Q3 2023 Uber Technologies Inc Earnings Call
Good morning, My name is Brianna and I will be your conference operator today.
At this time I'd like to welcome you to <unk> Q3, 2023 earnings conference call.
Please note that this call is being recorded.
All participants are in listen only mode. After the Speakers' remarks, there will be a question and answer session. If.
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Thank you.
I will now turn todays call over to Alex Wang head of Investor Relations. Please go ahead.
Thank you operator, thank you for joining us today and welcome to <unk> third quarter 2023 earnings presentation on the call today, we have CEO Dara <unk> Shahi and CFO Nelson check during today's call. We will present, both GAAP and non-GAAP financial measures additional disclosures regarding these non-GAAP measures, including a reconciliation.
Filiation of GAAP to non-GAAP measures are included in the press release supplemental slides and our filings with the SEC each of which is posted to investor Uber Dot Com. As a reminder, these numbers are unaudited and may be subject to change certain statements. In this presentation and on this call are forward looking statements you should not place undue reliance on forward looking.
Statements actual results may differ materially from these forward looking statements and we do not underwrite any obligation to update any forward looking statements, we make today, except as required by law.
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 described in our most recent Form 10-K and other filings made with the SEC.
We published our quarterly earnings press release prepared remarks, and supplemental slides to our Investor Relations website earlier today and we ask you to review those documents. If you haven't already we will open the call to questions. Following brief opening remarks from Dara with that let me hand, it over to Dara.
Thanks, Alex Q3 marked another very strong quarter for <unk>.
<unk> year on year trip growth accelerated to 25% from 22% in Q2.
And gross bookings growth for the third quarter in a row.
Trip growth was powered by strong audience and frequency trends as consumer activity remains robust heading into our busiest period of the year.
Notably monthly trips per Massey continue to steadily increase matching our all time high at.
At the same time adjusted EBITDA exceeded our Q3 outlook and our adjusted EBITDA margin exceeded 3% for the first time.
Simply put the growth flywheel liebelt, coupled with rigorous cost discipline is enabling us to generate strong leverage.
We're exiting the year with tremendous momentum and reliable execution, our Q3 results and Q4 outlook demonstrate that Uber continues to drive profitable growth at scale.
We remain focused on scaling GAAP operating income and free cash flow, while also making disciplined investments to appropriately fund growth initiatives that will deliver long term sustainable financial value.
Finally, I want to recognize that fact Nelson for his immense contributions to the company and his partnership with me over the past five years looking ahead I am thrilled to welcome for <unk> as our new CFO, starting tomorrow and I'm confident that he'll continue to build upon the great Foundation that Nelson is built.
With that let's open the call to questions.
Thank you as a reminder, if you would like to ask a question. Please press star one.
Our first question comes from Ross Sandler with Barclays. Please go ahead.
Hey, Dara just couple of questions on the mobility business.
Can you just flush out a little bit more in detail what the drivers of the acceleration in mobility gross bookings were in the third quarter and as we look out over the next few years, what do you see as the biggest drivers of sustainable mobility gross bookings growth now that we've kind of caught up with the pre pandemic trip volume in <unk>.
Quincy.
What do you see for <unk> versus the new areas. Thanks, a lot.
Yeah, absolutely Ross so.
In terms of Q3 lift in the quarter was strong across the board.
Every single geography pretty much in every single product.
But a couple of geographies to call out are the Asia Pacific regions and Latam regions.
These areas accelerated pretty substantially on a year on year basis between Q3 and Q2.
On big absolute numbers.
And some of those countries were kind of very early in penetrating so for example to Japan and South Korea.
Our penetration rate is miniscule compared to where we are in the rest of the world and some of the newer products that we're building out for example, halo both taxi.
Our very large parts of the marketplace again in Japan, and Taiwan and Hong Kong.
And South Korea.
And then we got products like Moto, which are two wheelers.
<unk> are growing very very quickly in Latin America, as well in Brazil, and a number of other Latam markets. So while the growth was pretty broad I.
I do think that the App APAC and Latam markets in particular were super strong partially because of some of the newer products that we're rolling out <unk>.
If you look more broadly like we had a V.
