Uber: Business Breakdowns Research

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Uber: Business Breakdowns Research By: Colin Dismuke Primary Research Sources and Q1 2021 10Q press release and 2020 10K press release Latest investor presentation Summary Uber creates two-sided marketplaces in three related mobility markets; personal mobility ( mobility), food mobility ( delivery), and industrial scale mobility ( freight). They’ve built a technology platform that connects passengers with drivers, consumers with food outlets, and shippers or freight forwarders with truckers. Source: How Uber Makes Money Personal mobility (taxi-like services) is how Uber started and still represents their main earnings stream, however, delivery and freight have grown faster in recent years. This was especially true last year FY20 during COVID19 lockdowns. Colossus, LLC ® 2021 Colossus, LLC. All rights reserved.

Transcript of Uber: Business Breakdowns Research

Page 1: Uber: Business Breakdowns Research

Uber: Business Breakdowns ResearchBy: Colin Dismuke

Primary Research Sources and  • Q1 2021 10Q press release

and  • 2020 10K press release

 • Latest investor presentation

SummaryUber creates two-sided marketplaces in three related mobility markets; personal mobility (mobility), food mobility (delivery), and industrial scale mobility (freight). They’ve built a technology platform that connects passengers with drivers, consumers with food outlets, and shippers or freight forwarders with truckers.

 •

Source: How Uber Makes Money

Personal mobility (taxi-like services) is how Uber started and still represents their main earnings stream, however, delivery and freight have grown faster in recent years. This was especially true last year �FY20� during COVID�19 lockdowns.

 •

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Source: Uber 10K

Geographies� Uber operates in 68 countries and 10,000� cities. Non-US markets account for 80% of all trips (rides and deliveries). However, the US accounted for 45%, 61%, and 56% of their revenue for each of the last three years.

 •

Company History & Key People2008� Garrett Camp, after selling his startup, StumbleUpon, to eBay in 2007, comes up with the idea of buying his own fleet of Mercedes S�Class sedans, leasing a parking garage in San Francisco and creating his own black car service controlled from the iPhone.

 •

Later that year, Garrett had dinner with his friend, Travis Kalanick, who had just sold his startup. •Travis insists that based on the unit economics, Garrett shouldn’t purchase the cars himself, rather, he should use existing limo and black cars and just provide an iPhone app.

2009� They work through 2009 to build the product, hiring Ryan Graves as CEO in January 2010. On May 31, 2010 they launch in San Francisco.

 •

Summer 2010� Raise a $1.3 million seed round at a $5.3 million post-money valuation from Rob Hayes at First Round, Mitch Kapor, Chris Sacca, Jason Calacanis, Alfred Lin, and

 •several others.

October 2010� Uber’s office raided by city regulators insisting that they shut down. •Travis and Uber were quick to point out that the black cab market was regulated by the state, they were not a taxi company, and didn’t break any of the current regulations.

Travis decides that Uber will be his life’s work and amicably replaces Ryan Graves as CEO, who becomes SVP of Operations. He renegotiates his stake in Uber to total 23%.

Early 2011� Benchmark and Bill Gurley lead a Series A round of $11 million at a $60 million post money valuation. Benchmark’s stake is 18.3%. At the end of 2011, after barely a year, Uber is already doing $9 million/month in bookings and $2 million in net revenue.

 •

2012� Sidecar and Lyft launch during the summer. •Prior to the launch of Lyft, Uber had the archetypal marketplace business model. They had no inventory, pushing the bounds of regulation but not overstepping, great unit economics, $100 million revenue run rate, 9�10x LTV/CAC.

After the launch of Lyft and the peer-to-peer business model, the unit economics of the business completely changed.

The supply side of the equation massively expanded (drivers). On the demand side, there was more competition between Uber, Lyft, Sidecar, and many more (including internationally) which necessitated increasing subsidies for each ride.

Common wisdom said that the rideshare market would be a war of attrition but after fierce competition it would become a winner-takes-all market; unit economics would return to normal and the company would be profitable.

