Grab Holdings (GRAB): Q3 2024 Earnings Call Summary
This article was originally posted on X as a thread on November 12, 2024.
I just finished reading GRAB’s Q3 Earnings Call transcript and took some notes to share with you. Here’s everything you need to know.
This call was different from usual. The Founder & CEO, Anthony Tan, spoke for only about 2 minutes before opening the Q&A session. Here’s a summary of his remarks:
• YoY acceleration in On-Demand Gross Merchandise Volume (GMV), driven by the success of GRAB’s strategic investments.
• Adj. EBITDA more than tripled, reaching a record high of $90M — marking the 11th consecutive quarter of improvement.
• Monthly Transacting Users (MTUs), a key metric for platform growth, grew 16% YoY to 42M — the 6th straight quarter of MTU growth. The increase in user engagement supports GRAB’s goal of capturing high-value transactions and strengthening its position in Southeast Asia’s expanding digital economy.
Looking forward, Anthony Tan expressed confidence in GRAB’s ability to pursue sustainable, profitable growth with enhanced FCF generation. We should expect operating leverage to continue improving.
The first thing addressed was GRAB’s growth and whether it is sustainable going forward, specifically in the next few quarters.
Alex Hungate (COO) began by addressing the growth in GRAB’s delivery business. He confirmed that GRAB had seen strong momentum in October and November, driven by initiatives aimed at improving affordability and offering high-value services. A few key points he mentioned include:
• GrabUnlimited loyalty program: This continues to grow strongly, reaching new all-time highs, which has been critical in driving customer engagement.
• Food-to-Mart cross-selling: GRAB’s mart business is now growing 1.7x faster than food. Users who order from both categories exhibit 5x higher order frequency and 2x higher retention rates, demonstrating the potential for ongoing growth in the cross-selling strategy.
• Merchant partnerships: GRAB is also helping merchants attract dine-in customers, not just food deliveries. This initiative is boosting GMV growth and extending GRAB’s presence in the restaurant industry.
• Mobility services: GRAB has seen 30% YoY GMV growth in high-value mobility services, such as advanced bookings for travelers and executives. These new, high-margin services are expected to have strong upside potential, benefiting both the company and its drivers.
• Banking expansion: GRAB has also launched lending products in all three of its key markets, marking a significant milestone in its financial services offering.
Alex expressed confidence that the company would continue to see sequential growth in both on-demand segments heading into the fourth quarter, setting GRAB up for a strong 2025.
Next, Alex addressed the competitive situation in Indonesia.
He noted that GRAB’s business in Indonesia has been growing sustainably, with positive EBITDA for over a year. The company has continued to see growth in revenue, GMV, and EBITDA, both YoY and QoQ.
Despite increased spending by competitors, Alex pointed out that GRAB’s services remain reliable, and new offerings are gaining traction. Order frequency has continued to rise, and retention rates have remained stable, showing strong customer engagement. In fact, for deliveries in Indonesia, GRAB has seen a strong acceleration in order frequency, indicating that customers continue to prefer Grab's services over competitors.
Alex also highlighted Grab's regional scale, which is about 4x larger than its next biggest competitor. This scale provides GRAB with a significant operating leverage advantage, helping it maintain cost efficiency and profitability despite competitors’ increased spending.
Lastly, the COO emphasized that the company remains focused on profitable growth, with the company expecting another strong quarter in Q4. The updated EBITDA guidance for the full year is between $308M and $313M, reflecting continued growth in absolute EBITDA.
After this, the management team was asked about their outlook for GRAB’s incentive spend as a percentage of GMV.
• Incentive spend has been consistently decreasing over the years, driven by increased efficiency and the use of AI targeting.
However, it was noted that incentive spending might fluctuate quarterly, especially when launching new products that require shifting consumer behavior. For example, when introducing new features, incentives may be necessary to encourage users to adopt these services, but these will not be long-term.
Overall, the trend remains optimistic for continued declining incentive spend over time, as efficiency improves and consumer behavior becomes more predictable.
Next, the question was regarding GRAB’s Monthly Transacting Users and whether the current mid-teens growth is sustainable.
• GRAB’s affordability strategy has been key in attracting first-time users. Once onboarded, the company focuses on retention and increasing transaction frequency. The ultimate goal is to move users from annual transacting to monthly, and eventually to daily usage.
• With only about 5% of Southeast Asia’s population currently engaged as monthly users, there is a significant growth opportunity ahead. The affordability strategy continues to drive user acquisition, while the laddering strategy allows GRAB to increase frequency and margins as users move up the platform. This sets a strong foundation for continued MTU growth in the coming quarters.
The next question was about the target market for GRAB’s MTUs in Southeast Asia and the potential for profitable MTU growth over the next few years.
• Again, only about 5% of Southeast Asia’s population are monthly transacting users, leaving significant room for growth. With only 15% of the population being annual transacting users, GRAB sees substantial long-term potential in expanding its user base.