Very very strong summer.
<unk> mentored by travel as you know travel has been absolutely booming leisure travel and.
<unk> has a very high penetration of Paul the travel consumer and then what we're seeing now back to school is also going very very strong.
So that absolutely.
Added to our Q3 strengthened acceleration.
That frankly surprised us in terms of our strength.
In terms of mobility business in kind of the growth cost structure, how do we think about the mobility business going forward multi year got it.
We tend to look at the business from a business cost structure, and then from a user cost structure right. So from a business construct number one driver for growth and this is the core <unk> business that grew over 20% on a year on year basis is about adding more drivers to the platform we added.
We're now at six and half million earners on our platform up 30.
Up over 30% on a year on year basis.
And this is a supply led marketplace as we add more drivers the marketplace gets more liquid etfs come down surge come down.
That pushes essentially demand so adding more drivers essentially drives that the marketplace there.
And on top of that base business, we have the new growth initiatives that we've got that we have these are businesses that we've really built in the past five years essentially from zero. These are available products.
Z three wheelers, two wheelers are Uber for business product that is actually seeing some strength now which is great.
Our Uber X share and low cost products, such as high capacity vehicles, and then reserve as well that collective is now $9 billion and is growing over 80% on a year on year basis, and then on top of that you've got international markets with very big Gdp's, whereas you know we just weren't in those.
Markets five years ago, and we've tuned our business model to be able to penetrate into those markets. These other Germany, Spain, Argentina that grew more than 150% on a year on year basis, Japan, South Korea and Turkey.
So really you've got kind of a base business thats driven by supply on top of that you have a bunch of new products that are big $9 billion annual run rate growing.
Over 80% and then you've got these international markets, which are big GDP markets that we've got very low penetration too. So that's the business cost structure and then the other way that we look at the business is actually from a consumer view and that's about driving new audience driving frequency and then price as well. So if you think about audience.
All of these new markets the international markets that we're getting too many of them are entirely new audiences or when we introduce taxi and to a small village in the UK that new audience that comes onto our platform.
Then when we think about audience, we think about demographics. So for example for the high income consumer we're introducing products like reserve.
Where you can pay more for higher reliability.
And we're seeing that reserve usage is actually incremental and then for lower income consumers, we're introducing like Uber share high capacity vehicles et cetera. So demographically, we're expanding internationally, we're expanding and then we also look at age so like we introduced Uber for teens for younger consumers.
Turns out teams tend to use Uber just as much as adults do which is great and we think they'll continue to use it as they grow up so that the audience kind of cost structure for us which is global.
Our income level and age and we have products specifically for all three of those.
And then when you get into frequency.
Only a third of our annual users use us on a monthly basis. So our job is to increase that one third membership.
As a very very big driver there as you we got about $50 million number one members member spend four times more than non members. So as we penetrate into the membership frequency nats.
Naturally increases all of the use cases that we're introducing like reserve drive frequency as well and then what we're also seeing is that a is that users who use more than one product on mobility and delivery tend to spend more on the platform. They spend up to three times more for example in mobility if they take two.
<unk> products as well that drive frequency as well.
And then price this year essentially has been flattish and that's a good thing, but I think going forward you can expect our services to grow price along with inflation as well.
So if youre driving audience driving frequency and then prices kind of we're price takers. So to speak you get to a pretty good growth cost structure over the long term.
Thank you Youre.
You're welcome.
Next question.
Our next question comes from Brian Nowak with Morgan Stanley. Please go ahead.
Great. Thanks for taking my questions I have two.
Two sort of somewhat higher level of Dara first of all I want to ask you to sort of the types of machine learning or data analytics that you've done on the platform. So far give us some examples of where you've been able to improve matching improved conversion on the platform and where do you still see more opportunities to improve that as you kind of look into 'twenty.
Four and then the second one there has been a lot sort of written in the press about new potential product extensions travel you mentioned <unk> et cetera. As you look at these which of these new potential products or have you. Most excited that could move the needle over the next couple of years. Thanks, Yes.
Yes, absolutely, Brian So I think on the AML front.
It's actually hard to say, where ml can improve because it's pretty much in every part of our business like we have been.
