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WHEN: Today, Friday, August 9, 2019
WHERE: CNBC's "Squawk on the Street "
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Uber CEO Dara Khosrowshahi on CNBC's "Squawk on the Street" (M-F 9AM – 11AM) today, Friday, August 9th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/08/09/dara-khosrowshahi-full-interview-squawk-on-the-street.html.
All references must be sourced to CNBC.
DAVID FABER: Alright, well, let's get back to our big stock story of the morning, of course. Uber shares, as you saw, they're under pressure, at least thus far. The company did miss estimates on the top and bottom line. But there is an awful lot going on here under the surface that could at least make it a bit of a confusing quarter for many investors. So, joining us now, exclusively from San Francisco, to help explain it all and answer our questions is the company's CEO Dara Khosrowshahi. Good to see you, Dara. Thank you for being with us.
DARA KHOSROWSHAHI: Good to be here, thank you.
DAVID FABER: You know, as I said, I mean, and we -- Jim and I were talking, the 3.9 billion in term of compensation expense related to the IPO, the driver appreciation reward, a lot of different of moving parts here, a lot of adjustments that people have it see through. So, let me just ask you, if you cut through all that, what really is the revenue growth rate for this company and the take rate that we're looking at right now and that you expect in terms of the guidance for the future?
DARA KHOSROWSHAHI: Yeah, listen, I think the IPO for us is a once in a lifetime moment. And it was a really important moment for the company. And some of what we did, like the driver appreciation reward, almost $300 million that we put in the hands of over a million drivers globally, were really important for us to do. It created a messy PNL from an accounting standpoint that I think is hiding underlying trends that are actually very, very healthy for the company. If you look at the trends of the company, and this is what is going to matter long-term, you've got gross bookings over 16 billion growing 37% on a year on year basis. You've got trip volume and trips are units growing 35% year on year. You've got audience, monthly active platform customers, now over 100 million, growing 30%. And the actual revenue growth, and you do have to back out the driver appreciation reward because that was one time – it was important, we wanted to do it, but it was one time – the revenue growth excluding the driver appreciation award was up 26%. And what I did tell our investors is expect that to accelerate into the back half of the year. The back half of the year, you're going to see if trends stay the same, revenue growth in excess of 30%. And when you look at profitability, we beat our own internal targets, we beat street targets as well. We came in at a loss of $656 million. It's still a big loss—
DAVID FABER: It is.
DARA KHOSROWSHAHI: -- but the losses are improving, the take rates are improving.
DAVID FABER: Right. And you went on in the call to say at maturity, of course, you can be cash flow positive. I made light of -- not light of, I discussed briefly your comment, some other comments, and I would love to get more from you on them, which is: if you do your jobs right, and you say there are always trade-offs to be made, you can make the trade-offs where you scale expenses and get more efficient in marketing and incentive spend while improving the bottom line. What examples can you give to me now of where you're doing that or where you would expect to do that in coming quarters, in terms of increasing the possibility of profitability and the overall contribution margin?
DARA KHOSROWSHAHI: Well, listen, you see it this quarter. Again, if you back out some of those onetime expenses, we went from a loss of over $800 million to a loss of $656 million. We got much more efficient on the marketing front, and actually took marketing as a percentage of revenue down, while we were still growing the top line over 30% as well. So, we are in a situation as far as the network effects of this company. This is much more than just the ride share company now, it is a transportation company, where we don't need to continue to increase the marketing and incentives, we can go in with loyalty plans, both for riders and drivers, that are going to add to leverage in the company and ultimately improve the profitability of company. And, listen, this is a marketplace company that has over 20% revenue margins. And revenue margins are increasing year on year. So not only do we expect to hit kind of cash flow break even, but we expect business to be very profitable at maturity.
DAVID FABER: And this is the big spend, near spending from here starts to decline. Is that true?
DARA KHOSROWSHAHI: I think that our spending declines as a percentage of revenue. So, when you're growing trips 35% year on year, your spending is going to increase. But we are going to get leverage, we believe, on the marketing line and we are definitely going to get fixed cost leverage going forward. This market proved this – this quarter proved that out. And I think we have to keep hitting our marks in the next couple of quarters. It is a super competitive marketplace, but we're confident and we like what we saw operationally in this quarter.
JIM CRAMER: Dara, it's Jim. It's good to see you as always, my friend. But I have a question. I know you're involved with history. I know you know history most – probably better than most CEOs. Frederick the Great said, "He who defends everything defends nothing." Latin America, Uber Eats, against a Door Dash competitor that plays with Wampum. I mean, why are you in these markets when you know, you know you have to defend everything and it is going to cost a fortune?
