WHEN: Today, Tuesday, July 7, 2020
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 ET) today, Tuesday, July 7th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2020/07/07/watch-cnbcs-full-interview-with-uber-ceo-dara-khosrowshahi-on-postmates-deal.html
All references must be sourced to CNBC.
DAVID FABER: Uber remains in focus just one day after announcing that $2.65 billion all stock deal to acquire Postmates. This morning, the company says it's entering grocery delivery as Carl and I just discussed. Joining us now in a CNBC exclusive is Uber CEO Dara Khosrowshahi. Dara, always great to have you with us. Thank you. You know, I spent a good amount of time reporting on your attempts to acquire Grubhub, it didn't happen. Should your shareholders view this as second prize? And if not, why not.
DARA KHOSROWSHAHI: Well I think our shareholders should view it as the prize. Listen, every single deal that comes together needs two parties to agree. And that requires you to agree on a lot of issues, including price terms, etc. We couldn't get there, with Grubhub for various reasons and similarly, we agreed to disagree. With Postmates, we did agree. We think it's an attractive price, the asset is a great asset. We actually think that the Postmates brand is exactly the kind of brand that we want. It is a millennial brand, it's much younger, and the geographic focus that they have and the restaurants, the kinds of restaurants that they have is pretty incredible. Gets us a very strong market presence in Los Angeles and Orange County. So, we think the one that worked out is a pretty great one and one that we're very excited about.
FABER: Right. Now, you moved on from Grubhub, as you said, and you made this deal pretty quickly. Why has it been so important to you to try and consolidate this industry?
KHOSROWSHAHI: It's not as much about consolidation as it is about growth. You know, one thing that differentiates us from some of the other pure ride sharing players is that we've got our mobility business in a classic ride sharing area, still going to be a huge profit generator of the business. But then we've got delivery that has become much larger. For example, our own internal organic growth in Q2 was over 100%. So, this is a business that's accelerating, the profit profile is improving and we're confident that we can take the business to profitability as well. And we just love the business. When you look at COVID, COVID has accelerated, you know, two to three years of essentially consumer adoption into a few months. So, this is a category that we that we love. We want to get bigger in the category and really scale is how you bring the category to profitability, but also bring it to profitability in a way, and margins that work for restaurant partners, that work for couriers, and work for the whole ecosystem. So, we're quite confident that this is a good deal in an extractive industry that we want to grow it
FABER: Right and you are talking about as much as 200 million or more of runway synergies one year after the close, sometimes that comes as a result of being able to consolidate certain markets and I wonder Dara in reporting, of course, on your negotiations with Grubhub, I know that antitrust considerations were certainly at the heart of some of the disagreements, where you weren't able to get traction. Should there be a concern here? Postmates not as large. But in certain markets, there is still a fear that the city council or the state AG are going to say, "No, no, no. You can't do this." Or you have to set pricing at a certain level.
KHOSROWSHAHI: We don't think antitrust is going to play a big part here, but I think, listen, it's healthy for any government to take a look at any deal that goes through. But we actually think that this deal they're going to be three very big players in the US it's going to be extremely competitive markets. There are many local players as well. And listen, this food delivery market is bigger just than food. You've got grocery in there, you've got pharmacy in there, Amazon is delivering food from Whole Foods, etc. The category is a very large category. Our getting bigger in the category, I think, will make it even more affordable for consumers, for restaurants, etc. And it allows us actually to start pivoting into adjacent categories such as grocery. We announced today actually the availability of grocery in many markets as it relates to Uber Eats, and that just extends the category increases competition and opens up a whole new multibillion-dollar marketplace for us in terms of delivery into your home.
CARL QUINTANILLA: I was going to ask you, Dara, whether or not there are other pieces of the puzzle that are still needed to lower the cost of delivery and improve efficiency? Or can you incorporate what you're getting from Postmates and what you already have?
KHOSROWSHAHI: One of the great tool sets that we get from Postmates is the technology that they built and really optimize. We have the same technology, but it's a technology around batching. And batching is essentially getting two or three deliveries for a single courier and delivering them let's say to three homes, coming from one spot or coming from two spots that are close together. The amount of batching that Postmates was able to develop in its markets was pretty extraordinary and industry leading. Sometimes they will batch an average of three orders, for example, to go to delivery to homes. That reduces the cost of delivery, couriers get multiple tips, so it works out. So it works out for restaurants, it works out for careers as well, and reduces cost for consumers in terms of delivery. The greater the concentration of business that you have in a certain locality, the more batching you can do, and that batching essentially is one of the keys for the business to expand beyond just hot food to grocery to pharmacy to essentially your everyday needs. And for us the vision is really, we got one business mobility, which is about moving people around any way – whether it's through cars or bikes or mass transit – and there's this other business that we're developing that's getting quite big. We're the largest in the world outside of China, which is delivery, getting anything delivered to you in your home that you want. We're starting with food, but we're going well beyond that.
