Grab Holdings Ltd Q3 FY2024 Earnings Call

Ladies and gentlemen, thank you for joining us today. My name is Sierra, and I will be your conference operator for this session. Welcome to Grab's Third Quarter 2024 Earnings Results Call. After the speakers' remarks, there will be a Q&A session. I will now turn it over to Douglas Eu to start the call.

Good day, everyone, and welcome to Grab's third quarter 2024 earnings call. I'm Douglas Eu, Director, Investor Relations and Strategic Finance at Grab. And joining me today are Anthony Tan, Chief Executive Officer; Alex Hungate, Chief Operating Officer; and Peter Oey, Chief Financial Officer. During this call, we will be making forward-looking statements about future events, including our future business and financial performance. These statements are based on our current beliefs and expectations. Actual results could differ materially due to a number of risks and uncertainties as described in this earnings call, in the earnings release, and in our Form 20-F and other filings with the SEC. We do not undertake any duty to update any forward-looking statements. We will also be discussing non-IFRS financial measures on this call. These measures supplement but do not replace IFRS financial measures. Please refer to the earnings materials for a reconciliation of non-IFRS to IFRS financial measures. For more information, please refer to our earnings press release, remarks and supplemental presentation available on our IR website. And with that, I will turn the call over to Anthony to deliver his opening remarks before we open it up for questions.

Thank you so much for joining us today. Third quarter 2024 was a strong quarter for us. The investments we have made or been making across the business drove an acceleration of our On-Demand GMV growth year-on-year. We continue to leverage our platform scale to drive profitable growth, our group adjusted EBITDA more than tripling year-on-year to reach another record high of $90 million, and our 11th consecutive quarter of adjusted EBITDA improvement. Monthly Transacting Users, a leading indicator of future platform growth, also recorded its sixth sequential quarter of growth, growing 16% year-on-year to 42 million for the quarter. On the back of these strong results, we remain confident about Grab's growth potential and believe that we are in a pole position to capture the opportunities of growing high-value transactions and strengthening domestic demand. And we are committed to doing this while ensuring profitable growth and sustainable free cash flow generation, improving operating leverage, and enhancing shareholder returns. As always, I would like to convey our sincere gratitude to our fellow Grabbers, our customers, and partners for their contributions and support in driving these results. With that, I open the call for questions.

Thank you. We will now begin the Q&A portion of the call. Our first question today comes from Pang Vitt with Goldman Sachs. Your line is now open.

Hi. Good morning, management, and congratulations on a strong quarter. Two questions from my side. Number one, we've seen a meaningful pickup in your growth rate, particularly in your delivery business, growing 16% year-on-year in constant currency terms and also a very nice pickup in margin as well. Do you expect this growth to sustain? And what incremental initiatives are you putting in place to drive this in the fourth quarter and also especially going into next year 2025? That's question number one. Question number two, could you also share the latest update on the competitive landscape, especially in Indonesia? Have you seen material change in market share as we've seen your main competitors spend more in recent months? Do you expect this to impact your margins going forward?

Thanks very much, Pang. This is Alex. I'll take those questions. So first of all, we are seeing strong growth momentum in October and November to date, particularly from the push for affordability and high-value services for customers as part of the laddering strategy that we've talked about before. And then GrabUnlimited continues to grow strongly; our loyalty program has hit another all-time high. One key callout that we focused on in some of the slide materials we sent out earlier is food to mart cross-sell. So mart has been growing 1.7 times faster than food in the quarter. We're getting almost 5 times higher order frequency amongst users who transact in both food and mart, with more than 2 times higher retention rate as well. We expect that cross-sell to continue to be a strong source of growth with deliveries. The other thing we are doing is that we are helping merchants attract customers to dine out at the store, in addition to the traditional role that we’ve done in helping them with food deliveries, and that’s driving strong GMV growth. We have a lot of available Total Addressable Market (TAM) because, in most restaurants, the majority of the merchant’s revenue is from in-store customers. This allows Grab to play an important role there. With the strong growth in advertising revenues that you've seen, that helps us to monetize that with the merchant. Mobility is also pacing strongly; as you saw, we've achieved 30% year-on-year GMV growth from high-value mobility rides. These are the new services that we've launched, particularly advanced bookings, which are very popular with both travelers and executives. This offers a lot of upside as it's a newer set of products than our affordability products and can produce higher driver earnings. We're optimistic as of November; we now have lending products in all three markets. This is the first time we've been able to lend in all three markets, in addition to lending through GFin, which has been our traditional method. You will have noticed in our prepared remarks, I want to emphasize, that we're maintaining our prior expectations of driving another quarter of sequential growth in both on-demand segments heading into the fourth quarter. This will set us up strongly for 2025. Regarding competition, Grab Indonesia is enjoying good sustainable growth. For us, Indonesia started being positive EBITDA more than a year ago. We’ve grown Indonesia's EBITDA, revenue, and GMV, both year-on-year and quarter-on-quarter. We have noticed increased spending from competitors in Indonesia, but the reliability of our services and new services we’ve launched are gaining good traction. Overall, order frequency is up year-on-year in Indonesia, while retention rates have remained stable. Our strong operational leverage across our cost base helps us mitigate any competitive rash. Therefore, we remain committed to driving profitable growth, and this quarter is a strong proof point for that with our updated EBITDA guidance.