<unk> and using machine learning for many many years now just a couple of examples.
Might be like earner Onboarding right you take that for granted but actually now what we're using is we're using machine learning technology.
Two.
Computer vision to essentially allow the machines to recognize documents more widely transcribe them accurately so that you're onboarding experience and the time to onboard can be reduced drastically errors can be reduced as well so essentially in our machines can read these documents better than <unk>.
And again, that's one example on the productivity front, we are rolling out Github co pilot for software developers.
We have already seen because of investments that we've made in our in our tooling. Our soft average software developer is much more productive now than they were two years ago, and we think that Github co pilot will improve productivity and hopefully will also.
Reduce mistakes on the platform as well so they will we will have MLR algorithms debug.
Developer code before that Coke.
As tested et cetera, So we think thats back and increase the productivity of our business as well.
Pretty excited about conversational support so these are.
Large language based tools that essentially help our customer service agents.
They will go through customer history.
We'll get details about the particular issue that the customer might be calling about are chatting about and we'll be giving recommendations on on what to do based on our policies all around the world humans have to kind of go through all of these kinds of policies now machines do they give humans. The recommendation and eventually then machines are going to be talking.
With our customers on the frontline as well.
And then on <unk>.
The delivery marketplace.
And the mobility market place, we've been using advanced machine learning algorithms.
For routing for matching for pricing all of these our goes generally improve on a year on year basis.
And accrue hundreds of millions of dollars of either incremental bookings that Paul it's.
VC neutral or can improve matching algorithms to reduce let's say cost per transaction on the delivery space. So these are just some of the areas where ml is working out and listen for US <unk> is a powerful technology period.
Because we're the largest player in the world we are gathering more data for our more customers across a wider range of behaviors.
Than anybody else. So we think in a world where ml becomes more important uber becomes competitively stronger so to speak because of.
The set of data that we have that's really unmatched and unrivaled, including customers who are engaging both in the mobility and the delivery marketplace. So it's pretty powerful.
In terms of the other use cases that we're seeing listen Uber for business is something that's very very promising.
We continue to penetrate into the corporate space, it's great to see companies now get their.
Get there.
Other travelers on the road again, and we definitely saw an uptick there, but with Uber for business. We're also looking at verticals like health and transit as well that are very very healthy and hold a ton of promise.
For me travel is something Thats very much in my heart because of my old Expedia days.
And we've talked about travel being a very very strong kind of signal for Uber and travelers typically using over because of our global footprint.
Kind of perspective here in 2020 to nearly 700 million trips globally were taken in by consumer that's out of their primary city.
Which is pretty amazing and every quarter about 20% of our users took a domestic trips outside of their primary cities. So our users.
They are high income earners, they tend to travel a lot and that becomes a good good segment for us to target. We've done so in the U K, where we are quite optimistic about our travel business in the U K and some of the early signal that we see for example in the UK you can book trains.
And and buses.
60% of train.
And coach users and 25% of our flight users are now repeat users on <unk> as well. So they tried the product because we have big audience, but more importantly, they are coming back to the product which is great.
So we've got multiple avenues for growth and travel and business are just one amongst many honestly.
Great. Thanks Dara.
Next question.
Our next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.
Thanks, so much and first thanks to Nelson for all the insights.
Conversations over the years things I'm wishing you best going forward.
I think two bigger picture ones for you one on Uber one as it continues to scale globally and the base of subscribers continues to build what are some of the early learnings that have now translated into scale about how youre thinking about bringing that subscription to market more globally than in the early years and what that might mean for the business in the years.
That's number one and then on driver supply we wanted a very different position a year ago, where you were using a lot of incentives on driver supply as we come out of that period and things have normalized how are you thinking about optimizing driver supply for efficiency cost maybe even insurance. So we should be thinking about that as an initiative going forward.
Thanks, so much.
Sure Eric So as far as Uber, one goes and lessons learned there honestly.
The Uber one customer behavior has been pretty darn consistent in that Uber, one consumer spend four times the amount of non members do on a monthly basis.
And retention is more than 15% higher.
Our members versus non members that pattern has remained.
