Dara Khosrowshahi On Uber’s IPO And Lessons From Lyft

CNBC Transcript: Uber CEO Dara Khosrowshahi Speaks With CNBC’s Andrew Ross Sorkin On “Squawk Box” Today

WHEN: Today, Friday, May 10th

WHERE: CNBC’s “Squawk Box”

Exclusive: York Capital to wind down European funds, spin out Asian funds

Jeffrey Aronson Crossroads CapitalYork Capital Management has decided to focus on longer-duration assets like private equity, private debt and collateralized loan obligations. The firm also plans to wind down its European hedge funds and spin out its Asian fund. Q3 2020 hedge fund letters, conferences and more York announces structural and operational changes York Chairman and CEO Jamie Read More

Following is the unofficial transcript of a CNBC interview with Uber CEO Dara Khosrowshahi on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET), today, Friday, May 10th. Following is a link to the video from CNBC.com:

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

Q1 hedge fund letters, conference, scoops etc

Watch CNBC's full interview with Uber CEO Dara Khosrowshahi ahead of its IPO

Becky Quick: let’s get straight to our big interview of the morning Andrew is standing by with the CEO of Uber. Andrew

Andrew Ross Sorkin: hey, thank you, Becky joining us now on the IPO day, Uber CEO Dara Khosrowshahi thank you for being here on this big day.

Dara Khosrowshahi: happy to be here.

Sorkin: and what a heck of a couple of weeks you’ve been involved in over this road show and what a week this has been want to talk about the pricing,  want to talk about the company, want to talk about the future, but just on a very personal  level, especially given what we  were seeing in the markets this  week --

Khosrowshahi: yeah, yeah.

Sorkin: how have you felt about this

Khosrowshahi: I am excited to be here it’s been the culmination of the work of hundreds of people at  the company. So, it’s just good to get it done and I’m looking forward to going back to building and good environment, bad  environment, we’re going to be building a great company.

Sorkin: but given what’s happened in  the market, tell us in terms of  the pricing, $45 a share, which  is at the lower end of things. How do you think about that? How do you think about that in terms of you’re raising about  $8.1 billion -- it’s probably  less than you wanted to raise. Is that the environment? How much of that was this China news this week how did you think about that

Khosrowshahi: pricing a deal is an art, not a science. So, we will probably have had it imperfectly, but we thought that at this price, it reflected the  environment. And listen, the environment is uncertain right now. And any time there’s uncertainty in the market, investors are going to be a little hesitant to put $8 billion of their dollars  to work. And we wanted to put our stock with a group of funds who we know aren’t just going to hold for the next week, but they’re going to hold for the next year, and hopefully, for the next five years. So when we looked at the  environment and we balance how we really think of this company  long term, this was a great  result $8 billion is plenty for us to build and grow on top of.

Sorkin: what kind of runway does that give you

Khosrowshahi: a very significant runway we’re quite confident about the  road ahead.

Sorkin: what was the lesson of the  Lyft IPO, and how did you feel when you saw that stock really drift down over the past couple  of weeks since that IPO?

Khosrowshahi:  yeah, listen, I think that  there’s no perfect lesson here I think they probably did the  best they could with the data  that they had. It led us to be a bit more conservative and it did lead us to place with mutual funds that we trusted, with whom I’ve had relationships with in  the past, et cetera. But again, all of this, when you’re in the middle of it, it’s very easy to second guess it two weeks later but when you’re in the middle of it, you do your  best, and I think they did their best at the time.

Sorkin: What does success look like today for you? What -- how are you going to measure the success of this IPO?

Khosrowshahi: Success today is a stable price, a little bit higher than  the pricing, not a lot higher than the pricing, because we want the pricing, we want there to be fair price that the  company received, but we’re  going to be measuring success in three to five to ten years, not  in one day.

Sorkin: okay. The one question that every  investor has, and I know you get asked it over and over again, is path to profitability.

Khosrowshahi: yeah.

Sorkin: walk us through how you get there.

Khosrowshahi: so, we are already contribution margin positive and for us, the definition of contribution margin is quite full sum. It’s not just gross profit it’s much more it’s all of the expenses associated with the profit that  a country throws off. We have top five countries of  ours that have 54% contribution  margins and are paying significant amounts to pay for  their overhead and pay for the investment in the company. So, for us, the path to  profitability isn’t theoretical. There are cohorts of countries that are profitable, and it’s  about getting other cohorts of countries to the same maturity level that some of our countries are operating at we do reinvest profits aggressively in new business lines like eats, that have great promise, but we’re pretty  comfortable when we look at the  portfolio of businesses that we  have, that we have a very strong path to profitability.

Sorkin: so, Lyft says this year for  them is going to be peak losses. Peak losses are going to take  place this year. Can you say the same for Uber?

Khosrowshahi:  that would be our intention,  although there can’t be any  guarantee, but that would be the intent.

Sorkin: right and we showed some videos in the last hour when we had our  conversation about the comparison to Uber I’m sorry -- you are Uber -- comparison to amazon I apologize. But one of the things I was  thinking about is, when you look at where amazon was at the time  of its IPO, it was a much  smaller company. It literally had $15 million in  revenue. That was it. But it was also growing at 3,000 -- nearly 3,000%.

Khosrowshahi: sure.

Sorkin: your growth has decelerated coming into the 20s now. Is it a fair comparison?

