Invest Like the Best with Patrick O'Shaughnessy
00:59:43 · Patrick O'Shaughnessy, Dara Khosrowshahi
[00:59:43] S0: That's a cool idea that the troublemakers are the mutations. [00:59:46] S2: Companies need to change. And by the way, with AI now, the rate of change inside companies in terms of how information flows, in terms of how we work every single day, the rate of change has accelerated by 5x. And it's the companies that are comfortable with that change that are going to adapt to this new reality. And the companies that are like, hey, we do things a certain way, they're going have
01:00:09 · Patrick O'Shaughnessy
[01:00:09] S0: a hard time. One of my favorite charts from this era of business has been the time series of CapEx of the big technology companies, where it all looks like this except for Apple that just looks like this. They basically haven't changed. They've decided not to play this specific game. And the debate around Uber early on was like, these guys ever make any money? They're losing money on all these rides, blah, blah, blah. Now you've got $10,000,000,000 plus free cash So you're a capital allocator and you have to make a decision of what to do with this money in this high rate of change environment. How do you prosecute that decision? You've done big buybacks. You've authorized really big buybacks before, which traditionally have done really good things for shareholder value and things like this through business history. But now you have all of these opportunities to spend money, to expand demand, to get new supply, to use these new technologies. How do you weigh the trade off between old school stuff like buybacks and free cash flow generation and share reduction, things like that with just, wow, this is the most interesting investing? I guess I'm asking, are you Amazon or are you Apple?
01:01:05 · Dara Khosrowshahi
[01:01:05] S2: Somewhere in between. And I'd say capital allocation, I think it's more of an art versus a science. You can read papers on it, but I think you have to use your judgment in real life. And my view is that my priority is first organic investment and growth. Uber Eats, when I joined, was doing under $1,000,000,000 in gross bookings. It's over 100,000,000,000 now. That took an enormous amount of organic investment. Now the company has cash flow beyond that organic investment. And the math is simple, which is you want to make sure that your costs grow slower than your revenue and good things happen over a long period of time. And I think for me, because I came from banking, I'm very comfortable with the power of compounding. And so the first thing is you just have to get your core metrics right. Starting with the user metrics, get to the financial metrics, make sure your expenses, unless there's a long term benefit, are growing slower than your revenue. And when it comes to excess capital, today our priorities are going to be keep building the services that we're building now, invest in algorithms, invest in more engineers, we are hiring, and then really invest in the new realities of AV, whether it's investments in our partners or it's making commits to tens of thousands of AV vehicles. Those commitments will be financialized. We just announced a deal with Santander, for example, to finance both EVs and AVs. But we've got to be the ones developing the market. So we are going to make those capital commitments. And the fortunate thing in all this is we've got plenty of cash left over for buybacks. But I prioritize growth, I prioritize innovation over buybacks. If you're building the company right, you'll do both.
01:02:55 · Patrick O'Shaughnessy, Dara Khosrowshahi
[01:02:55] S0: You strike me as a very confident but not cocky person and leader. What, if anything, are you insecure about in the business or as a leader right now? [01:03:05] S2: I'm not insecure, so to speak, but I'm curious. Again, I'll go back to Barry. I found in my life that the more successful you are, the more you tend to talk and the less you tend to listen. Totally. I see executives who they don't wanna be talked back to because they view, don't you know who I am? I've got authority. And authority doesn't mean that you're right. But so many people do. And Barry's the opposite. If you get into an argument with him and, oh my god, it's going to be unpleasant, but you bang it out and at the end of that conversation, minority of time, but sometimes it happens, he realizes he's wrong. He's delighted. He lights up because he just learned. What kind of a world is an interesting world if you're right all the time? The magic happens when you learn. So for me, it's not that I'm not confident. I'm confident. I'm comfortable in my own skin, but I'm a learning creature. And for me, the delight comes from learning. And often that learning has to come with pain and the pain of being wrong. The pain of hearing something that you don't want to hear, the pain of something unexpected happening today or tomorrow or the next day. That's what gets me going. If I'm not wrong, if I'm not making mistakes, it's just not very interesting.
01:03:05 · Dara Khosrowshahi, Patrick O'Shaughnessy
[01:03:05] S2: I'm not insecure, so to speak, but I'm curious. Again, I'll go back to Barry. I found in my life that the more successful you are, the more you tend to talk and the less you tend to listen. Totally. I see executives who they don't wanna be talked back to because they view, don't you know who I am? I've got authority. And authority doesn't mean that you're right. But so many people do. And Barry's the opposite. If you get into an argument with him and, oh my god, it's going to be unpleasant, but you bang it out and at the end of that conversation, minority of time, but sometimes it happens, he realizes he's wrong. He's delighted. He lights up because he just learned. What kind of a world is an interesting world if you're right all the time? The magic happens when you learn. So for me, it's not that I'm not confident. I'm confident. I'm comfortable in my own skin, but I'm a learning creature. And for me, the delight comes from learning. And often that learning has to come with pain and the pain of being wrong. The pain of hearing something that you don't want to hear, the pain of something unexpected happening today or tomorrow or the next day. That's what gets me going. If I'm not wrong, if I'm not making mistakes, it's just not very interesting. [01:04:18] S0: I've loved the Barry story so much. Is there anyone else that comes to mind as someone that's just heavily influenced your way of thinking or behaving? I'm a bit of
01:04:18 · Patrick O'Shaughnessy, Dara Khosrowshahi
[01:04:18] S0: I've loved the Barry story so much. Is there anyone else that comes to mind as someone that's just heavily influenced your way of thinking or behaving? I'm a bit of [01:04:27] S2: a student of business, came from my investment banking background. I just love how companies shape themselves. But I'd say one CEO who I really admire is Reed, who built Netflix into the company that it is. He is so logical. I think I watched him talking with you a while ago. He is so logical and structured in his thinking, but at the same time, he's an engineer. But then once in a while, he's a gambler. And some of those don't work. He was talking about some of the gambles that didn't work. So I find that there's a superpower in being structured in your thinking, but then not too structured in that you're always going with a flow. To be able to, again, listen to the troublemakers and have those wild ideas outside of the conventional wisdom, Those two often go together. You need a crazy scientist to do so. Reed is anything but a crazy scientist, but he has innovated in a very structured, deliberate way. I love what he did with his company. As a person, I just love how he thinks. [01:05:28] S0: So you're a student of businesses, and I think Uber is just one of the most interesting business stories. By all accounts, the way that Travis willed this thing into existence [01:05:36] S2: Amazing.