August 2013� Raise $258 million in a Series C round at a $3.5 billion pre-money valuation. This was the beginning of a multi-front land war with Lyft, Didi, and others around the globe.

 •

June 2014� Raise a $1.2 billion Series D at an $18.2 billion valuation led by Fidelity. •The investment by Fidelity opened the floodgates of institutional capital from T. Rowe Price, Goldman Sachs, Times Internet, TaTa Capital, Tiger, Saudi Arabia Public Investment Fund, and ultimately the SoftBank Vision Fund.

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April 2015� UberFRESH rebrands to UberEats with plans to rapidly expand beyond New York and Chicago. •August 2016� Didi invests $1 billion to buy out Uber’s operations in China. Uber acquires a 20% stake in Didi as part of the deal but effectively exits the Chinese market.

 •

2017� Following half a year of controversy (see Block “Uber’s Bad Year”) and scandal, Travis is forced out by the board (led by Benchmark) in June and replaced by Dara Khosrowshahi, the CEO of Expedia, on August 30.

 •

January 2018� Dara Khosrowshahi orchestrates a $9 billion deal with Soft Bank, Dragoneer, Sequoia, and Didi to buy shares from existing investors and employees. Including additional secondary sales, SoftBank acquires 15% of the company.

 •

Uber raised a total of $25.2 billion over 31 rounds. ○

May 9, 2019� Uber goes public on the NYSE at $45/share valuing the company at $82 billion. They close the day at $41.57.

 •

Business Model

FinancialsUber generates substantially all of their revenue from fees paid by Drivers and Merchants for the use of the Uber platform.

Revenue from all business segments: ○

$10.43B � 2018 □

$13.00B � 2019 □

$11.14B � 2020 □

Gross bookings across their platforms shifted from majority Mobility to majority Delivery as a result of COVID in 2020.

Source: Uber 10K

Monthly Active Platform Consumers �MAPCs) is used to assess the adoption of the platform and frequency of transactions in countries of operation. Trips are used as a metric to measure scale and usage of Uber’s platform.

On average, MAPCs spent approximately $66/month and used the platform approximately 5x/month in Q1’21.

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Page 4: Uber: Business Breakdowns Research

Source: Uber 10K

Costs: Key costs of running the platform: ○

Driver payments� Payments to drivers accounts for �70% of the gross bookings cost. □

Platform operation� Insurance costs related to Mobility and Delivery offerings, credit card processing fees, bank fees, data center and networking expenses. Mobile device and service costs incurred for certain Delivery transactions where Uber is primarily responsible for delivery services and paying Delivery People for services provided. Costs incurred with carriers for Uber Freight transportation services. Amounts related to fare chargebacks and other credit card losses.

Sales and Marketing Expense: They spend significantly on sales and marketing which constitute around 32% of total revenues. As Uber enters into new geographies, they must increase awareness on both the supply and demand side. As a result of the impact of COVID, they expect S&M to increase for the foreseeable future.

Research & Development: They regularly spend between 15�30% of total earnings on R&D. □

Margins: Remains unprofitable. Profit before taxes last year amounted to �$6.95bn ��$8.43bn in FY19�. Gross profit margins between 53�54% for the last three years. Negative operating margins, however; �43% last year ��66% FY19 | �29% FY18�. R&D costs spiked in FY19.

Cashflows� Uber has experienced negative operating cash and free cash flow for each of the last 3 years. ○

Investments: As a result of exiting several geographies, Uber has acquired minority stakes in a number of the largest Mobility and Delivery businesses in the world.

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Page 5: Uber: Business Breakdowns Research

Source: Q1'21 Investor Presentation

Business Segments in More DetailThere are four (three after the recent divestiture of ATG� operating and reportable business segments: •

Mobility ○

The original ‘taxi’ product, which connects consumers with drivers who provide rides in a variety of vehicles.