He also emphasized that Southeast Asia benefits from strong political leadership and a growing, young population, which makes the region particularly well-positioned for continued growth.
In addition to the core on-demand services, GRAB’s financial services offerings are also gaining traction, creating new pathways to drive MTU growth in this expanding market.
GRAB’s approach to its free cash flow and buyback program, now that the company has $5.8B in net cash liquidity and is already generating cash:
The CFO, Peter Oey, clarified that GRAB’s net cash liquidity includes deposits from its two banks, but excludes loans and restricted cash.
• GRAB’s capital allocation framework prioritizes organic growth investments.
The third quarter showed positive results from these investments, especially in product development, which is driving user engagement and lifetime value. GRAB also remains open to inorganic opportunities, but these will be evaluated carefully.
Regarding the buyback program, GRAB has $500M allocated for share repurchases, with $190M already spent. The company plans to continue executing this buyback program and will reassess future buybacks based on available liquidity and market conditions.
About GRAB’s fintech business, specifically the profile of borrowers and the growth prospects for its lending segment:
The growth in GRAB’s lending business is driven by two main sources: GFin (its fintech platform) and the lending products offered through its banking licenses in Southeast Asia.
GFin focuses primarily on underbanked gig workers, such as drivers and other workers who typically do not have access to traditional bank loans due to their lack of standard pay slips. This segment is underserved by traditional financial institutions, and GRAB leverages its deep data insights from its ecosystem to make lending decisions based on over 120 data points, using advanced data science and AI models. This multidimensional approach allows GRAB to provide loans to high-risk groups, like gig workers, that traditional banks might avoid.
In addition to lending to individual drivers, the company has started to lend to merchants, though this area is still in the early stages and has significant room for expansion. GRAB’s ability to offer risk-adjusted loans is powered by its sophisticated data science models, which continuously improve over time.
With two-thirds of Southeast Asia’s population estimated to be either unbanked or underbanked, GRAB is well-positioned to continue scaling its lending business, especially with its ability to raise deposits at a low cost, which provides a strong foundation for its lending activities. In Q3, the company saw 50% QoQ growth in customer deposits across its banks, underscoring the success of its deposit-gathering efforts.
One of the standout products in its lending portfolio is the FlexiLoan, which is now available in all markets, including Malaysia. The FlexiLoan is a low-cost, flexible loan product designed to serve GRAB users with repayment options that cater to their financial needs. Notably, the product has a Net Promoter Score (NPS) of 65, a strong indicator of customer satisfaction, especially when compared to traditional banks that typically hover around an NPS of zero. GRAB careful whitelisting process ensures that loans are only given to users who meet specific criteria, maintaining the company’s low nonperforming loan ratio, which remains around 2%.
Overall, GRAB’s financial services business continues to grow, benefiting from its data-driven approach to lending and the scalability of its banking operations. With a focus on serving underserved populations and building out more financial products for both users and merchants, the company is well on track to accelerate its growth in the fintech space.
About delivery margins and the growth trajectory of the advertising business:
GRAB achieved a 50 basis point improvement in its delivery margin, bringing it from 1.5% to 1.8% sequentially in Q3. This growth reflects the ongoing investment in increasing product variety and boosting user frequency, which is critical for sustaining margin expansion.
A major part of GRAB’s strategy is enhancing frequency and engagement. For example, GrabUnlimited subscribers, who represent about one-third of Grab’s delivery transactions, are spending 4x more and engaging 3x more frequently than non-subscribers. Additionally, cross-selling between GrabFood and GrabMart has proved highly effective, leading to 5x higher frequency for users who engage with both services. These initiatives are crucial for increasing user retention as well, as subscribers show 2x higher retention compared to non-subscribers. The increased cross-selling and frequency also contribute to long-term customer loyalty, helping GRAB drive more sustainable monetization in its delivery business.
The company is also focused on advertising revenue as a key driver of its monetization strategy. Advertising revenue as a percentage of GMV rose from 1.4% to 1.6% QoQ and from 1.1% YoY. A significant part of this growth comes from GRAB’s self-serve advertising tools, which allow merchants to target customers effectively and only pay for orders generated via the platform. This model has been particularly beneficial for smaller merchants, who often lack expertise in traditional advertising methods.
Alex Hungate shared an example of a burger chain in Indonesia that used these advertising tools to boost sales and even took a loan through GRAB to manage working capital. This case illustrates how advertising and lending can work together to drive business success for small merchants. The growing emphasis on self-serve advertising is part of GRAB’s broader strategy to offer more solutions to SMEs across Southeast Asia, further supporting its delivery monetization efforts.
What is GRAB’s steady-state GMV growth for deliveries?
Sachin Salgaonkar from Bank of America asked whether GRAB’s food delivery GMV growth, currently in the 9%-12% range, could accelerate further, particularly as the company targets first-time users. He compared this with India’s 20% GMV growth and wondered if Southeast Asia could reach similar levels.