Some question as to Hey, as we as we expand the user base is up for it is going to come down to a three X for example, but that Hasnt happened the Forex and the 15% retention have continued the focus now for us with Uber. One I'd say is is threefold one is keep expanding geographically.
And we just introduced Uber wanted to a couple of more markets.
Well. So now we got 15 million members across 18 countries number to us.
Really focused on Uber one retention.
And when you look at the <unk> benefits the benefits are typically monetary in nature.
So you get discounts on your food you get delivery for free you get cashback on mobility, what we want to do going forward is also provide.
Benefits that are non monetary in nature, let's say advanced matching.
Upgrades to different cars or head of the queue matching when you get into an airport, where there aren't that many cars around those are more non monetary benefits that we think that our members will very much appreciate and the design spec. There is to drive member retention retention levels are high.
But they can always get higher and we always want to make sure that we're not kind of driving just member growth. We also want to drive retention as well and the third area is really optimizing around our mobility use case delivery already members account for more than 40% of bookings.
With mobility, it's in the mid teens, it's much earlier in terms of penetration and I think we can do a lot more in terms of the member experience for mobility users and just continuing to optimize that.
Turning to the driver supply question.
Our supply position is the best that it's been we've got over $6 5 million earners.
And I would say those earners are actually earning this quarter $15 9 billion, which is up 23% on a constant currency basis. So we're really proud of.
Our being one of the largest earnings if not the largest earnings platform in the world in a flexible way and the fact that earnings are actually gone up faster than gross bookings, which is something that we're proud of and at the same time, we're driving.
We're driving our bottom line and free cash flow for our investors that's super attractive as well.
That said, we are optimizing our on our earnings call. So we don't have to lean into incentives the way that we did previously so if you look at our incentives spend for earners.
It's down about 41% on a year on year basis.
Globally, it's down about 50% in the U S because with the liquidity of the marketplace.
Kind of a natural earnings levels are high at about $33 per utilized our.
Across the U S. It's 50 Bucks here in New York City per utilized hours are earning levels are high that allows us to take incentives down but we're also working on other parts of Onboarding efficiency. When we run a background check for example for our driver.
Running at background check if he qualified driver if we know that driver is highly highly interested running it background check. If we don't think we can quantify lets say that earner delaying that background check that again delays expenses as well so across the.
Across the business upbringing earners on not just incentives, we're looking to optimize the cost there and so far so good.
Our next question Youre welcome.
Our next question comes from Ron Josey with Citi. Your line is open.
Great. Thanks for taking the question Dara I wanted to ask a little bit more about the non X gross bookings now at that $9 billion run rate growing 80% or any of these new offering talk to us about how these new opportunities, creating demand in any products, specifically seen greater demand versus others, meaning reserve comfort drooling over X things along those lines. Thank you.
Yeah, absolutely so.
These new products are definitely creating demand in <unk>.
Create demand in different ways. So for example.
<unk> or taxi product if you look at the number the percentage of new customers coming in from Halo bowls is about twice the percentage of gross bookings that taxi represents.
That's because in a bunch of markets actually the only way we can penetrate into those markets is through taxi, Japan. As an example, we have a very very small high end peer peer to peer business.
But we're going in partnering with taxes in Japan.
Actually just joined the taxi Association in Japan as well.
And those taxes, essentially our brand new supply introduce us to a whole new audience in Japan, and ask you to tourists coming into Japan, as well kind of support the local economy.
So thats an entirely new audience that's true.
Many parts of Argentina and Turkey.
Were these new business models, essentially are bringing new audience.
The other ones that I would point out to our low cost product. So if you look at <unk> share for example.
It is.
It is taking some trips away from our <unk> business.
We do see kind of lower income consumers move to <unk> share faster. So we think that's providing them relief.
Based on kind of the economic hardships and all the inflation that we're seeing there. So we're absolutely seeing a higher penetration of <unk> share for lower income consumers, but it's also introducing us to a new audience as well.
Same thing in modal these are two wheelers, and Latin America, and again newer lower income.
<unk> that previously couldn't afford Uber napkin.
Afford hoover as well so.
All of these either drive audience or frequency or both.
And obviously, they're strategic in terms of our long term growth.
Our formula.
