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Edited Transcript of UBER.N earnings conference call or presentation 6-Feb-20 9:30pm GMT

Q4 2019 Uber Technologies Inc Earnings Call

Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Uber Technologies Inc earnings conference call or presentation Thursday, February 6, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dara Khosrowshahi

Uber Technologies, Inc. - CEO & Director

* Emily Reuter;Head of Investor Relations

* Nelson Juseuk Chai

Uber Technologies, Inc. - CFO

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Conference Call Participants

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* Brian Thomas Nowak

Morgan Stanley, Research Division - Research Analyst

* Douglas Till Anmuth

JP Morgan Chase & Co, Research Division - MD

* Eric James Sheridan

UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst

* Heath Patrick Terry

Goldman Sachs Group Inc., Research Division - MD

* Itay Michaeli

Citigroup Inc, Research Division - Director and VP

* James Lee

Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Internet Sector Analyst

* Jason Stuart Helfstein

Oppenheimer & Co. Inc., Research Division - MD and Senior Internet Analyst

* John Ryan Blackledge

Cowen and Company, LLC, Research Division - Head of Internet Research, MD and Senior Research Analyst

* Justin Post

BofA Merrill Lynch, Research Division - MD

* Lloyd Wharton Walmsley

Deutsche Bank AG, Research Division - Research Analyst

* Mark Elliott Shmulik

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Mark Stephen F. Mahaney

RBC Capital Markets, Research Division - MD & Lead Internet Research Analyst

* Ronald Victor Josey

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Ross Adam Sandler

Barclays Bank PLC, Research Division - MD of Americas Equity Research & Senior Internet Analyst

* Youssef Houssaini Squali

SunTrust Robinson Humphrey, Inc., Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to Uber Technologies, Inc. Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) After the speaker's presentation, there will be a question-and-answer session. (Operator Instructions)

I would now like to hand the conference over to your first speaker today, Emily Reuter, Investor Relations. Please go ahead.

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Emily Reuter;Head of Investor Relations, [2]

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Thank you, operator. Thank you for joining us today, and welcome to Uber Technologies' Fourth Quarter 2019 Earnings Presentation. On the call today, we have Dara Khosrowshahi and Nelson Chai. We also have Kent Schofield, and this is Emily Reuter from the Investor Relations team.

During today's call, we 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 and our filings with the SEC, each of which is posted to investor.uber.com. Please note that we have also posted our 2020 investor presentation on our Investor page. I'll remind you that these numbers are unaudited and may be subject to change.

Certain statements in this presentation and on this call may be deemed to be forward-looking statements. Such 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 of Financial Condition and Results of Operations in our prospectus filed with the SEC in connection with our IPO on May 13, 2019, as well as our third quarter Form 10-Q that was filed on November 5, 2019.

Following prepared remarks today, we will open the call to questions. For the remainder of the discussion, all growth rates reflect year-over-year growth, unless otherwise noted.

With that, let me hand it over to Dara.

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [3]

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Thanks, Emily, and thank you all for joining us today.

2019 was a major milestone year for Uber. We achieved $65 billion in gross bookings, up 35%. We crossed the 100 million mark for MAPCs, reaching 111 million in the fourth quarter. And we increased the number of consumers using both Rides and Eats by 68%. We grew adjusted net revenue 28% to $13 billion, with growth accelerating from 18% in Q1 to 43% in Q4. We improved totally quarterly adjusted EBITDA by over $200 million year-over-year or by 14 percentage points as a percentage of adjusted net revenue. In 2020, we expect to see adjusted EBITDA losses to continue to decline. To me, these results are a validation of the strategy we set in 2019. We'll continue to relentlessly execute our plans for each of our businesses in 2020.

In Rides, we generated $742 million in Rides adjusted EBITDA in the fourth quarter, covering our corporate overhead by $98 million. We exited 2019 at a $3 billion run rate for Rides adjusted EBITDA, with ANR growth continuing to accelerate in Q4. We grew gross bookings in our high priority markets, Argentina, Germany, Italy, Japan, South Korea and Spain, by 4x the rate of overall Rides GB growth. We expanded our set of products serving high-value consumers and use cases, including the launch of Uber Comfort, which drove premium rides growth of 55% in Q4; and Uber for Business, which achieved $1.2 billion in gross bookings in Q4. We also continue pursuing low-cost products such as 2- and 3-wheelers and are using our superior matching capabilities and data models to drive more efficient shared rides products.

In Eats, we steadily delivered on our strategy to be #1 or #2 in every market by leaning into our investment in some countries and exiting others. We grew gross bookings by over 70% and are now in first or second position in well over half of our countries reflecting the significant majority of our gross bookings, including the U.S., U.K., France, Mexico and Japan. The divestiture of our Eats business in India and our exit from Eats in South Korea are recent examples of our strategic discipline. We also saw promising results in the U.S., our largest Eats market. We grew our U.S. Eats business 44% to $1.7 billion in GBs and maintained a strong #2 position. At the same time, we increased our U.S. take rate 500 basis points year-over-year to the mid-teens despite a competitive environment. In 2020, we'll continue to follow the Rides playbook, focusing on turning the dial towards healthy growth, market leadership and margin expansion, significantly curtailing losses throughout the year with Q4 2019 and Q1 2020 reflecting peak investment for our Eats business.

In our Freight and Other Bets segments, we're focused on responsible expansion with a heavy focus on unit economics. We'll continue to be thoughtful and disciplined in allocating capital by weighing growth, ROI and the impact on total company profitability to determine the appropriate investment in each of these segments.