Thank you.

Our next question comes from Mark Mahaney with Evercore. Your line is now open.

Okay. Thanks. Two questions, please. One, on the incentives. Could you just talk about the outlook for incentive spend going forward? Are you at a point now where that should be coming down consistently as a percentage of GMV? Or is that something that’s just set to whether that’s a reasonable expectation or not? Or do you want to continue to be able to adjust as necessary on that metric? And then on the Monthly Transacting User (MTU) growth, any color on the sources of that MTU growth? Help us think about how sustainable that kind of mid-teens growth is. It looks like it's been consistent the last couple of quarters. Are there good reasons to think it should be consistent going forward over the next year? Thank you very much.

Thanks, Mark. Let me pick up those questions. On incentives, over several years, our incentive percentage of GMV has been coming down. So you're right; the overall trend is moving in that direction. That’s because we are able to gain efficiency through better targeting with AI that we didn't have a few years ago. From quarter to quarter, it can go up and down. Particularly when we launch new products, as we’ve been steadily doing this last two quarters for omni, we want to generate sustained consumer behavior to look to the Grab app for dining out as well as traditional delivery. Changing consumer behavior requires incentives. Similarly, when we launch advanced booking to get consumers to use the app differently, that also takes incentives. But those will peak at different times and then come off. So those are not long-term. The MTU growth is encouraging. The affordability push and our pricing strategy drive a lot of first-time users into the marketplace. Our marketing goal is to capture them and keep them coming back, increasing retention. The big upside for MTUs is frequency because our annual transacting users far exceed monthly and daily transacting users. A significant part of our job is to convert new users with affordability and increase their frequency from annual into monthly, then from monthly into daily usage. Currently, our MTUs represent only about 5% of the Southeast Asia population, while annual transacting users are approximately 15%. There’s substantial potential for growth with this affordability strategy, along with a growing premium customer base.

Thank you very much.

Our next question comes from Ranjan Sharma with JPMorgan, Singapore. Your line is now open.

Hi. Good morning, and thank you for the presentation, and congratulations on the results. Two questions from my side. Firstly, on the MTUs. Great to see the traction in building momentum there. Do you have a sense of what the target market could be in Southeast Asia? What the profitable number of MTUs could be for the industry over the next few years? The second question is on your free cash flows and buybacks. Now that you have $5.8 billion of net cash liquidity, plus you have a highly cash flow-generating franchise, can we expect a further increase to the buyback program? Thank you.

Thanks, Ranjan. Let me take the first one, and Peter will take the second one on free cash flow and buyback. Our monthly transacting users currently make up about 5% of the total population in Southeast Asia, which indicates strong growth potential. Despite what's happening in the U.S., Southeast Asia has benefited from the so-called decoupling. We expect that to continue with strong political leadership and optimism across many of our markets. Since our MTUs are only 5%, with annual transacting users at about 15%, there’s considerable upside, not just in the short term but importantly, long-term with the youthful population. We will continue to engage these users, as the Grab brand is strong and positively impacts our financial services offerings too. Peter?

Ranjan, regarding your question about cash and buyback. Let me clarify the net cash liquidity that includes deposits. We generated over $1 billion of deposits from the two banks. But also remember that it excludes loans and has restricted cash as part of that. In the third quarter, we generated free cash flow of approximately $138 million, with about $76 million over the trailing 12 months. Our capital allocation strategy focuses on three areas: organic growth, organic investment, which is critical for us. Third quarter is a great example where our product investments are seeing traction from both customer acquisition and retention, which drives lifetime value. We’ll consider inorganic opportunities at a very high standard. Regarding excess liquidity, we will look for ways to return it to shareholders. Currently, we are about $190 million into our $500 million buyback mandate, so we still have some ways to go before completion. We're committed to executing this buyback program, but will revisit our strategy as opportunities arise.

Our next question comes from Jiong Shao with Barclays. Your line is now open.