The CFO responded by noting that the current growth rates reflect an acceleration in GRAB’s delivery business, with 16% YoY growth on a constant currency basis in Q3, up from 14% in the prior quarter.
The COO added that October and early November trends showed accelerated GMV growth for deliveries, confirming the effectiveness of GRAB’s strategies. While the 10%-12% GMV growth is steady for now, GRAB expects continued growth, especially as it refines its product offerings and expands its user base.
According to 'a couple' of its peers, there has been a consumption slowdown. How is GRAB looking at this?
• Southeast Asia remains an underpenetrated market in terms of digital services like mobility and deliveries.
Peter Oey referenced a third-party report predicting double-digit CAGR growth for the region’s digital economy over the next five years. Despite concerns about a consumption slowdown, Peter emphasized that GRAB has not seen a decline in demand and is, in fact, experiencing an acceleration in user engagement, driven by new product launches and the growing tourism sector.
Founder & CEO Anthony Tan added that inbound tourism, particularly in Thailand, is a strong growth driver. He cited reports from Temasek, Bain, and Google, which show that Southeast Asia’s digital economy is still in its early stages, with double-digit growth expected from 2024 to 2030 for both mobility and food deliveries. GRAB remains optimistic about the region’s long-term outlook and is positioning itself to capture this growth.
Could the faster growth of the Mart business, which is currently growing 1.7x faster than Food, help accelerate Food GMV growth in the coming months?
The COO explained that the cross-selling strategy between Mart and Food aims to boost order frequency, especially among users who engage with both services. Users who shop on Mart have 5x higher order frequency than those who only order Food, which drives overall engagement and keeps users active within the app. By increasing frequency across all services (Food, Mart, and Dining Out), GRAB can create a flywheel effect that boosts GMV across all categories.
While Mart’s faster growth is important, it also supports Food’s growth by encouraging users to place more frequent orders overall.
Next, the management team was asked whether increased consumer incentives, driven by new product launches, could lead to stronger margins in the future, and if AI and technology improvements could boost efficiency and profitability.
Alex Hungate acknowledged that incentives are necessary to drive consumer behavior, particularly for new product launches and increasing awareness. As GRAB integrates new offerings (like Chope, the food reservation system), these incentives help boost frequency and engagement, especially in areas like dining out.
Peter Oey elaborated on incentives as a lever for GRAB’s growth. He stated that incentives, both for consumers and partners, will fluctuate quarter to quarter based on what is needed to drive engagement and product adoption. While incentives may increase temporarily to drive user behavior, they will also be adjusted in the future. He emphasized that GRAB is focused on long-term business growth and unit economics, and that the company is closely monitoring its margins.
Anthony Tan highlighted that AI and machine learning play a crucial role in improving efficiency across GRAB’s operations, which can also contribute to margin improvement. The company has more than 1,000 AI/ML models in production, helping with everything from product development to sales enablement. He mentioned the use of Generative AI to improve productivity and engagement (e.g., Mystique, a GenAI tool for copywriting, which has increased conversion by 2x and user engagement by 50%). These innovations are expected to drive greater cost synergies, ultimately benefiting margins without compromising customer experience.
Does the competitive landscape in markets like Singapore, Vietnam, and Thailand, especially with new players entering, pose any risk to GRAB’s mobility margins?
Alex Hungate explained that the Southeast Asian market is competitive, with new competitors occasionally entering and existing ones exiting, like Gojek pulling out of Vietnam. Despite this, GRAB has maintained an advantage due to its scale, which provides high operating leverage. This scale allows GRAB to continually improve service reliability, make rides more affordable, and increase driver earnings.
Additionally, GRAB's variable commission model for drivers has further strengthened its position, ensuring driver loyalty and making it difficult for new entrants to attract supply.
Overall, the company is confident that its strong operational foundation and market leadership will continue to protect its margins despite the competitive environment.
The last question addressed the reduction in corporate costs by 10-11% and whether further cost reductions are possible in 2025, particularly through AI or operating leverage:
• There’s still room for further efficiency gains.
However, as GRAB’s business grows, variable costs tied to increasing volume will naturally rise. About 40% of regional corporate costs are variable, so these will increase as the company scales.
Peter also noted that fixed costs could rise if the company invests in initiatives like GenAI to boost productivity. While corporate costs may increase with volume growth, GRAB is focused on keeping them low as a percentage of revenue, ensuring that efficiency improvements and operating leverage continue.
Overall, this earnings call was very bullish and reinforced my conviction in GRAB as a long-term investment.
The company is making progress on all fronts, and its dominant position has never been stronger, with the flywheel effect of its Superapp driving customer engagement.
Operating leverage has also been impressive, and all signs point to continued improvement in the years ahead.
With Southeast Asia still in the early stages of digital economy adoption, GRAB has a long runway for growth and is well-positioned to capitalize on this inevitable trend.
Disclaimer: Despite my bullish view, I do NOT hold a position in Grab Holdings (GRAB).
That's it! Thanks for reading! I hope you found this summary helpful.