In our Advanced Technologies Group, having completed $1 billion in funding, we expanded mapping and data collection efforts to 5 cities and continue to make progress towards an autonomous future with plans to expand our on-road testing of cars in autonomous mode with a vehicle operator present in select cities. Just this week, we were issued a permit which gives us the ability to resume testing in California. In 2020, we'll continue to drive our road map for ATG through the hard work of our dedicated employees, Pittsburgh, San Francisco, Denver and Toronto, alongside the support from our investors and partners such as Toyota and DENSO.

I also want to touch on the regulatory environment. We're a boots on the ground business with a physical presence in every market in which we operate. Regulation has been and always will be a constant for us. And while our dialogue with regulators is ongoing as it should be, we have, by and large, moved away from the question of whether ridesharing should exist to more nuanced questions around taxes, fees and driver status. We've achieved significant wins this year, including the successful lawsuit against the cruising cap in New York, expansion into several additional states in Mexico, movement on reform in Korea, continued growth in Japan and Germany, and just yesterday, a positive ruling on employment classification from Brazil's highest labor court. We firmly believe we share many of the same goals of the cities in which we operate. That's why we'll continue to work in a positive, collaborative manner while, at the same time, defending the interest of drivers, riders and others who rely on the Uber platform.

Lastly, we believe that a more disciplined capital environment will be favorable for our business going forward, but we aren't just sitting here hoping for a better environment. We're making proactive changes to achieve significant cost leverage for both Rides and Eats through a focused operating playbook, including: improve machine learning algos and further automation and targeting of our incentive and online marketing spend; stronger tracking and focus for our offline marketing campaigns; the reduction of defect rates and improved self-service tools to improve customer sentiment as well as contact ratios; continued improvement in payment costs; improve matching, routing, pricing algos to increase our marketplace efficiency, allowing our drivers to earn more per active hour; and tech-enabled automation as well as good old-fashioned cost control to leverage our operational cost structure across the board.

With many of the onetime changes from 2019 behind us, we're excited to sharpen our focus on execution to grow our business at massive scale, innovate faster than anyone else, improve margins considerably, allocate our capital effectively and efficiently and do the right thing for all of our constituencies, ultimately driving to excellent revenue growth and profitability.

Our progress in 2019 and our 2020 plans gives me the confidence to challenge our teams to accelerate our EBITDA profitability target from full year 2021 to Q4 2020. It's important to emphasize that we plan to achieve this profitability target assuming only modest improvements in the current competitive environment and without the assumption of any significant changes to our current portfolio of businesses. Further, long term, we remain confident about achieving our overall company adjusted EBITDA margin of 25%. Specifically, we expect Rides to deliver adjusted EBITDA margin of 45% with a 25% take rate, and our Eats business to deliver adjusted EBITDA margin of 30% with a 15% take rate.

Now to Nelson for more details on the numbers.

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Nelson Juseuk Chai, Uber Technologies, Inc. - CFO [4]

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Thanks, Dara.

Now on to our GAAP results for Q4 2019. Our GAAP revenue of $4.1 billion was up 37%. GAAP cost of revenues, excluding D&A, of $1.9 billion decreased to 47% from 54% of revenues in Q4 2018. GAAP EPS was a loss of $0.64 and compares to a loss of $1.97 in Q4 of 2018.

For the remainder of the 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.

Our total company global trips of 1.9 billion grew 28%. Global trips were driven primarily by growth in Eats and international Rides, particularly in Latin America. Monthly active platform consumers were 111 million, up 22% year-over-year or 8% quarter-over-quarter. Our rewards program reached over 25 million members across U.S., Latin America and Australia. Total company gross bookings of $18.1 billion, growing 28% or 30% on a constant currency basis. Adjusted net revenue, or ANR, was $3.7 billion, up 43% on a constant currency basis. Our ANR take rate was 20.6% of gross bookings, up 190 basis points year-over-year.

Non-GAAP cost of revenue, excluding D&A, decreased to 43% from 50% of ANR. Insurance and payments as a percentage of ANR improved quarter-over-quarter and year-over-year.

Turning now to non-GAAP operating expense. Operations and support decreased year-over-year to 13% from 15% of adjusted net revenue, reflecting continued Rides support efficiency improvements, offset by a mix shift to Eats transactions, which we're seeking to automate further. Sales and marketing decreased to 33% from 35% of adjusted net revenue versus Q4 of 2018. This decrease is primarily due to optimization in performance marketing spend, partially offset by an increase in promotion spend, primarily related to Uber Eats. R&D decreased to 13% from 14% of ANR in Q4 2018 and G&A decreased to 15% from 18% of ANR versus the year ago quarter. Quarter-over-quarter, our spend increased slightly due to elevated professional services spend we expect to gain leverage across 2020.

Our Q4 2019 total company adjusted EBITDA loss was $615 million. Q4 and Q1, as I had mentioned on earlier calls, reflect the peak of our investment in Eats, and we expect total company adjusted EBITDA loss to shrink starting in Q2.

Now I'll provide additional detail on our segments. First on Rides. Rides gross bookings of $13.5 billion grew 20% on a constant currency basis, led by the U.S. and Latin America. Rides ANR of $3 billion grew 32% on a constant currency basis, driven by continued favorable market dynamics in the U.S., stability in Latin America since the beginning of 2019 and increased focus on shared rides efficiency. Rides adjusted EBITDA was $742 million or 24.4% of Rides ANR. This represented a quarterly record on an absolute dollars and margin basis with a 240 basis point improvement quarter-over-quarter as a percentage of ANR.

