going to just continue to focus on execution, there and so it's not really a magic X y or Z. It's a continuation of us executing the plan you're seeing some of the samples of it on the rides business in some of the commentary in particular.
So that's our made in his prepared remarks.
And then you know as Darren mentioned, we do say, we do see a path on each side of the business.
Down the road and he's just add a little bit more there I think it's this is almost across the board. We we think that we can significantly improve cost of sales as a percentage of revenue.
We think that.
We can improve our marketing spend and spend on incentives as a percentage of revenue as well.
Both both in terms of the market rationalizing, but our team is becoming much more effective in segmenting, our consumer base or in using targeted marketing in order to reach the right person at the right time, a you know this company has been growing so fast over such a long period of time in so.
So many countries that the teams really haven't been able to catch our breath and optimize we now have a team members going against every single piano line item.
With specific projects et cetera to make sure that we can optimize and scale with the same time.
We've done it a with a ride the business already a there is more goodness. The come we believe and we believe we can kind of run the same play on eats and the other businesses as well. So the teams are pretty focused this stuff is not theoretical there's execution ahead of us, but we absolutely think we can pull this off.
Great. Thank you both.
Your.
Next question. Your next question is from the line of Justin Post with Bank of America Merrill Lynch.
Thank you.
Hey, I'm so for map season trips a little bit below some of the street estimates out there were there need to set divestitures in there or were there some pullback in severe incentives and maybe feel better about the quality of your customers can you talk about that and then you are guiding EBITDA.
Billion for above Street numbers in 21, which is a loss of 1.4, what does that mean for your growth rates as we look out the next couple of years.
Are you gonna have to give up some growth to get to those kinds of numbers. Thank you.
Yeah, I think as as far as our trip growth goes against keeps things in perspective, a 31% trip grow.
1.8 billion trips on a quarterly basis. These are very large numbers at significant scale.
I think you power to point some of the areas, where we are making certain trade offs as it relates to trip growth versus profitability, one would be our shared ride segment for example.
We were losing significant sums in terms of our shared rides are really discounting and I think that the product and technology teams are much more focused on driving shared ride efficiency building out new product like express pool, which we we're way ahead of the competition that.
Allows our consumers to essentially walk to addresses destination or wait.
Products like Uber X for less that give you discount you know kind of last in first out et cetera. So the focus really is to.
Drive lower rates based on the best technology out there versus just driving lower rates and grow through discounting.
You know building attack.
Is harder work, but we think ultimately buildings attack.
Creates kind of deeper a competitive advantages over or the other players out there and we think we simply have the best out there and we're certainly in but investing much more than any of the kind of local players can.
In terms of our 2021 targets.
You know, we will be easier or targets at this point and we haven't given no formal guidance for 2021, but I will tell you that this will we believe that we will be in a position to deliver very strong both topline and bottom line growth.
As a company at scale, there will always be trade offs that we have to make but we're prepared to make those trade off somewhere and I think those concepts of trade offs actually are positive for FFO for the company, but we want to be working on the very best ideas not just the average ideas.
Great. Thank you Donna.
You're welcome.
Your next question is from the line of Mark Mahaney with RBC. Please go ahead.
Okay. Two questions. Please it rationalization in the rights business in different geographies. There's a lot of evidenced said, it's occurring in North America to what extent you see that rationalization and other geographic markets and then start could you talk about the synergies between rides in each the extent that the business model needed to what extent you've already seen it.
Any data points there would be helpful. Thank you.
Sure Mark in terms of rationalization, Oh, I think it's a combination of both rationalization.
And just more effective a more effective execution on the team you know we are in almost every single market out there. We have 2345 competitors out there they are pushing very hard but the fact is we've got the biggest network out there we have the best brand we have technology.
We build on a global basis that we can that that we can roll out and.
And I think that our teams are executing better and I think that the network effects.
That you've talked about are showing themselves you know I think that some competitors were able to kind of by their way or spend their way, which might have hidden some of the network. It back. So this model you know when the spending goes out then you see how well teams can execute and I think our teams are executing well.
So we're seeing rationalization in the U.S., we see lots of competitor behavior, all over the world, but we can't execute in a competitive environment and I think that we are we are demonstrating that.
As far as the synergies of the rise in each business you know you see it now and the App that we're testing with the rides business or you know when you open up we're testing your you open up the the rides App you have the opportunity to order your food.