Uber charges drivers 25% of fees they earn on their platform. They pay drivers weekly. □

Mobility accounted for 46% of 2020 Gross Bookings □

Source: Q1'21 Investor Presentation

Delivery ○

The delivery segment has succeeded because it uses the existing global network of drivers within Uber to provide a higher-margin, value-add service to its customers — food and grocery delivery.

Generates revenue in 3 ways: □

a sliding scale delivery fee from each customer •a percentage of each driver’s gross fare •a 30% fee from the restaurant on each order. •

Delivery accounted for 52% of 2020 Gross Bookings. □ Colossus,

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Page 6: Uber: Business Breakdowns Research

Source: Q1'21 Investor Presentation

Delivery is Uber’s fastest growing business segment and they are taking advantage of the growth to expand into adjacent verticals such as groceries and convenience stores. on-demand and scheduled grocery delivery has expanded into 400 US cities and a 1,200 store partnership with Albertsons will be accelerated this year.

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Source: Q4'2020 Investor Presentation

Further capitalizing on their delivery network, Uber Direct is delivery-as-a-service for businesses outside of Uber’s apps.

Source: Q4'2020 Investor Presentation

Uber/Eats Pass, their membership offering that launched in 2020, provides recurring revenue and is a priority in 2021.

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Source: Q4'2020 Investor Presentation

Freight ○

The freight industry is fragmented and inefficient. It can take several hours, sometimes days, for shippers to find a truck and driver for shipments, with most of the process conducted over the phone or by fax.

Uber Freight looks and feels a lot like the Uber we know, and offers a marketplace that connects carriers and independent truck drivers with shippers. The platform enables shippers to create and tender shipments with a few clicks, secure haulage capacity on demand with upfront pricing, and track those shipments in real-time from pickup to delivery.

To gain market share, Uber has been undercutting profits: almost 99% of the gross revenue goes to the carriers, according to .

Morgan Stanley analysis

Uber is currently working with 71,000 carriers (#1 downloaded freight brokerage app), 8,200 shippers, and 300 enterprise ��$1B revenue) shippers.

Source: Q4'2020 Investor Presentation

Uber’s competitive advantage with Freight is their marketplace model, developed initially for matching riders and drivers, and associated pricing algorithms that pair loads with freight carriers.

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Page 9: Uber: Business Breakdowns Research

Source: Q4'2020 Investor Presentation

Advanced Technologies Group �ATG� ○

Focused on the development and commercialization of autonomous vehicle and ridesharing technologies, as well as Uber Elevate (flying taxi service).

Uber sold ATG to Aurora Innovation for $1.4 billion in December 2020. In addition, Uber acquired 26% stake in the Aurora and invested $400 million.

Secret Sauce

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Page 10: Uber: Business Breakdowns Research

Source: Q4'2020 Investor Presentation

Competitive PositionGiven the three segments Uber operates in, it has a number of competitors, including: •

Mobility ○

Lyft, Ola, Didi, Yandex.Taxi, Lime, Bird □

Delivery ○

GrubHub, DoorDash, Deliveroo, Postmates, Zomato, Delivery Hero, Amazon □

Freight ○

C.H. Robinson, Total Quality Logistics, XPO Logistics, Convoy, Echo Global Logistics, Coyote, Transfix, DHL and NEXT Trucking

Within the US, Uber’s share of the ride share market is 68%. •According to Second Measure, 64% of rideshare customers use only Uber, while 26% use only Lyft. ○

Source: Second Measure

Within the US, Uber’s share of the delivery market is 23%. •

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Page 11: Uber: Business Breakdowns Research

Source: Second Measure

Internationally, Uber operates in 68 countries and 10,000� cities and non-US markets account for 80% of all trips (rides and deliveries).

 •

Expansion into new cities and locales comes with: higher driver commissions, driver incentives, driver onboarding, increased sales and marketing, insurance and other operating expenses.