Eats gross bookings of $4.4 billion grew 73% on a constant currency basis, driven by continued trip growth in both the U.S. and international markets, combined with higher average gross bookings per trip. We maintained a strong #2 position in the U.S. for the third straight quarter, only 4 years from our market entry, with Eats gross bookings in the U.S. of $1.7 billion growing 44% year-over-year. Eats ANR was $415 million, up 154% on a constant currency basis due to pricing changes in the U.S., coupled with benefits from lower courier costs in the second half of the year. Excluding Eats India, which we divested to Zomato in January of this year, Eats take rate was 10.1% for the quarter. Eats adjusted EBITDA was a loss of $461 million or negative 111% of ANR. Excluding Eats India, Eats adjusted EBITDA would have been a loss of $418 million. Eats take rate declined sequentially, consistent with our outlook, driven by seasonal cost increases as well as our investments in competitive markets to strengthen and grow our leading position.

On Freight, we grew ANR over 75% and adjusted EBITDA was a loss of $55 million. Freight growth was driven by volume growth of 89%, offsetting lower pricing from market tightening. Our Freight business continued to expand its offerings to carriers, including in-app bundles, which allowed carriers to book multiple loads at once, thereby reducing empty miles versus non-Uber Freight matched bundles.

Our Other Bets segment had ANR of $35 million and an adjusted EBITDA loss of $67 million. Q4 represents a seasonal trough for bikes and scooter business due to weather. We continue to focus on building a sustainable and scalable business that serves as an important acquisition and engagement channel for our core transportation consumers.

JUMP won permits to expand in key markets such as Washington, D.C. and 4 markets across Australia and New Zealand. Our permit win in D.C. will make us the largest combined dockless fleet operator in the city across bikes and scooters.

ATG adjusted EBITDA was a loss of $130 million. And in Q4 2019, the corporate G&A and platform R&D of $644 million, which represents the G&A and R&D not allocated to 1 of our 5 segments, increased 13%.

In terms of liquidity, we ended the quarter with approximately $11.3 billion in cash and cash equivalents and short-term investments. Across a number of our businesses, we use M&A as an important strategic tool and most notably with our acquisition of Careem. We also announced the acquisition of a majority stake in Cornershop to bring grocery delivery to millions of consumers on the Uber platform beginning in Latin America. This transaction is expected to close in Q2 2020, subject to regulatory approval. We will continue to explore ways in which M&A can accelerate or derisk our path to profitability.

Now I'll wrap up by providing guidance and some relative context. We remain committed to delivering profitable growth for all of our stakeholders, both investing for long-term growth and expansion while ensuring discipline with our capital allocation strategy. In the second half of 2019, we began the process of streamlining our footprint with a single-minded focus on profitable, global leadership in our core businesses. Most notably, we rationalized our shared rides product. And in Eats, we exited 2 significant markets with elevated losses. While we've already started demonstrating strong profitability improvements, we view 2020 as a truly transformational year, beyond which we believe we will emerge with stabilized gross bookings and revenue growth, continued focus on leveraging our cost base and positive EBITDA.

Importantly, as we continue to eliminate bookings that are essentially empty calories in 2020, we expect to expand take rates and EBITDA margins, resulting in slightly lower gross bookings growth. With that context in mind, we expect 2020 reported gross bookings of $75 billion to $80 billion, reflecting constant currency growth of 17% to 25% and reported growth of 15% to 23% with an FX headwind of roughly 150 basis points. This outlook includes the modest positive impact from our acquisition of Careem and modest negative impact from our Eats divestiture in India. Further, while Q1 is typically our slowest sequential quarter growth, we expect gross bookings to modestly decline sequentially in Q1 2020, primarily driven by year-over-year declines in the shared rides product and the divestiture mentioned earlier.

Starting in 2020, in the spirit of further improving transparency, we will be providing ANR outlook as well. We believe this disclosure should allow investors visibility into the top line metric that our business leaders are measured against internally. We expect adjusted net revenue of $16 billion to $17 billion in 2020, reflecting constant currency growth of 26% to 34% and reported growth of 24% to 32%. Our ANR outlook implies a take rate improvement of roughly 150 basis points year-on-year. We expect Q1 take rates to be relatively in line with the Q4 take rate, consistent with our normal seasonal trends.

For 2020 adjusted EBITDA, we expect a loss of $1.45 billion to $1.25 billion. Further, we expect Q1 EBITDA loss to be similar to Q4 2019 levels with similar investment levels in Eats. Beyond Q1, we are expecting a meaningful improvement in profitability throughout the year, including in Uber Eats.

As Dara stated, based on our visibility into 2020 trends, we are pulling forward our profitability expectations and now plan to end 2020 with Q4 marking our first EBITDA positive quarter. We recognize the significant work remaining to get to this milestone and our teams are focused on executing our plan.

Finally, we expect stock-based compensation of $300 million to $350 million in Q1, and we expect our Q1 2020 basic and diluted weighted average share count to be 1.725 billion to 1.75 billion.

And now with that, we're happy to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Heath Terry from Goldman Sachs.

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Heath Patrick Terry, Goldman Sachs Group Inc., Research Division - MD [2]

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Great. Dara, when you look at the things that are driving demand particularly in the Rides business in the U.S. and globally, anything in particular that you would point to? You've obviously been able to improve profitability in that business significantly. What's allowing you to keep demand at these levels even as you bring profitability up? We know pricing has obviously been a lever there. Have you been surprised by the level of inelasticity of demand? And is there anything else besides that, that you would point to?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [3]

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Yes. Heath, I think the most important factor that I'd point to is that, we're moving from a society that was dependent on transportation based on owned assets to a society that is going to depend on Transportation as a Service based on shared assets. So there's a very, very consistent tailwind that we have in the U.S. and across the world and that tailwind is going to serve us well and continues to serve us well going forward. And I think people are changing the way that they live. They're changing certainly the way that they get around. And especially the younger generation is not a generation that associates car ownership with freedom, they associate noncar ownership with freedom, using our services.