DARA KHOSROWSHAHI: Well, listen, Latin America is one of the best markets we have in the ride share business. It is a huge market. The GDP there is increasing. You look at Argentina for example, Buenos Aires now is the fifth largest city for us globally in terms of trips for rides business. So, we know how to operate in Latin America. The Uber name is beloved in Latin America. And we think that the platform, the power of the platform is that we can take one service and then add on other services into the fold as well. So, just like Uber Eats has become a part of everyday lexicon to Americans, we think the same can be true in Latin America. Is it going to take investment? Yes. Is it going to take execution? Yes. But we have an enormous advantage in the Uber brand and the platform that we've built locally. And there is no reason we can be just as successful in Latin America as we are in the U.S.
JIM CRAMER: Alright. You let me spend some time with Lior Ron, who I think is a genius. He does Uber Freight. The analysts seem to be, let's say, lukewarm about Uber Freight. That it – that you're spending a lot of money and it happens to be a wrong time. Can you give us more granularity? Because it was not available in the conference call.
DARA KHOSROWSHAHI: Yeah, I think Uber Freight's growth if you look on year on year basis, the top line is growing over 150%. If you look at customer cohorts, our customers love us, our signing of new customers, and the use of the customer is kind of year on year, it continues to increase at a very significant pace. The freight industry hit a soft pocket in the first quarter and second quarter of the year. We went in and adjusted to that soft pocket to sell much more aggressively into accounts and if you look at the grass for Uber Freight now, the growth rates are exciting and we remain bullish. It is going to take a couple of years, but this is a multibillion dollar industry and we think we have got kind of the best solution with the best tech and a great brand. And we think we can succeed there very much so.
DAVID FABER: You know, competition, of course, is one of the key concerns of investors here, whether it is Lyft here in the domestically or DiDi in some of the other markets around the world, and what they believe will be a constant pressure on pricing. Is it starting to alleviate at all? The possibility, for example, of DiDi in London, is that going to conceivably be ye another battle you have to fight?
DARA KHOSROWSHAHI: So, we have competitors in every single market. Right? If you're going after a $10 trillion plus marketplace, you're not going to have just one competitor, you're going to have multiple competitors coming in we happen to be the biggest in the sector, so when competitors come in, they want to take us on. When you look in the ride share space, the competitive environment is I say, stable to getting better. You saw ride share take rates actually quarter on quarter increase by over a hundred basis points. So, while it is competitive and we expect to be competitive, we have competed against competitors in Paris and London and every single city that we operate in, we have multiple competitors. And usually we have 60, 70, 80 shares. We compete, but we win. The Eats market continues to be very competitive. So, while rides, I say the competitive environment is stable to getting better, we were going to see a lot of -- with Eats, there's a lot of capital coming to the category because it is growing. And I think Eats is going to be a battle this year and next year.
DAVID FABER: Yeah, that's interesting you mentioned capital coming in because it does make me think about one of your largest investors: Masayoshi Son, of course, at SoftBank. They're raising Vision Fund too, Dara. And conceivably some of that money is going to go to those very companies that you were just talking about that you'll compete with, that are going to have sort of unlimited war chests to cut pricing in, for example, the Eats market. How do you view that? Do you ever go to Masa and say, 'Give me a break here?'
DARA KHOSROWSHAHI: I think a lot of people in life would want Masa to give them a break. But Masa is just going to keep going. Listen, I think that Masa is a businessman. And he doesn't throw good money after bad. He -- when he puts in money into companies, it's because he believes in them and that he thinks they're going to be category leaders. We are the single largest investment on a global basis. So, I think our interests and Masa's interests are very much aligned. They know everybody. They understand the markets. And I'm very, very happy to have them as an investor. And I consider SoftBank a very good actor in this marketplace. They're going to put money against the markets, but that is going to expand the markets. And we're going to be -- we have been one of the cheap beneficiaries of that.
DAVID FABER: Alright, well, speaking of some of the investors, the lockup is fast approaching or I should say it will expire. Are you expecting a lot of potential sellers to hit the market when they can in terms of insiders and the like who are locked up from selling after the IPO?