QUINTANILLA: Speaking of rides, I wonder, I was looking at California miles driven today and it's hard to tell if it's a holiday or what, but it does appear to be rolling over a bit. I wonder, I mean is ride doing any – is there more amelioration in the decline we saw in Q2? And if there is, are you attributing, some of the new restrictions on COVID to that?
KHOSROWSHAHI: We've seen this picture before and we saw it in Hong Kong, for example, which is a rise market, which is the volumes start coming back, but then sometimes there are some rebounds as possibly to come back too quickly, people aren't quite as careful as they have to be. What we saw in Hong Kong is there's a quick bounce back and Hong Kong is back to pre-COVID or very close to pre-COVID levels essentially positive volumes in many circumstances as well. So, this is something that frankly is not unexpected. I think we've got to open up carefully and it's difficult to exactly meter how you open up. The strength that we have as a company is that we've got a global footprint. The US opening is a little bit slower, and we do think it'll take a breather for a little bit, but the openings that we see in Europe, for example, and France, and Australia, New Zealand, continue to be very strong. The business is coming back and it's coming back pretty consistently. So, when we look overall at our rise portfolio on a week-on-week basis, every week is getting better than the last.
FABER: It is. You know Dara, on that, you know, I would assume you have granularity when it comes to all your markets, but in the US yesterday during the conference call, you said you've seen a steady recovery to a less than 6% year-on-year decline as of the last few days. I just wonder with the re-closings, with the slower openings that we're seeing, are things moving more slowly or going back to levels you may have seen a month ago in the US?
KHOSROWSHAHI: They're not going – you know listen, every day may kind of bounce up and down a couple of percentage points, but the overall trend is an unmistakably positive trend. When I translate that to globally, that trend is absolutely positive on a week-on-week basis. We're still not where we need to be. Obviously, many, many countries out there, societies and cities need to open up, but the trend is our friend so to speak.
FABER: And so, give us a sense for the overall business at this point. I mean – and including Postmates, because one of the key questions of course is, when are you going to get to cashflow positive and how much will Postmates help you actually get there? And certainly in the face of the pandemic, it doesn't make it any easier.
KHOSROWSHAHI: Well Postmates gets stronger in the pandemic, right? And our delivery business gets stronger in the pandemic.
FABER: Right, but 70% --
KHOSROWSHAHI: Our ride business and our delivery business, essentially they are hedges. And to the extent that the pandemic gets better faster, our rides business will get better faster. Delivery might take a pause. So, we're actually in a very attractive hedged position here. Now what we talked about yesterday was a delivery business that organically is growing over 100%, and it's getting to be a real size, you add Postmates to it, that's running at a $4 billion run rate based on their Q2 volumes, so you get even more scale there, along with 200 million of run rate synergies. And then our ride business, that is now down about 60% if you look at it on an exit rate, and generally it's something that we expect to improve. So, if you put that all together, we're very confident as we said the last time we spoke to investors, we're going to get to profitability next year. And we have enough of a diversified portfolio to make that statement with quite a bit of confidence.
FABER: So even with rides still make up nearly 70%. You know, is there a point at which you could imagine ride and delivery being equal in terms of your revenue – their revenue contribution?
KHOSROWSHAHI: Absolutely. I do. I think that this delivery business is a huge business. And for example, if you look in China, there's the delivery champion there's a company called Meituan. That's 100 billion dollar-plus company. And the delivery business you can argue is bigger than the rides business. That's our mission here. Obviously, we want to maximize the size of our mobility rides business, that we want to maximize the size of our delivery business, it's a little bit of a kind of friendly rivalry between the two. But I would see our delivery business getting just as big as our mobility business going forward. I'd be disappointed if it doesn't happen.
FABER: And finally, Dara, there's been some people who focused on the fact that you're offering bridge financing to Postmates during the regulatory review process prior to close as being assigned they were running out of money. Was that the case?
KHOSROWSHAHI: Well Postmates isn't profitable yet on a standalone basis, although their margins are getting much better, and their alternative to doing a deal with us was actually doing a financing. This is what I talked about as far as two companies coming to an agreement. We had to agree to them to it and it was completely – it made a lot of sense, which is, we would bridge them and essentially finance them through the regulatory process, which we fully expect to close. And then we will close a deal and start working together constructively.
FABER: Dara, we always appreciate your taking some time with us. Thank you.
KHOSROWSHAHI: Thank you.
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