Great. Thank you Dara.
Next question.
Our next question comes from Doug Anmuth with Jpmorgan. Please go ahead.
Thanks for taking the questions one for Dara and one for Nelson Dara, what do you view as some of the primary compounding advantages you're currently achieving just across operational best practices, and where do you see the biggest opportunities going forward and Nelson you've improved profit significantly over the past year incremental margins.
Now running at about 9% in <unk>, how are you thinking about key investments in hiring into 'twenty four.
Absolutely Doug so in terms of the compounding advantages I'll go back to what I was talking about in terms of machine learning, which is becoming a much more important part of the business. So we're just we have more data points in terms of opportunities to match riders to drivers or eaters to restaurants to current.
<unk>.
For example, if you take a look at our driver upfront pricing the change that we made.
It had a huge benefit for drivers right drivers to see where their destination is.
And as a result can accept or not accept that trip based on destination and upfront price that they see it as a very very powerful driver of the business.
But it also is another opportunity for us to price out that trip previously drivers are paid based on time and distance.
81 can price based on Tommy business. So the amount of data that you have doesn't help you calculate a certain per mile rate.
And <unk>.
Certain time rate as well so there is zero.
<unk> to scale.
Now in a world where drivers know their destination, we can price out that destination, we have more opportunities to price we have more drivers than anyone else in the marketplace. So we will be able to price out that trip and match it to a particular driver based on a bigger data set than anyone else.
In a world that advantage compounds as our machine learning.
That form learns more about different trips, which ones are accepted which ones are not accepted which ones are canceled as well. So all of our marketplace mechanisms in terms of routing in terms of matching in terms of pricing now are essentially point estimates that we can train on a larger database.
Anyone else.
If you look at payments for example, we announced a great new partnership with Paypal.
And our ability to we're one of the largest <unk>.
Layers out there in terms in terms of bookings $35 billion in bookings in a quarter.
Growing at a rate that most players are size aren't growing so on the payment side. For example, we think we can secure a lower payment costs than other players that's going to compound.
If you look at.
Parts of our business like detecting fraudulent activity.
There are lots of fraudsters out there they are being arm by machine learning.
We can detect patterns across a greater.
Set of use cases, both in mobility and delivery. So that we can identify let's say Tibet folks from the good folks differentiate them and rejected that folks havent, maybe try to steal from other platforms. All of these different parts of the business are compounding in one way or the other many of them are powered by machine learning and again, if you've got the.
Most data and the World Youre ml all goes typically have an advantage over smaller players.
Doug in terms of our ability to balance growth.
On profitability, but as you know.
Since we went public Dara and I have been talking about our capital allocation process.
We laid out our three year targets last year.
You look at the performance of the company that we've been in line with the topline and overachieve the bottom every single quarter and if you look at the guidance again, it's very very very constructive if you think about it.
Heard Don talk a lot about where the business is going and some of the growth of our mobility business.
Gross bookings were up 30% in Q3 and Thats why were continue to invest in the businesses. So if you think about it where we are today on both delivering the bottom line, but investing for the future. We're starting to see some of these new growth initiatives scale, new mobility products sort of $9 billion gross bookings run rate, new verticals or at a $6 billion gross bookings run rate.
So we're delivering the bottom line, we're delivering free cash flow, we've delivered GAAP operating income as we've talked about over the past three years, while we're driving a lot of top line growth and so the business is in terrific shape. As you think about how we are going into 'twenty, four and beyond and again, we are balancing our capital allocation model, we probably do a little optimized.
To make sure we deliver on the bottom, but we are able to fund certain growth initiatives. So we have a lot of confidence in terms of where we are and as you heard from <unk> commentary on all the growth vectors, we have and we're pretty bullish about where the company is habit.
Thank you Beth.
You bet next question.
Our next question comes from Benjamin Black with Deutsche Bank. Please go ahead.
Great. Thanks for taking the question.
No.
These coordinates regulatory win in New York last week, but we still have the Gol in the EU platform direct is perhaps 22 in California.
Great. If you could give us sort of a lay of the land on the regulatory front and do you feel comfortable operating.