We have run some promotional campaigns for example, with certain of our partners Mcdonalds or where Mcdonald's gets the cross promote their brand to our right to owners.
The loyalty program that we have encompasses both rides and eats 18 million members and less than a year of launch in the U.S. as well.
And we do believe that our customer acquisition costs and retention are superior to our competitors out there, which again is a benefit of the platform coming together.
We think this will prove out over a period of time, but we're seeing really good early signals.
Thank you.
You're welcome next question.
Your next question is from the line of Ross Sandler with Barclays.
Hi, Ross.
Hi, guys, Yeah, just one on each and then one on rides if I can.
So you have a comment about the 15% of each GBS driving over half. The EBITDA losses was pretty helpful. Can you guys talk about how far off the U.S. businesses from breakeven and I guess, what does the bar Bell look like if you take like Australia on one end in India on the other and how wide or the goal posts in each business in turn.
Hi, good profitability.
Then on rides.
If you look at something like Brazil, that's going from profitable to negative and we know there was an acquisition from a competitor and a lot of investment behind that but it's something like dot com and you're seeing.
Across your other Raj markets, you mentioned the top five in 17% to 62% I guess, how sticky are those country level EBITDA margins overtime that'd be helpful. Thank you.
So in terms of the question on contribution margins.
Yeah, there's the barbells pretty wide right between a place like in Indiana plays like in Australia. So, yes, you got that right.
I think in some of them. It's more you know there are places inside the U.S., which we would say is a place we're investing where we have a positive EBITDA margin and so it's a little bit more city by city is just pure country by country.
But yes, I think you have the barbell about right.
As you know the each take rates in the top five cities.
In Q2 was kind of 8% to 16% and you see us continuing to make improvement there at least in Q3.
So you know there's no magic to it. It just is it is a little bit based on the competitive situation and then we are taking the right actions as our said and then you know we're very committed to really being one or two and all the markets and you're going to see us take action accordingly to get there or not and so I think on what we did in South Korea is also indicative.
You want to come right, Yeah, I think on on a rise business listen there's as I said lots of competition out there, but we are profitable and essentially.
Almost every single Mega region out there that we that we operate in and we are seeing I would say more predictability around our rides business. Although there are competitive flare ups in every single market. For example, we've seen competition answer London.
But and I think the teams are just executing better. If you. If you went kind of back two or three years back there were certain markets, where we were the only competitor out there I don't think there any markets like that so just competition as a way of life ER and the teams adjust and I think our teams are just executing much better.
With that than they were in and what is a new tough environment, but you know I like where margins are headed in the into an environment and by Nelson's remarks, when you've got markets that are today 60 plus percent in terms of adjusted EBITDA that gives you kind of a roadmap.
As to where we think we can take you know certainly not every single country or every single Mega region. It just shows you that there's plenty of margin upside left in the business even with competition out there.
Our next question.
Your next question is <unk> line of Youssef Squali with Suntrust.
Great. Thank you two questions here, please not to beat a dead horse here on each but does profitability. In 2021 do you were just funny choirs profitability or at least a breakeven into each business by that date or does it just basically assume somewhat.
Improve in a environment and then second can you talk maybe about your experience in New York City, and maybe grills, they're both the hikes that we've been seeing over the last call. It six months or so just protect perhaps as a proxy of what may happen.
If and when a be five went to go through thank you.
So you know we again, we don't want to get to stuck on 2021 as Darren said, we're still in the process of working through it.
What I would tell you it does not predicate that eats has to be either profitable or breakeven on an EBITDA margin basis. The commentary made was on a consolidated basis for all of Hoover.
That is really what the target is and so I don't want to get too detailed in terms of the each of the lines, but it does not necessarily predicate that eats has to be profitable or breakeven in 2021.
Yeah, I think as far as our New York City growth, we have seen significant price increases in New York city to to the to the consumer out there.
But the but the business is certainly growing from a booking standpoint, those price increases are slowing down trip growth. Although for you know if you look at the last six months trip chip growth is still up on a year on year basis or in New York for for the six month period.
We are definitely seeing the increase prices affect neighborhoods that might be in transit deserts that or more price sensitive and we don't think thats a good thing for New York and it's certainly not a good thing for those neighborhoods.
But you know that the New York call. It example shows a business that continues to grow and it's quite resilience to in that environment around it ultimately there's a lot of demand for transportation and we're becoming kind of a more fundamental part of everyone's lives and then are adding.