DARA KHOSROWSHAHI: Yeah, you know, David, I like to focus on the things I can control. My honest answer is: we don't know. There are going to be some investors who we believe are absolutely long-term investors like SoftBank. And then there are going to be some investors who made a ton of money and deserve to liquidate some of the shares. You know, if we focus on building the business and we focus on continuing to grow at 30 plus percent rates, continuing to increase margins, the rest will take care of itself. I'm looking forward to getting the lockup behind us, honestly, because I think that people talk about it too much and really what we're trying to build is a business that lasts, a business that can attract the best talents in the world. That's what I'm spending my time on.
JIM CRAMER: Alright, Dara, we've got to back over this pre-money issue and Uber Eats. The Door Dash, I'm familiar with Door Dash—I deal with them personally because I own a restaurant. But it is curious to me, Door Dash has 360,000, they say you guys are up there. They play with free money. They bid and got Caviar which is the Square delivery. They paid $400 million. Did you try to get caviar and did you think they overpaid for Caviar because they're not public?
DARA KHOSROWSHAHI: You can expect us to look at every single deal out there in the marketplace. We're Uber, everybody wants to talk to us. We looked at Caviar. It is a great brand. It wasn't the right deal for us. I can't speak to Door Dash and whether they overpaid or underpaid. We just think that the best growth vector for us with Eats especially in the U.S. is organic. We are now increasingly with Uber Ride Loyalty Program getting users into Uber Rides and then Uber Eats and essentially moving the users back and forth between the two. We think it creates a customer acquisition cost advantage over the other players. We think it creates a lifetime value advantage over the other players. And what we're confident of is our Eats business is much more efficient from a marketing standpoint than any of our U.S. competitors. That's the power of the platform. And that's really where we're focused.
JIM CRAMER: That is a very good point. And I can't underestimate the lifetime value of a customer. There is an existential moment in this conference call, Dara, where you talk about rougher or poor areas, inner city, they cannot afford -- the consumers can't afford, I'm quoting you, the increases in price. What are you going to do about that? Do you think it should be two-tiered? Do you think it is fair that people who are not wealthy can't afford you? And don't you think they should get a break? Why shouldn't people be treated equally?
DARA KHOSROWSHAHI: I think it is a tragedy. Listen, I think that when you put into law laws that are not market driven, you wind up helping special interests and you hurt other people. And the fact is in New York City, because of the new TLC rules we've had to restrict a number of drivers that come into the marketplace, we had to increase prices and there are many, many New Yorkers who can afford it. And our business in New York is doing just fine. But our business in the neighborhoods that need transportation the most, often mass transit, doesn't go into the neighborhoods. Our business is suffering there and that's just not fair. Really what is happening in New York is there is a secondary medallion system being created with this limit on the number of drivers on the number of cars. And we know that the first medallion system ended in tears. And now we're doing it again. And we think it is a tragedy. We're doing everything that we can to get our message out in New York City. And, you know, eventually we think that good logic will win. But, right now we're in a tough spot. We will do our best to get out there and make sure that our service is available to every single consumer, anyway that we can.
DAVID FABER: Speaking of that and other services, why are you promoting to a certain extent in certain metropolitan areas the use of mass transit? What is the -- what is the overall benefit to your user from providing that information?
DARA KHOSROWSHAHI: Well, listen our mission is igniting opportunity by setting the world in motion. We want to move people and we want to be that service where if you're going from point A to B in a city, you wake up, you come to us, and we started with cars. But what we're trying to do is get you to where you're going and we think that mass transit is an incredibly important part of that equation. It is good for business. The more people come to Uber to check Uber, to come for information every day, the more of an opportunity we have to offer our services for them. At the same time, it is great for transit as well. I think you have seen that transit ridership has been flat in many cities. And we think that if you bring the Uber service, the delight of a customer experience, the ease of use, all the way from information to booking, we think we can become a really important demand generator for mass transit. It is good for the environment, it's good for the city, ultimately, it is good for the consumer. And we think it is good business as well.
DAVID FABER: Right. Well, as you've said, your main competitor is car ownership, not necessarily any of the other aforementioned competitors in the marketplace, Dara. You know, we've covered a lot of ground here in the last 10, 15 minutes in terms of your view of the future. But do you feel like you have a lot of visibility into your business at this point? That you can be confident in in of the predictions you're making in terms of what you are going see in various markets and what it is going to cost you to continue to compete?