Khosrowshahi: it’s a fair comparison at the wrong time a lot of private companies now are holding off much longer  before they go public.


Khosrowshahi: we are much bigger, much more mature as a company as we go public and if you do look at the growth rate, our audience is growing  33% on a year-on-year basis, transactions have grown 36%. To be able to grow transactions 36% on a $50 billion base is pretty incredible, and we hope to keep it going.

Sorkin: sort of a larger question,  and I don’t know if we’re going  to see protesters today, but you saw that there was protests and  labor strikes that happened  earlier this week. That’s a big question for the  whole gig economy.

Khosrowshahi: sure.

Sorkin: what did you think when you saw those protests

Khosrowshahi: I thought that we have to do  better we have over 4 million drivers and couriers on our system and how they make a living and how the system works for them is quite variable, because you can  plug in, you can plug out  whenever you want to and as a result, for the vast  majority of our drivers and  couriers, it works it’s exactly what they want when they want it, but there’s  definitely a group where it’s  not working, and we have to do better to make sure that our system is the right system for anyone, anywhere, who wants to plug in and plug out.

Sorkin: let’s talk about that risk, because in your s1 one of the things you  talk about is "Our business  would be adversely affected if our drivers were classified as employees instead of independent contractors. There’s a move afoot in large  parts of the world on that front. And also, we should say last night in one of your filings,  you said that you settled  thousands of driver claims over  being misclassified as independent workers and that you plan to spend $146 million to  $170 million do you anticipate there’s going  to be more suits like this

Khosrowshahi:  I think the question of classification’s going to go on  for some time because labor is such an important part of any  society’s means. We had a department of labor opinion that suggested that  companies like ours and gig economy work did represent temporary labor. It wasn’t permanent labor in one way or the other. So, we think we stand on the right side of the law, but we also have to be reactive to  society. So, for example, in France,  we’ve introduced an insurance  program with AXA that gives drivers more insurance, more benefits where they need it and  we’re going to be flexible and we will look -- you know, our  goal is to make sure that  driving for us or being a  courier for eats is a great way  to either make some additional money or make a living, and that includes earnings and it includes benefits over time.

Sorkin: in terms of profitability,  how much does autonomy matter? How much does it matter that we  get to that place? And I know we’ve talked about  it, maybe five to ten years  before we really get there.

Khosrowshahi:  stage one for autonomy is about growth and safety. So, first it’s got to be safe. Then autonomy is going to bring  down costs per mile, which essentially is going to open up  another stage of growth for us I think that profit time is well out, but I think the growth is well worth it.

Sorkin: and how should drivers feel about autonomy

Khosrowshahi:  I understand when drivers are scared to some extent of what  autonomous can offer, but we believe that you’re going to have a hybrid driver and autonomous state the machines are going to  essentially take the simple, shorter trips that are less  desirable, and that will leave the more complex trips, and  hopefully, the trips that have more revenue associated with them for drivers.

Sorkin: Do you care if drivers drive  for you or for Lyft ? Most of the drivers I know in New York do both.

Khosrowshahi: I care if many more drivers drive for me, but they can also  drive for Lyft

Sorkin: what about the  rationalization of the business? A lot of people say, look, over time after the IPO, prices are going to have to go up both of these companies are  going to stop, you know, going after each other, you know, in this almost ruthless way however, you should know, last night I got a text from Lyft offering me a new promotion. And so, I’m not really sure that that’s -- I mean, tell us about  that competition

Khosrowshahi:  well, hopefully, you’re part  of our loyalty program.

Sorkin: yes.

Khosrowshahi:  so you’ll stick with us thank you. And that’s the whole goal of the loyalty program. This is a big sector, all right, the transportation space the area that we’re going after  is $12 trillion or more. You are going to have  competition. Competition makes you better and the good news is, I think  both Lyft and us have the  ability to keep competing, to  keep prices for service very,  very affordable, and over time to improve markets

Sorkin: I’ve got to ask you a compensation question for  yourself there’s a note in one of the filings that says if Uber  achieves $120 billion valuation  on an average 90 days following  the IPO, you receive a lot of  money. Are you expecting that now,  given where the valuation is today?

Khosrowshahi: I wasn’t expecting it any time short term. This is, I’m here to stay, I’m here to build a big company.That compensation term is not about a single day it’s about what value created over ten years and over ten years, absolutely,  I expect to get there.

Sorkin: then finally, do have to ask  you a little bit about the drama that’s in the news and I know he’s going to be here a little bit later today, Travi Kalanick of course, who founded the  company. He’s going to be here with his father there was a debate I know he wanted to be up on the dais ringing the bell with you talk about that decision and what happened there, because there’s been a lot of headlines  about it.

Khosrowshahi:  yeah, sure. Those are unfortunate from where I stand. The dais for us is about longtime employees who have been with us  thick and thin and drivers and couriers who use our service that’s what the dais should honor. And I think that’s the right decision for the company I’m thrilled that Travis and his father are here to celebrate with us.

Sorkin: what’s your relationship with him like now

Khosrowshahi: I think it’s fine he’s a board member, and he  brings an insight to the boardroom that reflects his  genius and his experience with the company, and that insight  really is valuable for us.

Sorkin: what are you going to do at 4:00 P.M. Today?

Khosrowshahi:  probably get a drink with my wife Syd

Sorkin: thank you for being here this morning. We wish you luck with the IPO and with the company

Khosrowshahi: thank you thanks for having me.