Any employment classification outcome, and then just quickly they're generally concerns around the crisis in the middle East we've heard that from other travel companies could you sort of help size your exposure there and have you seen any impact to demand.
Conflict again, thank you.
Okay.
Sure absolutely. So in terms of the regulatory framework that the first thing I'd say is we can operate under any regulatory framework. So we think the right framework as a framework that preserves flexibility.
FERC for drivers and couriers, while providing them protections.
For example, our settlement with <unk>.
New York AG and <unk>.
Provides for.
Owners to be able to earn flexibly on the platform with a minimum earnings.
And other protections as well insurance protections that we think is the right framework going forward. It's the same framework that voters vote, a form <unk> 22 in California.
And if I look big picture generally the world is moving towards this.
This model, which is earned flexibly with benefits such as minimum earnings and other benefits out there that that are important on a state by state basis or on a country by country basis and for US, it's really entering into dialogue.
With all the constituencies to get to the right solution there.
There are some markets where drivers are employees of for example, fleets with which we do business.
And some of our European businesses European markets.
Our employees are fleets, we contract with these fleets and these fleets are on our platform as well and those markets are profitable as well the price to the end consumer is higher.
And drivers frankly missed the flexibility that they have.
Markets, where independent contractor plus.
Model is the right model going forward. So if I zoom out the regulatory framework that we see is not about whether or not we're in a market or not whether or not we do business. There, it's about whether or not our earners have flexibility to work on our platform the way that they want to work on our platform when they want to work on our platform, where they want to work on our plan.
Form and what the prices to the end consumer and generally I would say that across the world there are.
The exceptions.
Most countries. Most most states are moving in the direction of flexibility plus benefits and protections.
And then in terms of the middle East.
The middle East is about represents about 2% of our overall gross bookings.
Of the business. So it's a relatively small part of our business now.
Certain parts of the middle East are quite profitable. So, it's a very attractive geography to us.
Generally we are seeing some weakness in a couple of countries in the Middle East Egypt. For example is one that I would point out.
But we don't operate in Israel, we don't operate in the west back. So we're not affected in any way directly.
And any weakness that we see in the middle East is is very very small compared to the.
The rest of the business.
We were a little worried NOL companies cut back on travel wed where people cut back Jeff generally on travel and actually with our Uber for business segment, we're seeing travel spend up whereas some of the companies that we contracted with we're saying either no travel or travel when necessary now with kind of use your judgment.
And we're seeing.
Bit of acceleration in our reefer business business, which is quite encouraging going forward.
Okay.
Youre welcome.
Our next question comes from Ken <unk> with Wells Fargo. Please go ahead.
Thank you so much.
Let me reiterate thanks Nelson for the partnership over the years two questions if I may 1st.
You talked about.
Just broadening out a little bit on the macro side.
I know you just talked about the middle East specific exposure, but you could talk could you talk a little bit more broadly.
Some of your travel related peers have seen macro weakness more broadly.
The middle East into October why do you think rideshare growth quarter to date Hasnt been impacted and then.
Maybe the bigger picture question. There is how do you think more broadly about the economic sensitivity of the business and then the second question. Please.
If active driver growth continues to outpace trip.
How do you think about balancing.
Take rate opportunity for us.
So it is expanding use cases in growing that growing the addressable market. Thank you.
Yes, so in general.
Listen we've been looking for pockets of consumer spending weakness across our platforms, both of our mobility platform and delivery platform.
We read the news, we watch CNBC, just like anyone else and frankly, we haven't found it.
I think part of the reason is that when you look at consumer spend one the U S consumers incredibly strong.
And two I think within the consumer spend bucket.
If you look at spend on services versus spend on retail spend on services is not is still not back to where pre pandemic spend was.
So we do think that there the tailwind that we've seen in terms of spend on services continues it could continue going forward, it's very difficult to predict and what we have seen with Uber is that Uber is a local hyper product. So I do think that consumers during periods of elevated perceived risk.
They sometimes pull back on hire.
Call It <unk>.
Higher spend product, whether it's renovating their house or booking a big vacation during uncertain times, but they may not but theres still treat themselves too.
Great food sushi delivered to them or they are still go out the restaurant. The full go see their friends. So I think the local nature of our business makes us relatively resistant to macro uncertainty.