Increase other services such as Metro I'm, just kind of creates more occasions for people to come onto the app or whether they want to take an hooper or whether they want to take a pool or whether it's in many cases, they want to take public transit.
Okay. Thanks Sara.
Next question. Your next question is from the line ups Masha Khan with HSBC.
Hi, Thanks for that question.
Okay.
Yes.
Yes.
What did you get it looked like.
And second question.
Oh.
Correct.
Thank you.
That's the for I'll take the first question. The second question first and so I have talked about on the outside of the business the type of drag and so the eats and our was a 10.7% in Q3. So it was about.
0.4 drag in terms of the numbers. So India wasn't then there would have been closer to 11.1%.
Regarding where we are on money, we had a Peter Hazelhurst, who is leading the money theme for US had a presentation and Las Vegas and what we're really are focused on right now is really enhancing.
The opportunity for drivers on our platform.
And what I would say is that as you think about what consensus me that is making sure that they can get paid quickly matters a lot and so for many many of the drivers and so for many people who work in the workplace you know you're getting paid every other week and that's probably okay for many of our drivers attack, we get them paid quicker.
And so a lot of you initially we're talking about right now are really helping him through that process of many of our drivers were unbanked and so by creating you know the Google wallet and allowing them to have the opportunity have over debit card and we're working on tools that allows them to get paid every day or after every trip.
We have other tools that provides them a little bit of.
The opportunity to the extent they need to they need $50 for gas. So they can go dry and so we're creating tools like that really around enhancing and helping our driver partners.
Beyond that we obviously you're doing a lot in terms of what we can do with business development. This is that all the side in terms of lowering our payments costs and we are exploring different opportunities as you know, but it's too early for me to comment beyond really trying to create and really build out a great product for our drivers and if you think about the amount of.
Funds as opposed to through our system, and we think Theres, a big opportunity there and we think theres a good opportunity to really help them in terms of giving them the cash and they need it which is immediately and then given purchasing power and then also helping save on things whether be gas or service or other thing insurance and other things that we can help leverage our buying power.
So that's kind of where we are today. We obviously are looking beyond the it'd be premature for me to comment beyond that I think were the where the first company to stream a real time earnings at the kind of scale that that we are which is pretty exciting.
As a as necessary.
Our next question.
Your next question is from the line of Ittai My colleague with Citi. Please go ahead.
Great. Thank you everyone just to financial questions for me on first Nelson, hoping you can walk us a bit more into the sequential Q4 EBITDA loss. It seems like you're in our outlook celebrate from Q3 per your guidance, maybe just walk us through that the widening loss expectation for Q4, and then secondly, any change to come a long term.
I think 25% adjusted EBITDA margin target for it for the business that's all.
So we haven't changed any of the long term targets and as Darren mentioned earlier will comment more specifically.
And the Q4 calls we think about 2020 guidance, but as you think about Q4.
Yes, it does assume a little bit of an uptick versus where you finished in Q3, there is going to be some more investment probably on the east side of the business given the marketplace and then Additionally, you know we are investing or other things and you might just see kind of a the full year effect of some of the ads that we've made through the course of the year.
And so those really are kind of way to characterize as there are parts of our business. It does have some seasonal changes inside increases cost. So typically driver and courier costs. In Q4 can can you go up as well and so that's all kind of a embed it inside of a kind of what you're implying for Q4.
So I think year on year is going to be pretty attractive, but quarter on quarter, a you might see some seasonal effect, but the year on year on your that we see in Q4 is going to be pretty strong.
Great. That's all very helpful. Thank you.
Thank you next question. Your next question is from the lineup Lloyd Wamsley with Deutsche Bank.
Hi, Thanks, two questions if I can.
First you.
Can you talk a little bit more about the progress in some of the newer markets outdoor I think you called out Germany, Japan in Argentina in your prepared remarks, but if you can give us a better sense of what products are driving that strength and then maybe any other markets, where you see things opening up over the next year. So and then second one.
Dar you've been focused on reducing kind of parts of the company to make it more nimble wondering just how much left there has to do there and how you feel the organizations responding in terms of becoming becoming a little bit more efficient. Thanks.
Sure absolutely so Germany is a just talking about Germany, Japan, Argentina, we're we're very optimistic or on Germany for growth rates. There are a very significant year on your growth rates over 100% in Germany on the Rightsizing the business. We've also introduce.
