More Uber Growing Pains

Good morning and happy Friday.

AI might crack Google's search monopoly before government regulators have the chance.

On Thursday, OpenAI announced a new search feature for paid ChatGPT users that integrates real-time web results in its chatbot chatter. It's a direct shot at Google, and comes just days after The Information reported that Meta was developing an AI search engine for its own chatbot experience. Which begs the question: What took these fellow tech giants so long to challenge Google's search business in the first place? Oh, that's right, per the ruling of a federal judge: lucrative exclusivity agreements with hardware-makers and browser companies, an iron grip over the search ad market, and other tactics to create a cycle of dominance that violated antitrust law. Unlike in the aughts, our searches may no longer start in the same place.

It seems no one wants to cut the cord more than Comcast. 

During its third-quarter earnings call on Thursday, Comcast President Mike Cavanagh floated the idea that the telecom giant and NBCUniversal parent company might spin off its portfolio of cable channels, such as SyFy, Bravo, and MSNBC. 

Downstream

Comcast remains in the same quandary that afflicts every major legacy media player. Cable is the past and streaming is the future, but the former is still more lucrative — even as its plump profits get thinner by the quarter. Case in point: Comcast said Thursday that losses from streamer Peacock hit $436 million in the quarter (bad, but better than the $565 million loss a year ago). Meanwhile, its media segment, composed primarily of TV channels, generated adjusted EBITDA of $650 million — a healthy figure compared to its streaming losses, though still down 10% year-over-year, as cable subscribers continue to cut the cord.

Unlike its legacy media peers, Comcast also sells cable contracts, which means cord-cutting is eating away at its TV business in more ways than one: The company said Thursday it lost 365,000 cable customers in the third quarter. But again, also unlike its legacy media peers, Comcast also owns a strong broadband business, one that analysts and experts have long believed could be the center of a growth story (were it not bogged down by the declining business of NBCUniversal). Hence the spin-off talk:

• In the third quarter, Comcast's domestic broadband business saw revenue increase 2.7%, to $6.5 billion, and average revenue per user increased 3.6%. 
• Were it not for the end of a federal program to subsidize broadband for low-income households, Comcast said, it would have added 9,000 broadband subscribers in the quarter.

"Dividing the TV networks from the rest of the company will allow Comcast to more clearly show growth in its ISP business," Emarketer principal analyst Ross Benes told CNBC. "A write down on the TV networks would not be surprising." In August, Warner Bros. Discovery took a $9.1 billion write down on its cable networks.

Piece by Piece: The nuances of any spin-off might be tricky. Cavanagh said Thursday that the new cable-network company would still be majority-owned by Comcast shareholders, and wouldn't include assets like NBCUniversal's film studio or theme parks. It also, crucially, wouldn't include the flagship NBC broadcast channel or Peacock. That complicates some matters, such as how MSNBC would stay connected to the larger NBC News apparatus, and how content from cable channels like USA and SyFy would find its way to Peacock, where it now largely lives after an initial cable airing.

Written by Brian Boyle

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Uber's stock drove into a ditch, sinking 9% on Thursday after the ride-hailing giant published its third-quarter earnings report. Following its ballyhooed attainment of profitability last year, Uber has now experienced a slowdown in user growth following a price hike. Uber blamed the price increases on heightened insurance costs, which it said it had to pass on to consumers. 

Growing Pains

Uber's ride to profitability was a long one, and it's not open roads from here on out. The company notched its first full-year profit in 2023, a mere 14 years after it was founded. This year it swung back to a loss in the first quarter, though it managed to restart the profitability engine again in time for its second-quarter report. 

In its third-quarter report, Uber said that revenue was up 20% year-over-year, and net income was $2.6 billion, though $1.7 billion of that came from the company's equity investments. That beats last quarter's profit of around $1 billion, roughly one-third of which came from equity investments. However, its slight slowdown in "gross bookings" — i.e., how much money it made off actual rides — made investors jumpy: 

• Uber reported 19% year-over-year growth in the second quarter for its gross bookings, whereas the third quarter saw 16% growth. Its forecasted range for gross bookings in the fourth quarter also came in a little below analysts' expectations.
• CEO Dara Khosrowshahi said that although price hikes are biting a little, consumers remain robust. He also emphasized in a call with CNBC that the company's M&A strategy will be focused on "smaller deals that are much more closer to home" rather than big, "transformational deals."

Khosrowshahi's comments came in response to a question about reports that the company explored the possibility of acquiring Expedia, the travel company with a market cap of around $20 billion.

Brinkmanship Redefined: In a call with analysts, Khosrowshahi also said Uber was making good progress in its "autonomous strategy." It's pretty par for the course for CEOs to talk up self-driving cars as the future, although ironing out the kinks in the tech is still a pretty big, thorny question. According to a report from Business Insider, Tesla — which has pinned a lot of investor hopes on the idea that it will be a first mover in the robotaxi space — has been training its self-driving tech using a "critical intervention" team. Their goal? To drive around using the cars' driver-assistance systems and only intervene at the last possible moment if (when) the car does something it shouldn't.

Written by Isobel Asher Hamilton

They consider him the best person for the job, handlebar none.

Peloton Interactive announced Thursday that it has appointed Ford executive Peter Stern as CEO and president, effective Jan. 1, to pedal the company out of its prolonged post-pandemic slump.

From Subscriber to CEO

Interim co-CEOs have been steering Peloton since May, when former Netflix executive Barry McCarthy left after over two years and the company laid off 15% of staff. McCarthy was brought in to navigate a downturn that followed years of growth through the COVID-19 pandemic, when home exercise became the best — if only — fitness business in town.

McCarthy cut costs, entered retail partnerships — one with Costco was announced last week — and ushered in a rebrand from high-end stationary bike manufacturer to health-for-all firm with its own software and exclusive subscriber content. Stern, who only joined Ford about 14 months ago to run its digital subscription services for car owners, co-founded Apple's Fitness+ service while at the tech giant. Markets reacted with enthusiasm:

• Peloton's shares rose more than 27% Thursday. The company has already made some recent turnaround progress without its new CEO: First-quarter revenue, also announced Thursday, fell 1.6% year-over-year to $586 million, which was better than expected, while net loss shrunk from $159.3 million a year ago to just $900,000.
• Chris Bruzzo, one of Peloton's interim CEOs, said on a Thursday analyst call that two-thirds of Peloton subscribers — "members," as they're called — are women, and that the company will be marketing to men more, including during football games. The company's incoming CEO knows all about being a Peloton bro: He's been a member since 2016.

Some analysts, however, have suggested Peloton should give up its growth ambitions: BMO Capital Markets said in August note that it should be "bear-hugging its brand loyalists and acknowledging that growth is likely in the rearview."

Timing is Everything: Reuters reported Thursday that Ford CEO Jim "Cousin of Chris" Farley warned employees that bonuses could be slashed if metrics don't improve under his new performance-based system. Stern presumably got a pay bump with his new job, anyway.

Written by Sean Craig

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