Because it's usually the big the large price product that got priced out first.
In terms of active driver growth.
We are active driver growth is absolutely growing faster at this point then trips.
We generally.
We want to keep take rate as low as possible.
Because we think thats the right thing to do long term and kind of as the as the <unk>.
Allows us to compound for a much longer time period now incentives are however.
And as we said incentives and.
Has been down pretty substantial on a year on year basis.
And so that is a tailwind on our take rate, but otherwise what we want to do is to maximize long term free cash flow growth maximize long term earnings per share at the lowest take rate that we can because it drives us to be more efficient as a business going forward. So we try not to kind of push take rate.
Mystically because the cycle is going to move the other way and when it moves the other way is really going to hurt if youre not structured with a low cost base.
Thank you.
Youre welcome.
Next question.
Our next question comes from Michael Martin with Moffett, Nathan Zhang. Please go ahead.
Thank you for the question I wanted to talk a little bit about the new growth opportunities in mobility.
In the past <unk> spoken about aspiration for reserve penetration of total airport trips and would love to know if youre seeing the product in the market for some time now.
How do you see this opportunity how large it could get reserves as a percentage of bookings and then looking outside of travel and airport bookings maybe the impact you think reserves could have.
On the other aspects of the mobility business and then just a second question quick one on your advertising product you've really made a lot of progress since rolling this out and I would love to learn some more about how you believe you are offering meets needs from large enterprises.
It seems like Theres, a lot of demand for the large sophisticated enterprises, but they are more demanding when it comes to advertising solutions and the product has historically been overweight kind of smbs. So any update there would be great as well. Thank you so much.
Absolutely. So in terms of reserve listen reserve is.
A very very promising product continues to grow at significant rates.
But it's still pretty early in terms of reserves development. We typically now account for one out of.
The four legs of the airport.
If you grow the airport you get picked up I know you come back and you get picked up et cetera, but we typically only cover one out of those four legs. So we think that increased penetration at airport is absolutely a significant opportunity for us and we're very early in that penetration I do think that reserve is a product while it's very good at picking up at.
Your home dropping off at the airport or picking up your hotel and getting into the airport on your way back I think we can do a lot more in terms of the experience.
For the for the <unk>.
<unk>, who is arriving in the airport, we have you're putting your flight information so that the driver knows when youre, arriving we automatically account for delays et cetera.
You can upload information from you or Google calendar onto our product et cetera. So there's a lot that we've done but there are some hyper optimization to be done in terms of arrivals.
And generally for airport pricing algorithms.
Whereas we were pricing generally for the market now we're focused on really the airport experience and I think the airport experience.
In terms of finding where the pickup area is the pricing the supply that we have in airports is something that it's best of breed, but frankly I think we can we can improve on.
We are seeing some reserve usage for other types of use cases going out to dinner et cetera.
And there we think it's about optimizing the premium that reserve represents over <unk> versus the reliability.
There is a tradeoff there.
You want the 99, 9% reliability and reserve the premium over Uber Exxon demand is going to be quite high.
And on a market by market basis, and kind of on a consumer segment by consumer segment basis, we're trying to optimize what is that trade off between price and reliability that can maximize our reserve volume and again, we think there's a lot more optimization to be done there.
In terms of advertising for large entities I think your question is spot on.
And that the majority of our AD revenue at this point is.
Smb's et cetera, and it's a pretty simple.
Pay for pay.
Pay for audience and pay for additional business model. The return on AD sales are excellent.
Return on AD sales are.
On average anywhere from seven to 10 X. Your spend so this is a very profitable endeavor for our product for our partners, which is great. We are building out more sophisticated technology for our larger advertisers that frankly will also offer to our smaller advertisers.
They may be for example, amongst other products the ability to target new customers.
And then being able to track those new customers when they become repeat customers for grocery products. For example is to integrate their membership and loyalty programs into Uber eats so that their loyalty.
They are they are loyalty consumers can go direct or they can go through each.
And kind of in that way they get to build a relationship with those those loyalty members as well.
Our working increasingly.
Increasingly on building out tool sets that can help larger advertisers measure the increments.