Thank you very much. Congrats on the very strong results. Two questions as well. Firstly, I would love to learn a bit more about your fintech business. I know you started with Digital Banking Singapore lending out loans to generate revenue, and now all three digital banks are offering credit products. Could you sort of elaborate a bit on the borrowers' profile? Like who borrows from you? What kind of the typical terms and expand a bit, please, on the acceleration in growth rate from this business next year? I believe you highlighted that before; it's probably one of the most important drivers for revenue re-acceleration. My second question is on the delivery margins. It's great to see you have made a lot of progress, I think, 50 basis points increase sequentially, if I’m not mistaken, to 1.8%. But that's still quite a bit below 4%. Could you elaborate on what kind of growth trajectory for your advertising business maybe? You noted earlier about in-store monetization. As some of us know, your Chinese peers are doing a great job there in China. Could you talk about when you plan to monetize the in-store part of the delivery business? Thank you very much, and sorry for the long questions.

Thanks, Jiong. That’s great. Let me start by discussing financial services and the lending aspect. We saw strong loan dispersals in the quarter, growing 38% year-on-year and 13% quarter-on-quarter, totaling $565 million in the third quarter. If you annualize that, it amounts to about $2.2 billion. The pace of lending is increasing as we layer it through the banks on top of the existing GFin business, which already had a healthy growth rate. The GFin business primarily lends to partners and users across all the markets, and we leverage deep insights from user behavior through sophisticated models with around 120 different variables for lending decisions. This allows us to serve gig workers who have traditionally been underserved by banks, as many are either unbanked or underbanked. Overall, the risk-adjusted returns from GFin comfortably exceed the group's cost of capital. Lending to merchants remains a growth area with low current penetration. As we provide more services to merchants, we gain more variables for our lending model. We can continue to lend on a risk-adjusted basis and reach more merchants across all our countries. The new addition is lending through the banks aimed at the underbanked population, a significant portion of Southeast Asia. The first lending product we launched is the FlexiLoan, which is user-friendly and has an extremely high Net Promoter Score (NPS) of around 65. We whitelist users carefully to maintain a close eye on risk. Between GFin and the banks, we maintain a very low non-performing loan ratio around 2%. Regarding deposits, we’re thrilled with our ability to attract them at low cost, boasting over $1 billion in customer deposits in the third quarter. This strong momentum across our banks supports our positive lending cycle.

Jiong, on your question regarding delivery margins, we've been intentionally driving growth across our different products over the last year. For example, Saver Deliveries now make up about one-third of our delivery transactions, a significant increase from about 14% last year. Frequency remains pivotal for us as one-third of our deliveries today come from subscribers. Subscribers spend four times more, and their frequency is three times that of non-subscribers. We’re also cross-selling between food and mart to drive frequency. Users who order from both services exhibit five times higher frequencies compared to those who use only one. Improving retention is just as critical for us. Our subscriber retention is two times higher. We're committed to driving higher segment margins and generating absolute dollar EBITDA in our deliveries business. The third quarter indicated solid GMV acceleration with our deliveries growing 16% year-on-year. Additionally, our segment margin has risen to 1.8% from 1.5% last quarter. We're continuing this momentum in our deliveries business.

Yes, that's great. And I’ll just build on that regarding advertising. Advertising revenue is indeed rising; we celebrated crossing $100 million revenues and now it's at $185 million. The advertising percentage of delivery GMV has increased from 1.4% last quarter to 1.6%, up from 1.1% last year. This indicates strong momentum, primarily driven by self-serve advertising. We're enhancing merchant targeting and results monitoring. We’ve implemented a cost-per-order advertising model popular with smaller merchants who are less experienced with other models. I took a trip to Indonesia and met with a local burger chain entrepreneur who has utilized our advertising services for both delivery and dining. This integration is powering great success, and he has also taken loans through our platform—showcasing how our services holistically support merchant growth.

Our next question comes from Sachin Salgaonkar with Bank of America. Your line is now open.

All right. Thank you for the opportunity. I have two questions. First, I wanted to understand a bit more on what could be considered a steady-state delivery GMV growth. For the last few quarters, Grab has been growing in the range of 9% to 12%. Given the push for MTUs and targeting first-time users, should we expect acceleration, for example, an emerging market like India has GMV growth on food of 20%. Is this something Southeast Asia could reach eventually? My second question relates to a couple of your peers discussing the consumption slowdown and its impacts. I’d like to understand your perspective on that.

On consumption slowdown, if you look at Southeast Asia, it's still underpenetrated. They have projected strong growth for the digital economy over the next five years, both mobility and deliveries at double-digit CAGR. We're not seeing any slowdown; in fact, we’re experiencing increasing demand for our services. October was strong, and we foresee a solid Q4 driven by heightened tourism, indicating a robust macro environment. Overall, we feel the Southeast Asian economy is strong as we continue to penetrate this underrepresented market across all our offerings.