In addition to that, we continue to execute on the base business. We do think that we've got some pricing power and we are putting that pricing power in a careful way into the markets. We're investing pretty aggressively in our premium product. When you look at Comfort and the launch across the world, when you look at our enterprise business, both in terms of U4B and Uber for Health, they're growing at very, very attractive rates. There are a number of countries that I mentioned, our growth countries, Argentina, Germany, Japan, Spain, et cetera, where we think the regulatory framework, which hasn't been constructive in the past, can be constructive than the past. And we're kind of growing in those businesses in the right way, in those countries in the right way, so to speak. We think 2- and 3-wheelers are very, very big opportunities for us going forward, especially in emerging markets. And we think that once we rebase our shared rides segment, reprice it, I think our shared rides business will continue to grow because we're growing based on improving the efficacy of matching algorithms versus just growing through pricing.

So you put it all together and we're confident that the Rides business will continue to be a strong top line growth company and our ability to drive margins, which you've seen in 2019, is certainly going to continue in 2020 as well.

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Operator [4]

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Your next question comes from Brian Nowak from Morgan Stanley.

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Brian Thomas Nowak, Morgan Stanley, Research Division - Research Analyst [5]

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I have 2. Just the first one on the full year bookings guide, the $75 billion to $80 billion was really helpful. Just talk us through how you think about the growth of the Rides bookings within that guidance. And I know there's a lot of moving pieces in the Rides bookings between pooling and Lat Am and everything else, sort of talk us through some of the puts and takes in Rides bookings that we should make or we consider and how you're thinking about that growth this year. And then on Eats, Dara, it sounds like a very healthy improvement in take rates as well as growth in the U.S. Talk to us about how you think about the keys to continuing to grow at this type of rate in the U.S. on the Eats side. Is it more supply? Is it discounting? What are the growth strategies in the U.S. Eats business?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [6]

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I'll start with the U.S. Eats and then Nelson can get into the Rides guide, so to speak, or the GB guide. I think the most important factor as it relates to the growth of the U.S. business has really been about selection. We have been very focused on improving the selection and the number of restaurants that we have in our Eats segment. If you look overall, we've got almost 400,000 active restaurants. This is up 78% on a year-on-year basis. And we've added independents and we've added a number of big chains and big names as well. And I think that the improvement on selection, combined with our technology, over-the-top technology that allows us to essentially list restaurants, whether we have a direct relationship with them or not, is allowing us to improve kind of our addressable footprint. And that, combined with, again, the tailwind of more and more people wanting the convenience of getting delivery in their home, I think, has combined to have a pretty strong top line and a pretty solid #2 position in the U.S.

So we like what we see. I think that at some point, the growth rates, you get to the law of large numbers, but I think that the Eats team executed well in Q4. Q1, we're going to continue to lean in. And then really the back half of 2020 is one where we want to combine growth, but also improve margins with the Eats business.

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Nelson Juseuk Chai, Uber Technologies, Inc. - CFO [7]

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Yes. And in terms of the Rides growth, I mean, you've heard us talk before. I mean, by definition, the law of large numbers does take hold. And as you know, our business does over $1 billion a week in terms of gross bookings. So I think you can tell in the guidance, we recognize the fact that we're not doing the empty calories. And I think you've heard that both in Dara's comments as well as mine, but we recognize the fact that we're going to really be focused on having profitability today. You know in past calls, we've talked about the fact that we've de-emphasized shared rides. And that is positive as well. We do actually look at our trip growth as well as our gross bookings growth. And so while the gross bookings growth based on the guidance we gave you would suggest is below 20%, the trip growth is still above it. And so we continue to look at both. But again, we're really focused on optimizing the system right now. And if anything, because we are trying to take the empty calories out, we are definitely much focused on that. And so I think that is reflective in the overall guidance that we're giving.

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Operator [8]

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Your next question comes from Justin Post from Bank of America Merrill Lynch.

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Justin Post, BofA Merrill Lynch, Research Division - MD [9]

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Dara, a couple of questions for you. Pretty optimistic long-term margin targets and take rates. What are you seeing in your business that gives you confidence in those long-term margins? Is it specific markets you're seeing or is it the broad improvement you've seen over the last 6 months?

And then secondly, getting to EBITDA profitability in Q4, certainly higher than Street numbers, do you worry at all that, that kind of boxes you in and limits your flexibility? And is there any cushion in there if there's some adverse regulatory stuff?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [10]

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Yes. I think talking about the margin numbers and Q4, the assumption as it relates to Q4 and profitability is that the environment doesn't change significantly one way or the other. So there may be short-term bumps one way or the other, and we will deal with them. We are assuming a world that doesn't change significantly. And we're challenging the team internally to get to profitability and we think that just as we challenge the team internally, we're going to communicate it to our investors. And my take is, we expect to execute. And it's not a single lever that's going to get us there, it's multiple levers. And is it boxing us in? It's boxing us in to execute effectively as a team. And I'll take on that challenge. And I think we will take on that challenge.

Just to give you a little bit of context as to our ability to execute, if you look at our Rides business Q4 to Q4, our Rides business grew ANR about $700 million -- a little bit below $700 million in terms of revenue. And over the same period, with a $700 million increase in ANR, they delivered a $550 million increase in EBITDA. So that's an 80% flow-through of incremental EBITDA from revenue growth to EBITDA growth. In order for us to hit Q4, if you look at, for example, the midrange of our revenue growth, let's say it's the midrange of our revenue growth, you would have about $1 billion to $1.1 billion of additional revenue Q4 next year versus Q4 this year. And in order to get to breakeven, you need to drop about 55% of that incremental ANR to the bottom line.

So we've executed on the Rides side 80%. Our expectation is going forward we're going to continue to lean forward and we will invest in big time growth areas of the business, but we do think that this is a team that has shown its capability to drop 80% to the bottom line. And I think that our pushing ourselves to drop 55% to the bottom line is not asking for too much. And it does provide us flexibility to invest where appropriate to really work the operating costs appropriately and then pull back where it just doesn't make sense to invest.