Of the advertising and not just the return on AD sales of that advertising as well and then we're also helping our larger advertisers would depart with day parts. They may for example, we've had certain larger advertisers, who really want to promote breakfast.
And want to go over promote breakfast because it's something that they are introducing now.
And we allow kind of day parts targeting as well. So all of these are relatively newer tools and we think those tools are going to get a higher penetration of the larger advertisers both <unk> Uber eats business, but just as importantly, CPG advertisers for our grocery business and of course, we got into the branded <unk>.
<unk> and our mobility segment and our delivery segment as well. So we think we're well on our way to $1 billion, plus which was a target for our AD business.
We set a few years ago.
And we continue to be very very pleased with our progress.
And there's a lot of potential in this business. So we're not nearly.
Even midstream in terms.
Of its development.
Thank you.
Alright.
Question I think we've got one more.
Our next question comes from Mark Mahaney with Evercore. Please go ahead.
Okay. Thanks, two questions. Please you talked about the net head count being net head count being down roughly 1% sequentially.
Looking for ways to demonstrate further operating leverage going forward are you at a point now where you can roughly keep our head count flattish or just growing low single digit percent for the foreseeable future and then secondly, you talked about in the next earnings call I think our next quarter, you're going to provide an update on returning capital to shareholders could you I know you will make that announcement.
But what are the options reasonable range of options that that investors should think about with that thanks a lot.
So in terms of the headcount, yes, Mark we do believe that we can continue to move forward with flat or very small incremental head count and so thats. What we are planning as we go forward, but as you know we've pretty health, we've had pretty steadfast in 2019 in terms of where the head count spin.
We continue to get that operating leverage and you are seeing in the bottom line and so the team is pushing hard to try to maintain that discipline. Because again, we continue to try to deliver while we're investing by the way in the growth that you heard Don outlined before so we certainly can.
Terms of the capital return so as you know I'm handing the baton over to my April new partner over here, who is going to.
Kind of stepping in tomorrow as CFO. So it's certainly one of the first priorities that he <unk> going to walk through.
He is fortunate because youre getting a business that's in great shape as you know as you know we are now eligible for S&P inclusion and so it's really matter from a corporate action perspective of an opportunity, but we're well on our way to investment grade as well, so he'll get that benefit as well and so he also understands the fact that capital return is something thats come up from investors.
We've been pretty workmanlike in terms of two years ago, we talked about getting the EBITDA profitability last year, we talked about getting to free cash flow. This year, we talked about getting to GAAP operating income at some point and as you know, especially based on where our projections are will be GAAP operating income for the full year.
Now next year capital return will be a big question and I know if you look at his background. He has a lot of experience in terms of doing it you know the forms whether it's buybacks or dividends I think that you will look at the full suite and has a lot of experience in this pathway of doing it so I am confident that when he addresses investors.
In February which I believe will be the next time that he'll be ready to at least give a perspective on that for investors.
Thanks, Nelson wishing you all the best.
Thank you very much mark.
This will conclude our question and answer session I will now turn the call back to Barry CEO Dara Kasha <unk> for any closing remarks.
Alright, Thank you everyone for joining us in this quarter huge thanks to the Uber team who keeps.
Delivering with flat or down head count, which is pretty amazing, they're working pretty hard.
To our partners, our restaurant partners earners, without whom we wouldn't be able to deliver any of these services.
And then a big thank you again, we said it before but I'll say it again to Nelson who has been an incredible partner on this journey.
Nelson with saving the best for last and this is definitely the best so thank you Nelson for everything you have contributed to the company, we won't we won't be here.
So first of all I should say that I'm really really proud of the collective work that we've all done over my five years. The company has really really well positioned to continue to grow at scale.
Liver, increasing profitability and free cash flow.
As the company continues to maintain the discipline that has allowed us to deliver against our commitments and I do want to thank Don for his partnership and all of Uber, because it's really given me an incredible opportunity and are very proud of the work we've done together and to come into our company.
The verb.
And leave in such good shape I think.
But all you can ask for it. So again I think you and I really think Dara lockers partnership because we've been great partners over the five years.
Thank you everyone.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Okay.
Okay.