DARA KHOSROWSHAHI: I think we have got very good visibility on our own business as far as the business model and how we can tweak and how we can drive more efficiency out of marketing spend, out of incentive spend, out of overheads, et cetera. The team is very much aligned and executing on that. I do think that the competitive environment can change quickly. And last year we had the competitive environment become much worse, frankly. And this year the competitive environment is improving pretty consistently. And that is something that to some extent is out of our hands. But I do think it is something we can control, by being an incredibly strong competitor, by pushing back where we need to, and then bring in profits where we can, we think that we cannot only survive, but we can really thrive in this business. Again, when you look at the top line growing 37% at these kinds of scales of 16 billion plus in bookings. These are big businesses and I think that we're going to be the winner.
JIM CRAMER: Alright, so Dara, can you talk about -- I know you care about impact per share. You've always been conscious of this. Can you talk about empowerment for a second? Versus exploitation, frankly. We often read that the drivers are exploited. I often think you provide an empowerment to people would never have a job, particularly with Uber Freights, Hispanics, Sikhs, usually discriminated against. Just tell me what you are doing for equality?
DARA KHOSROWSHAHI: I think as far as our driver partners go, one of the really important parts of where we're taking our relationship with the driver partners, the number one reason why they love to use our platform to earn is they can use our platform, anyway, anytime they want, they are their own bosses, they do exactly what they want. At the same time, with society now, there is an expectation of a safety net, healthcare, minimum earnings, et cetera. And we are actively now engaging on that front with the regulators. We want to be part of the solution, where part-time work is not something that you look down on, where you can have your freedom and safety net at the same time. And we absolutely think that Uber can be a leader there. That's something I take very personally. And if that's something that we can't -- that we haven't accomplished as a team over the next couple of years, I'll consider that a failure. But we have got to have dialogue. It has got to get past the emotion, get past the politics, and it has to serve our driver partners. And that's what we're trying to do.
DAVID FABER: Dara, the last time we actually saw you in person, of course, was during the Initial Public Offering here on the floor of the NYSE. Any regrets in terms of that day? The stock continues to trade five bucks below the IPO price.
DARA KHOSROWSHAHI: Yeah, listen, it was a great day as far as bringing in -- getting the company public, getting us funded to that path to profitability as well. I think we have got to do a better job in terms of telling our story to the markets. I think that the company is executing very, very well. Somehow it is not getting through the noise. And, you know, I think that at some point, you just put your head down and you execute. And the market short-term while you can't control the short-term, long-term the market will take care of itself. And think that's what we're focused on right now.
DAVID FABER: Right. And you've got to get people to believe in that ultimate goal. That you can be of cash flow machine at maturity. And for now, even though EBITDA loss is 656 million, I would think that's an uphill bat until some battle in some ways. Do you agree?
DARA KHOSROWSHAHI: I think when you have those kinds of losses, listen: we take those losses seriously. But you have got to look at the fundamentals of the business. This is a 20% revenue margin business at 50, 60 plus percent scale. Every single year we add $15 billion of gross bookings at 20% margin -- revenue margin. So, that's essentially $3 billion of revenue that we're bringing in house. And you put that, you know, against a $656 million quarterly loss. And you see that with a couple of years of $3 billion plus revenue coming in, you're going to be able to cover those kinds of losses. I am very, very confident of this. The last business that I ran, Expedia, was running at 11%, 12% revenue margins. We were able to get to 20% EBITDA margin. At a 20% revenue margin here, not only do we have to get to cash flow break even, but we're going to get to significant profits here long-term. It is going to take work. We're very clear eyed about that. But believe me, we're pretty -- we're very confident we can get there.
DAVID FABER: And finally, Dara, the last time again we saw you, Mr. Kalanick was here as well, he was up there far away from us, the former CEO prior to you, the Founder. People say, 'Listen, you have done an excellent job to a certain extent addressing some of the cultural issues that were present at the company when you took over.' But they do wonder whether Uber has lost that sort of Founder-driven urgency that some of these companies have when the Founder continues. How do you address those who say or wonder whether you still have that fire?
DARA KHOSROWSHAHI: I think we absolutely have that fire inside of the company. We -- just two days ago, we had kind of a day where we sit down and go through all of – everything that we're doing technically. Meetings start at 8:30, it didn't end until 9:00, after 9:00 p.m. At night. We got in that room and we resolved every single situation. So, listen, the Founder mentality, that edge, the fire, is absolutely something that we want to keep going at the company. It was a big part of what made the company successful. And I absolutely believe it will be a big part of what will make Uber successful going forward.
DAVID FABER: Dara, we certainly appreciate you taking the time with us this morning, helping us go through a complicated quarter and look forward to seeing you in the future. Dara Khosrowshahi, CEO of Uber joining us from San Francisco. Thank you.
DARA KHOSROWSHAHI: Thanks for having me.
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