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Justin Post, BofA Merrill Lynch, Research Division - MD [11]

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Got it. And then on the long term, are there some markets that really give you confidence in those long term take rates and margin targets?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [12]

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Yes. I think on the margin targets long term, the Rides business, you've seen the Rides business essentially move in the right direction, so we're pretty confident of the Rides long-term margins. When I look at Eats, for example, our U.S. business, the take rates are not quite up to our 15% take rate, but they're certainly getting much closer. And when we look at kind of the operating cost work that we've done on the Rides business, if we run the same play that we do in Eats, we're confident that we can hit those kinds of long-term margins.

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Operator [13]

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Your next question comes from Ross Sandler from Barclays.

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Ross Adam Sandler, Barclays Bank PLC, Research Division - MD of Americas Equity Research & Senior Internet Analyst [14]

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Just one on Rides and one on Eats. So you mentioned that single rider trip volume was 3 points higher than total, which would imply that you've already chopped a lot of wood on UberPOOL in 2019. So are these low calories that you're talking about taking out in 2020, is that more shared ride decel? Is it single rider couponing? Any color on what's incremental for '20 versus what we saw in '19 already?

And then on Eats, just a question, high level, like the Australia market is very profitable for you guys. Is that because of the density, because of something unique in terms of the fee structure or simply because it's far less competitive? And how can the U.S. ever look like that without consolidation?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [15]

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Ross, as far as the Rides segment and shared rides, et cetera, I'd say we started chopping real wood in shared rides in Q3, Q4. So we will continue to have tougher comps on a trips basis with shared rides in Q1, Q2. And then Q3 and Q4, you're going to get to comps that reflect the kind of long-term growth rates that we expect there.

I think in Australia, as far as the business goes there, it's just a really good market for us. The market, it looks like a Western market as far as the structures go, payment structures, et cetera. And I think we just have a team on the ground that's executed really well. And when a team on the ground executes really well, you get really great top lines and very, very healthy margin levels.

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Nelson Juseuk Chai, Uber Technologies, Inc. - CFO [16]

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And the only thing I'd add is, we do have some cities, even here in the U.S., where we have a profile that resembles what you're suggesting in Australia. Yes.

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [17]

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And then remember, too, that Australia, we do have 3 competitors. So you should assume that basically every market that we compete, that we are operating in, we have anywhere from 2 to 4 competitors. It's the nature of this market. These are very, very large TAMs to go after. And we don't believe that there'll be a single winner take it all, but we believe that we're in a unique position because of our global scale and because we're #1 in most of the markets that we operate in and because we're multi-product that have a structural margin advantage which we can either take to the bottom line or deliver a better service with or drive kind of stronger revenue margins than our competition.

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Operator [18]

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Your next question comes from Mark Mahaney from RBC.

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Mark Stephen F. Mahaney, RBC Capital Markets, Research Division - MD & Lead Internet Research Analyst [19]

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Okay. Two things. One, Dara, could you talk a little bit about synergies that you've seen between Rides and Eats and potential synergies you think you can generate between those 2?

And then secondly, spend a little time just talking about some of the products that you've rolled out. I don't know if there's any read-throughs yet from some of the driver changes that you've made in California. And I don't mean in terms of complying with regulations or whatever, I mean in terms of whether drivers are more interested in driving with Uber because of those changes. And likewise, on the rider side, some of the product changes, some of the loyalty programs, what have you seen that's indicated which of these product changes have worked well from a rider perspective and which haven't worked well?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [20]

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Sure. Absolutely. So in terms of the synergies go, I'd say there's no single magical win. It's a combination of a number of factors that we're putting together. So one is our cross-promoting our services together. We now have subscription programs that are Rides only, Eats only in Uber as well. We have a loyalty program that goes across the various products as well. All of those coming together are significantly increasing the number of consumers who use both of our services. And whereas early on, if a rider was using 2 of our services, the number of transactions per month was about 2x with a single user. Now that number is closer to 3x. So the returns on higher usage of our products are actually going from a 2x to a 3x, which for us is very, very encouraging.

The number of loyalty program members that we have is 25 million and growing because we're expanding that program on a global basis. And then I would never underestimate 2 very important factors. One is the power of the Uber brand. Everyone knows that. You probably already have an account with us. You probably have a credit card with us, et cetera. It's very, very easy to sign up. I think riders and drivers trust us across the world. And then the leverage that we're getting on our technology spend. We can spend more than anyone else in terms of driving innovation and in terms of big data, having the most sophisticated matching and pricing algorithms out there. And at the same time, I think our technology spend as a percentage of revenue and our G&A and our overhead cost as a percentage of revenue can be advantaged versus the other players. It's just the scale advantage that we have. So we got a customer advantage, we've got a brand advantage and we've got just a scale advantage, all of which play a part in our model going forward.

And then as far as your questions on drivers, et cetera, in California, the changes that we made. It's too soon to tell at this point. The drivers are reacting quite well to the increase in information that they're receiving. On average, the service levels as it relates to riders have gone a little worse as far as the predictability of getting a ride. That's something that we're working through pretty carefully. Prices in California are up more than, let's say, the rest of the country as a result of the combination of these factors. So some of these changes are resulting in higher prices to the end customer, but it's very early and there's a lot of work to do going forward.

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Operator [21]

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Your next question comes from Eric Sheridan from UBS.

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Eric James Sheridan, UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst [22]

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Maybe 2, if I can. Dara, when you think about the Rides business long term, how are you thinking about the parts of the penetration curve that can be unlocked through either product innovation or pricing dynamic moves over time? I think one of the biggest questions we get is just sort of how the industry continues to evolve towards disrupting car ownership, mass transit, things that can push the S-curve penetration higher over the next sort of 5 to 10 years.