Used to jump bikes, and Germany, as well and Europe to some extent is kind of the the center of the micro mobility Revolution that we're seeing now we're seeing incredible response to jump both in Germany and on balance and many European cities as well a and we've got a governor working.
Groupon Ridesharing reform, which is in progress.
And and listen we think that we're a more efficient environmentally friendly way to a way to move in Germany. There are some for example laws that don't allow us to two pool in Germany, which was really make no sense.
And we're confident that with constructive dialogue and a continued investment.
In engaging with with lawmakers in Germany, we can get to a win for Germany, we can get to the win for customers and which will also lead eventually to a win for member as well for US Japan is a very promising market, it's kind of a taxi first market I'd say the lead in Japan, It's actually approved.
Each product hour.
Category position and rubber eats continues to improve significantly year on year, we are definitely leaning into the Japanese market as it relates to eats a and we think Japan can be one of the the very strong markets out there and certainly a market, where we have the potential to get to that.
Number one position Ana and a big on a number one strategic number one for us.
We're diligently working in Japan as it relates to a the rides business growth is.
Over 60% on year on year basis, and we just launched food walk off for our 10th taxi market in Japan as well it will take time, Japan always takes time, but we're doing it the right way with the right relationships in Japan on the on the Rightside.
Argentina for Us is.
One of our fastest growing markets.
Although I will tell you that with the the change in government et cetera, we are being measured and our expectations. We want to make sure that we engage with the new policymakers and continue kind of the right dialogue, which is how do we make sure that we are providing a service that is a benefit for the.
Cities in which we operate benefit for riders and drivers alike, and most importantly safe or for all parties involved.
So Argentina has to date been quite positive and we'll be working kind of with the with the new government out there to make sure that it we are considered kind of a good after a positive after out there.
As you know in the UK, we continue to have dialogue with Tfl working closely with them and again when I look at the regulatory framework on a global basis, we always have the author ups or downs, but the teams are making investments and I think more and more cities and countries around the world are coming to the conclusion that number's a good thing for their country and Hooper is a good.
For for their city as well.
As far as you know, making kind of certain moves in terms of how we work listen. We're we're just is this company grew very fast.
And in the early years or the kind of.
The most important factor was speed to market, who got their earliest and who scale the fastest and so there wasn't a lot of focus on how do you make sure that you work efficiently. How do you make sure that the teams are working together how do you make sure that you reduce duplicate work that might not be adding value. It was absolutely the right said.
Our priorities for the time, our priorities are changing and now we can deliver scale growth, which is technology enabled and leading to profits and 2021 on an EBITDA basis. That's a focus of the company and I think that requires more coordination.
And that absolutely will allow us to automate some tasks that were done manually and also get rid of duplication that wasn't adding value.
And we think that we've got kind of a roadmap ahead of us and we're pretty confident that we can execute both topline and bottom line as a result.
Alright, thank you.
You're welcome. That's question. Your next question is from the line Justin Patterson with Raymond James.
Great. Thanks on over a large 20 million to solid start I know, it's early but could you talk about how easy is your differ from not loyalty members with respect to engagement.
And how important it that you it.
Toward profitability target that you create or monogamous features.
What's loyalty being one of the doctors to get back thanks.
Hi, Justin we are seeing early signs from a loyalty members in terms of higher engagement higher use of our products higher higher cross platform utilization as well I will caution. It is very early we have just launched and there's a ton of optimization ahead of us in terms of the loyalty program.
How do we optimize the customer experience how do we make sure that we we remind our users when they when they are able to when they get a benefit I think there's a lot more that we can do there and then how do we incurred users to cross panel I pollinate between one of our services to another service out there.
So we think there so there's a long road ahead of us and we're very very early here.
In terms of our forecast going forward.
We think that building inc., increasing customer engagement deepening loyalty and being more efficient in terms of customer acquisition costs and Segmentations absolutely are a part of the path to profitability.
But the teams have a plan that they're executing two and we're confident that we can get goodness there.
Thank you.
I do have time for one more question last question Yeah.
And your last question will come from the line that Brad Erickson with Needham and company.
Hi, Thanks, just a follow up on the E business I guess related to the comment earlier that 15% of beats bookings doing I guess half the losses, the any of those markets in those 15% bookings fall into situations, where you're not the number one or two physician. So just wondering if there's a chance that you exit some of that at some point. It you said.