Ceded control in a several major markets: ○

China — sold operations in 2016 to Didi for a 19% stake in the company □

Russia � Uber merged with Yandex in 2018 to form a JV with 38% ownership □

SE Asia — sold operations in 2018 to Grab for a 30% stake □

The freight brokerage market is top heavy, �Uber Freight, Convoy, uShip and the other new, tech-adjacent entrants fall far outside the top 10�. C.H. Robinson currently dominates the industry.

○ 8�10 firms account for 1/3 of the total gross revenue

Source: Q4'2020 Investor Presentation

Trucking-as-a-service �TAAS� is expected to grow significantly in the U.S. ○

API adoption with Uber Freight grew 220% YoY by the end of 2020. ○

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Page 12: Uber: Business Breakdowns Research

Source: Uber Quarterly Market Insights Report

Uber continues to incur significant regulatory costs, including but not limited to, a two-time London ban, a nationwide ban in Germany, multi-year IP case with Waymo, and a fight against California’s state labor law, AB 5.

 •

○ There appears to be a deep belief that, as a technology platform that simply brings drivers and customerstogether, Uber and its business model exist outside all past transportation business models and rules.

The most pressing ongoing regulatory issue is the fight to classify drivers as full-time employees (with full benefits), rather than contractors, at a city, , and level.

state federal

that they would only be able to accommodate 260,000 full-time roles compared to 1.2 million drivers pre-COVID.

□ Uber estimates

Bill Gurley � All Things Business and Investing

Colossus In depth discussion of the marketplace model and current state of venture capital in 2020.

https://joincolossus.com/episodes/12224182/gurley-all-things-business-and-investing

The Uber IPO Podcast The complete history and strategy of Uber. https://www.acquired.fm/episodes/the-uber-ipo

All Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital Marketplaces

Article Bill Gurley dives deep into the marketplace model and how to evaluate a companies potential success.

https://abovethecrowd.com/2012/11/13/all-markets-are-not-created-equal-10�factors-to-consider-when-evaluating-digital-marketplaces/

Understanding How Uber & Lyft Grow in Markets

Article Kevin Kwok takes a quantitative look at TAM expansion and how Uber and Lyft expand into new markets.

https://kwokchain.com/2018/04/09/quantifying-tam-expansion-uber-and-lyft-in-nyc/

How Uber Makes Money Article A look at where Uber makes money, where it spends it, and where it's looking next to move closer to profitability.

https://www.cbinsights.com/research/report/how-uber-makes-money/

Article Timeline of the scandals and controversies that Uber faced in 2017.

Uber’s Bad Year: The stunning string of blows that upended the world’s most valuable startup

https://www.businessinsider.com/uber-scandal-crisis-complete-timeline-2017�6

Can Uber Overcome Its Regulatory Obstacles?

Article Wharton’s Gad Allon discusses Uber’s regulatory battle in London and their culture with respect to regulation in general.

https://knowledge.wharton.upenn.edu/article/can-uber-overcome-regulatory-obstacles/

Title Type What You Will Learn �140 Characters) URL �Must be https://)

Useful Resources

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Marketplaces and layering on advertising

Article The effect of layering on advertising to a marketplace business.

https://tanay.substack.com/p/marketplaces-and-layering-on-advertising

Uber’s Many Adjustments Article Breaking Uber’s adjusted EBITDA. https://www.calcbench.com/blog/post/626349251892559872/ubers-many-adjustments

Super Pumped: The Battle for Uber

Book Inside look at the highs and lows of one of the first mobile unicorns and a key to understanding modern day Silicon Valley.

https://www.amazon.com/Super-Pumped-Battle-Mike-Isaac/dp/0393358615

The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing thee World

Book Brad Stone chronicles what it feels like inside Uber and AirBnB as they grow from ideas to multi-billion dollar enterprises.

https://www.amazon.com/Upstarts-Airbnb-Companies-Silicon-Changing/dp/0316388394

Travis Kalanick Getting Sued At 22 years old by Michael Ovitz

Video Travis Kalanick’s history with Michael Ovitz and how it affected his view of venture capital.

https://youtu.be/ztcSz0OuArY

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