And then on the Eats side of the business, maybe using the U.S. as an example. Curious how you see the supply dynamics, the relationships with the food industry developing over the next couple of years and how wide a skew there might be in some of the economics of the partnerships you see that evolve in that side of the business?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [23]

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Yes. Absolutely. So I think that when we look at the Rides business, there are 4 broad growth vectors. One is geographic growth. We talked about markets that were not as penetrated in that we will drive penetration, the Germanys, the Argentinas, the Spains of the world.

Second for us is using technology and improve matching algorithms to improve the efficiency of the marketplace. And that is, we think we're just in a much better place than anyone else. We've got higher market density. We've got more data than anyone else. That efficiency, we can either deliver to the driver or we can deliver to the rider depending on what we think the best kind of growth driver is.

Third area for us is to drive low cost. And low cost for us is 2-wheelers, 3-wheelers, shared rides, once we reprice those shared rides, and then introducing new products like transit, bike, scooters into our portfolio as well. So it's a combination of low cost and marketplace that introduces, we think, very, very significant TAM to us.

And then last but not least is the enterprise segment. This is Uber for Business. This is segmenting our customer base, our premium customer base, both in terms of service levels and the kind of product that we have out there. It's less of a factor in terms of bookings growth, but it's a very significant factor in terms of margin growth. You put it all together, and we think we have a very balanced kind of growth profile, both top and bottom line going forward.

As far as the Eats business goes, we think there's plenty of room to run. We've been really focused on improving selection. I would say that we made big moves in selection in the second half of the year. So I do think that there's some year-over-year comping on the Eats side, especially in the first half of the year. And we still think we're in the very early innings. We talk a little bit about, for example, in Australia, where our Eats business on a top line basis is comparable to our Rides business. Right now, it's not even close to that on a global basis. So we think that our Eats business has a long way to go.

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Operator [24]

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Your next question comes from Doug Anmuth from JPMorgan.

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Douglas Till Anmuth, JP Morgan Chase & Co, Research Division - MD [25]

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Just had 2. First on Eats, you talked about leaning in more in 1Q and getting more leverage in the back half of the year. Can you just talk, Dara, about how far behind you think Eats is on the rationalization path relative to the ridesharing industry?

And then second, can you just talk about your early kind of findings around subscriptions and how that's working across both Rides and Eats?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [26]

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Yes. As far as the rationalization goes, it's very tough to predict how markets are going to move. But if we kind of step back the same time last year, you'll remember that in our Rides segment we leaned in pretty aggressively Q4 and Q1 and then you've seen what happened in the second half as it related to Rides margin improvement. It was quite substantial.

It's difficult to predict what's going to happen in the Eats segment. We do see signs of rationalization in the marketplace. You see it with IPOs coming in. You just see it everywhere. So while it's impossible for us to predict short-term timing, I think the long-term rationalization trends are there. And I think we, as a team, have demonstrated a track record of being able to drive rationalization internally and really being able to drive margins internally with the Rides side. And the Eats team is running the same exact play. They're just about a year behind the Rides side. And appropriately so because we wanted to lean into growth on the Eats side.

As far as subscription goes, it's very early, but the results on subscription rides have been promising for a long time. We really just launched Eats subs in a few markets pretty recently. And there are markets where it accounts for more than 10% of volume. So we're pretty encouraged by what we see with Eats subs. And then really, the other area that we're very, very early in the optimization of is buying kind of an across Uber subscription product as well. So I think, really, 2020 is going to be the year of subscriptions at Uber.

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Operator [27]

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Your next question comes from Mark Shmulik from Bernstein.

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Mark Elliott Shmulik, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [28]

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Just a follow-on on market rationalization and some of the recent investments and divestments that have happened. Where are we on that journey in terms of further kind of rationalization from an investment, divestment point of view? And as we think about some of that guidance that was shared, does that include or expect to include additional kind of movements in that space?

And then a follow-on question, if I can, around Eats. We talked a little bit about how it's behind, but there's quite aggressive, both take rate and EBITDA targets coming up. How does it get there? Is this a little bit of just flexing kind of pricing? Is there a scale-up of the ad product? Or how do we think about the different components that will drive that?

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Nelson Juseuk Chai, Uber Technologies, Inc. - CFO [29]

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So on the first point in terms of the guidance, that is basically our internal plan. So we don't really build in a lot of M&A divestiture. That being said, we do have a capital allocation process that we go through, both for Rides and Eats. And we are working closely with the team in terms of making capital choices. And so you should expect that we'll continue to make choices. You should expect us to continue to be active in that as we go through it. There may be situations where we're in 2 marketplaces and we have to pick, right? But we are committed to being 1 or 2. We're taking action against that. And you should also expect that if there's an opportunity for us to lean in to win a market that we think we want to be in that you should expect that action as well.

So when I gave you the guidance, it was really our internal plan based on organically where we are today with the same set of businesses. But that being said, we know we have a lot of levers at our disposal, and you should expect that it's incumbent upon the management team to deliver against the guidance.

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [30]

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And then as far as the second question as to our confidence in long-term margins, listen, we have big markets in the Eats business that are pretty close to the long-term revenue margin. So that gives us confidence. We do think that there's opportunity with media, et cetera, that could actually help attain margins above our long-term guidance, but we don't want to count on it.

And then on the EBITDA side, you can imagine just the cost side of the business is much more predictable and we already have over 100 U.S. and international cities that are segment EBITDA positive in Eats today. And seeing that road map, our Rides road map, these cities that are positive today gives us a lot of confidence as it relates to long-term Eats margins.

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Operator [31]

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Your next question comes from Itay Michaeli from Citi.