And I guess, just more broadly in cases, where you're not a one or two player can't get there and 12 to 18 months.
Disposing of the only option you'd mentioned so far in the called it may be talk how proactively you might use M&A to try and improve your position in those certain markets. Thanks.
Yes. So yes, there are some markets, where we're not one or two that are that are in there right. Now yes, we are going to look at both disposing as well as using M&A as potential levers, we're going to lean into we're doing a lot of work right now from an allocation perspective across all our businesses and so the teams are working pretty hard in terms of creating these these may.
Maps, we think about resource allocation and so we are going to work through it. We are it is going to take the 12 18 months like you said, we are going to look at all the different levers we have our commitment is to lean and if we think we can win or be one or two and if we think we can't we're gonna be good stewards of capital and so we will make the appropriate choices we've.
On working pretty hard in terms of that framework and the teams are working hard on a right now and so yes. We are our goal is to execute against those plans.
Oh, let's do a one more question operator.
Yes, Sir your line. Your next question will be from the line of John Blackledge with Cowen. Please go ahead.
Oh, great. Thanks, I should just two questions on on 85.
Just curious is there any you expect any impact.
In 2020, I know the ballot measures in November just curious about that and just longer term implications and then second question, just the rationale and potential for grocery drug delivery with the with the recent quarter shop deal. Thank you.
Sure you know, but listen on on 85, we've been living under this a law for one and a half years and California since the dynamics decision and we've always exist there with 85 like a B C test and Massachusetts, New Jersey, Connecticut. These are pretty big markets for us.
And we know states like New York in Washington, They've already suggested that they want to pursue gig worker protections and we're happy to work with them on solutions that look similar to the ballot measure that we filed this as protections representations pace standards as well we're not afraid.
These conversations and at the same time, we're not afraid to defend our model if those conversations turnout to be on successful.
And I'm, hoping that the U.S. politicians would be willing to work with our industry our partners to get to progressive new models that are win win that frankly, they're already being established in Europe , but if not we'll continue to aggressively defend our drivers right the flexibility it's always the.
Number one reason why our drivers a value our platform. The vast majority of our drivers are not full time drivers and we and we think that not only do they value that flexibility, but we should actively make sure that we we defend that flexibility and we will look to provide.
Slide private benefits, where we can to improve their lives as well. So this is going to take dialogue, we're up for that dialogue and and one way or the other we think that our motto whoa will thrive.
And grow.
As far as corner shop goes.
We think that grocery is a grocery is a very high frequency use case it has significantly high basket sizes.
We are we were very impressed with a corner shop team and it and as you can expect leave me with everybody in our industry and adjacent categories as well and we were just super impressed with his team that has been able to.
Build out a great product was actually pretty limited capital out there.
So what we the opportunity that we see is you have a product that has been highly optimized over a long period of time and we get to put that product through our sales channel. So to speak we get to expose it to our customers and we've seen it you know when we because when we expose our our each product to arise customers.
Good things happen when we expose transit to our rights or to arrive customers. Good things happen within the same thing with with grocery we think weve corner shop, we will start in Latin America to make sure that it's working that's a we obviously have a very big position in Latin America, and we will expose corn crop grocery as well as other product.
To our east customers and our rides customers and Latin America, if it works there and we're pretty darn confident that it will we'll look to extend it but first it will be within the last time markets, where corner shop has a ton of experience and this is just about putting a great product against the a huge audience that is already engaged.
With all the payments all the identity all of that stuff, taking care of so taking out a ton of friction that a bunch of our competitors have to deal with Oh. So we're pretty excited it's a great team in and we're really looking forward to welcoming them to the rubber family.
So with that Oh, Thank you everyone for joining us for the call. A I think Q3 was a no. Other strong example of the two of that LIBOR team executing we're excited about the 2021 consolidated EBITDA profitability target that we have out there and we hope that we.
We've shown you that we can execute against not just delivering top line growth, but also topline growth with discipline. We can only do so with the really really hard work of all of our employees on a global basis and also the partnership of the cities that we work with and our drivers et cetera, and none of this will be possible without them.
But we think we're on a good path and ER and we thank you for your interest in this call and will hopefully have more to talk to you down the road. Thank you.
Thank you ladies and gentlemen, this does conclude today's goodbye. Thank you for participating you may now disconnect.
Okay.
Okay.
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