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Itay Michaeli, Citigroup Inc, Research Division - Director and VP [32]

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Just a two-part question on ATG, one financial and one strategic. On the financial, I was hoping you could dimension what you're assuming in terms of ATG spend, both this year as well as in the longer term. And a strategic question just around timing of when you expect to enter the kind of hybrid market of human drivers and AVs, I guess thoughts on potential partnerships. And also, just the overall competitive environment in AV just with one of your competitors in San Francisco suggesting that they might be ready to actually deploy Level 4 in the next couple of years. Just an update there would be helpful.

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Nelson Juseuk Chai, Uber Technologies, Inc. - CFO [33]

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Yes. So in terms of from a modeling standpoint, I wouldn't expect a demonstrable difference over the next year or 2 regarding ATG. There may be some increase, but it won't be significant. And so I don't think you're going to see a big step-up there. And as you know, and Dara mentioned in his script, we did raise funds last summer, which effectively prefunded about 18 months of the ATG development. And so I think you should expect us to continue to lean in there on ATG. That being said, I'll let Dara kind of talk more competitively what we're seeing out there.

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [34]

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Yes. I think the comment that I'll make is, we don't think Level 4 for a autonomous service that's also trying to develop a network is actually commercially viable. What we've experienced is, you need to have 99-plus percent availability essentially for a daily use case for folks to use you over and over again. So Level 4 doesn't cut it, unless you own a network, and unless you operate a network or unless you partner with a network. That is actually the key of why we think that ATG is in a unique place to succeed and why we're very much up for partnering players who may deploy Level 4 and can take advantage of our network to do so. So I think that's kind of definitionally to what we've been talking about. Level 4 is coming. It's coming in the next couple of years. We will be a part of that. The Level 4 and a network together, we believe, is the only commercially viable product out there. And we're uniquely situated to play a very important part in that game.

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Operator [35]

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Your next question comes from Lloyd Walmsley from Deutsche Bank.

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Lloyd Wharton Walmsley, Deutsche Bank AG, Research Division - Research Analyst [36]

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Two, if I can. Just first, can you talk broadly about just trends in the competitive environment in the Rideshare segment? Are there any markets where you're seeing competition tick back up or is it continuing to move in the right direction in the U.S. and globally?

And then the second question just on the 150 basis point take rate improvement in guidance. Can you give us a sense for how much of that is going to come from Food Delivery versus Rideshare? And is that a function at all of like price increases or just simply rolling back existing driver incentives? Anything you can share there.

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [37]

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Yes. I'd say, as far as the competitive environment in the U.S., from a long-term standpoint, the competitive environment has been constructive, has rationalized. In the past month or so, we've seen Lyft, our competitor, probably be on balance more aggressive in terms of discounting and incentives. We'll see where that leads. We think from our standpoint, we've spoken about margins and making sure that our investment in marketing, incentives, et cetera, is an investment that makes sense from a return on invested capital basis and are being constructive as it relates to margins going forward.

On a global basis, we have multiple competitors in every single city. Sometimes competition ebbs, sometimes it flows. I'd say it's largely constructive. And we believe that kind of our future is in our hands because we're the ones, as the largest player around the globe, who's kind of setting the standard, so to speak.

Nelson, you want to answer the second question?

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Nelson Juseuk Chai, Uber Technologies, Inc. - CFO [38]

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Yes. With regard to take rate, I mean, I think it's going to happen both on Rides and Eats. Just as an example, and you heard me in my comments, our Eats take rate in the fourth quarter was 9.5%. But if you exclude India, and as you know, we sold our Indian Eats business, now that increased to the 10.1%. So I think as we think about how we continue to work through, as we think about our capital allocation strategy, we are highly confident we'll be able to increase our Eats take rate.

The Rides will just be continuing to play out what we've already been doing. And so we do expect that, that will increase as well. And it's really not one big thing. It's the combination of both and just getting more efficiency in terms of how we're spending.

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Operator [39]

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Your next question comes from Ron Josey from JMP Securities.

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Ronald Victor Josey, JMP Securities LLC, Research Division - MD and Senior Research Analyst [40]

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Dara, I wanted to ask a little bit more about Eats and contribution margin as take rates get to that 15% level. And I ask only because earlier today GRUB talked about relatively low margins on QSR and non-partner orders and the comment earlier today that you added a lot of non-partners to the business within Eats. So just can you talk a little bit about maybe contribution margins on partners and non-partners on the network? And really, how would those margins expand over time as we get to that profitability?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [41]

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Yes, Ron, our non-partner volume for Eats is very, very small as a percentage of our overall volume. This is a new feature that the team built out really in Q4. We're being careful in rolling out the feature because we want to make sure that the delivery times, the delivery qualities continue to be at the levels of excellence that we insist on. So I would not assume that non-partner revenues are a significant percentage of our volume certainly in Q4. Next year, we are going to build up our non-partner volume, but we'll make sure that we do it in a way that makes sense both for the top line and the bottom line.

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Operator [42]

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Your next question comes from Jason Helfstein from Oppenheimer.

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Jason Stuart Helfstein, Oppenheimer & Co. Inc., Research Division - MD and Senior Internet Analyst [43]

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Maybe ask about California. What have you learned since making product changes in California? What's driver feedback, rider feedback and how has it changed usage and spending?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [44]

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Jason, again, I would stress that it's very, very early. Driver feedback has been positive in terms of the information, the empowerment that I think our driver partners feel. I think that the service itself, prices have increased more than they have nationally. So I think from a rider standpoint, the service on balance has gotten more expensive. But it's very, very early. And I would comment, too, that AB5 in general for a number of contractors, et cetera, has created a huge amount of uncertainty. We rolled out these changes to be very clear about our position as a platform and to make sure that our drivers have the freedom to choose when and if they want to work. We're going to be working through -- we want this to be a win-win for our drivers and for the riders on our platform. And we're going to be iterating to get there.

Short term, it's been, I'd say, net negative for riders and it's possibly a net positive for drivers. Hopefully, we can get to a win-win situation.

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Operator [45]

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Your next question comes from Youssef Squali from SunTrust.

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Youssef Houssaini Squali, SunTrust Robinson Humphrey, Inc., Research Division - MD & Senior Analyst [46]

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Dara, on Careem in the Middle East or North Africa, could you please tell us a bit more about that business, how big is it, growth rate, profitability? And anything either from a technology or product standpoint that they have that you can leverage or vice versa?

And on the Eats business, I think you said earlier that you are #1 or #2 in every market in roughly half of the countries in which you operate, which means roughly half of the countries where you operate you're not #1, #2. What does that mix look like in your base case projection of breaking even by Q4?

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Nelson Juseuk Chai, Uber Technologies, Inc. - CFO [47]

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So this is Nelson. So on Careem, we're actually not breaking that out. As you know, the deal just closed. And I think over time, we'll probably give some more disclosure around it. But right now, we're not going to break that out. We know that will be positive in terms of its impact on the business. The team has actually done a very good job in terms of building out their marketplace. There are some things we can learn from there that the teams are working on right now, but it's really too early to tell because remember the deal just closed a few weeks ago.

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [48]

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Yes. I'd say on the Careem side, we've talked about the steps that we made as it relates to the power of the platform and the super app strategy. The Careem team is absolutely looking to drive the super app strategy in the Middle East. I think some of these developing markets, that particular strategy has great potential. We see incredible innovation from that local team across a number of services, including payments as well. So I think that we're going to be learning from the Careem team and they're going to be learning from us. They've made real investments in their driver relations, Captains in Careem speak -- so to speak. And again, that's something that we can learn from. We really want to deepen our relationship with our earners around the world, and we've seen really interesting activity from the Careem team that we can all learn from.

As far as our Eats business, #1 and #2, we've been really encouraged by our trends that we saw in Q4. We definitely leaned in to get to more #1s and #2s. And I think next year we expect more of the same. We've been gaining category position in most of the countries in which we operate. And we're pretty confident that by the end of next year, we're going to be #1 or #2 with the vast majority of our volume. Most of it will be organic and some of it will be inorganic, both on the buy and sell side.

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Operator [49]

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Your next question comes from John Blackledge from Cowen.

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John Ryan Blackledge, Cowen and Company, LLC, Research Division - Head of Internet Research, MD and Senior Research Analyst [50]

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On Uber for Business, the growth was stellar. It was about 9% of the Rides gross bookings. Could you just discuss how that mix might change over time, kind of any differences in penetration U.S. versus non-U. S. markets and the margin profile for Uber for Business kind of relative to the overall Rides segment margin?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [51]

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Yes. I think the trend for Uber for Business is pretty simple which is, it's going to be a higher percentage of our bookings going forward and certainly a higher percentage of revenue. On average, the Uber for Business has a higher premium share. And our premium business is higher margin than, let's say, our X or other products. We are going to be investing relatively heavily in growing the U4B sales force. We have a more mature and larger sales force in the U.S. versus, let's say, Europe and some of the other countries. So expect us to lean in on the sales force. Usually, when you expand a sales force upfront, that's probably negative margins or, call it, breakeven margins. But then the lifetime value that our sales teams bring in over 3, 4, 5 years make a lot of sense. And then when we do look at the retention of U4B customers, the retention rates are substantially higher than, call it, leisure customers or non-U4B customers. So long term, as U4B becomes a higher percentage of our business, expect our marketing efficiencies to improve.

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Operator [52]

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Your next question comes from James Lee from Mizuho.

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James Lee, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Internet Sector Analyst [53]

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Dara, I was wondering if you can give more color on the competition in Lat Am. You talk about that market being more stable since 2019. We heard that Didi recently entered into some new markets. Any new learnings there? Are you doing well because your competitor is now more disciplined or are you responding faster to their marketing initiatives? And also, Dara, can you give an update on your status on U.K. regulatory situation there, how you expect that to play out?

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Dara Khosrowshahi, Uber Technologies, Inc. - CEO & Director [54]

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Sure. Absolutely. So in terms of our Lat Am markets, I think it's a combination. I think, generally, the competitive environment remains quite competitive, but more stable on a year-on-year basis. Didi is a competitor that we do not take for granted. They're very good at what they do. But if you look at our numbers, for example, our ANR growth rate in Lat Am was pretty significant on a year-on-year basis, and it turned positive and very nicely positive. So we like the trends that we see in the Lat Am markets. We think that we are more effective in our response. And we think that in terms of year-on-year, the market is much more predictable. Lat Am represents our fastest-growing mega-region. And from a trips basis, it is the largest region that we have on the Rides side as well. So we're quite optimistic there.

And then in London, as far as regulatory goes, we're going to have our day in court. We respectfully disagree with the TfL's conclusions. I'll remind you that 2 years ago in court, we won the right to operate in London. And I think that our safety levels, our service levels are across the board, significantly, significantly improved versus where they were 2 years ago. The team is very focused on executing on safety around the world. And I think the London team especially is focused on it. So we expect that our day in court will be positive, but we know that we got to make the case. In the meantime, we operate in London as we have as always, and we continue to optimize our business. And it's like any other day in London as far as our operations go.

Well, thank you very much, everyone, for joining. We really appreciate your being here. I think 2019 was a big, big year for us. We know that we've got a lot to deliver on 2020, but the team is confident and the team is psyched to execute and to also build a great company and provide a great service for all of our users. Thanks very much for joining us.

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Operator [55]

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Ladies and gentlemen, this concludes today's conference call. You may now disconnect.