I want to echo what Peter said; we're optimistic about the long-term growth outlook across the region, especially with the strengthening of inbound tourism. We’re observing a considerable increase in tourism in Thailand as an example. Reports, like those from Temasek, Bain, and Google indicate continued long-term growth potential in penetration levels. They forecast double-digit growth CAGRs across food deliveries and mobility from 2024 to 2030. We are dedicated to capturing this growth across our offerings including our high-value, affordable services.

Thank you. Just a quick follow-up, despite under-penetration, are we seeing GMV growth in food around 10% to 12%? Is that a steady-state growth rate, or could we expect 15% growth for the industry ahead?

Sachin, we’re not predicting growth rates across all our lines at this point, but we have observed an acceleration of growth in our deliveries business with a 16% year-on-year constant currency growth this quarter, up from 14% in the prior quarter. If we continue executing our product strategies effectively—enhancing frequency, order value, and ensuring competitive pricing—I believe our deliveries business will continue to see sustainable growth.

To update you on our performance in October and early November, we are indeed seeing an acceleration in our deliveries GMV growth. We will persist with the strategies outlined by Anthony and Peter.

Our next question comes from Alicia Yap with Citigroup. Your line is now open.

Hi. Thank you. Good morning, management. Thanks for taking my questions, and congrats on the solid results and guidance. Two questions: First, I understand the growth in Mart is faster than Food, at about 1.7 times faster. Given this, do you anticipate the faster growth in Mart could eventually also help to increase Food's growth in the coming months? Could we see a point where frequency and order volume in Food could outpace Mart? Secondly, I’d like to clarify the incentives. We’ve observed that consumer incentives have been rising disproportionately. I understand that some increase is necessary during new product launches to drive awareness and conversion. Could these incentives potentially scale back in future quarters? If this occurs, it could lead to strong margin improvement trends. Will you consistently roll out new products to achieve steady-state margin improvements, or could we see significant jumps in margins if you reduce incentives more than expected? Lastly, how has improvement in AI and technology contributed to your margin efficiency?

Thanks, Alicia. Those are great questions. The Food and Mart users have a 5x higher order frequency than just food users, and that’s the key as we push the cross-sell into mart. It drives mart GMV stand-alone and increases user frequency through a supportive ecosystem. Our strategy is to enhance user frequency and retention across food and mart and dining out choices. You are right: increased incentives reflected a push for cross-selling dining options. Our integration of Chope, a popular food reservation system, will enhance our user journey for dining experiences, thus increasing frequency and GMV growth across our services. As for the incentives, they can vary each quarter and may increase as we launch new services, especially in regions where we want to change consumer behavior. The impact on our margins will depend on effective execution of our strategic product initiatives and balancing incentive trends.

To your point on incentives, we view them as a lever. They will fluctuate based on our growth strategy. Last quarter, we discussed the mobility margins; this quarter, we've seen those investments bear fruit, reflecting positively in our EBITDA. We carefully evaluate unit economics and margins, especially seeing strong results with our deliveries business moving from 1.1% to nearly 1.8%. This illustrates our balanced approach to engagement, frequency, and profitability.

We've been implementing AI/ML since our inception, with over 1,000 models operational, one of the highest in the region. With GenAI’s introduction, we expect to see productivity improvements across all Grab segments. For instance, modeling more efficiently across various tasks allows faster product development. Our Mystique copywriting tool has already doubled conversion rates and increased user engagement by 50%, showcasing how AI can drive cost synergies and improve customer experiences.

Our next question comes from Divya Kothiyal with Morgan Stanley. Please proceed.

Thank you very much. The first question I have is just on the mobility margin. We’ve seen that improve, and you attributed it to a better mix. You did comment earlier on Indonesia, but I'd keenly like to hear your thoughts on the competitive landscape pertaining to Singapore, Vietnam, and Thailand, particularly with recent new market entrants. How do you see market shares in these countries? Is there any risk to your margins from competition? The second question pertains to group corporate costs; Grab has done remarkably well this year, reducing costs by about 10-11%. What are your thoughts entering 2025? Do you think there's more scope for reductions, possibly through AI, or will it be more operating leverage driven? Are there any specific concerns about cost inflation we should be aware of next year?

Thanks, Divya. Let me address the first question on competition. There have been announcements of new competitors in the region recently. It's always a competitive environment with dynamics changing frequently. With regard to our growing margins and positive growth, we utilize ongoing operational leverage by continuing our investment in service reliability and affordability, together with AI optimization. These enable us to maintain our edge in Southeast Asia, where we are around 4 times larger than our next biggest regional competitor. We are continuously monitoring market entrants to adapt our strategies as needed, which include fine-tuning our offers to retain driver supply once new competitors arrive.

Divya, regarding corporate costs, we have optimized our business and will continually work to ensure operating leverage. In dollar terms, we experienced a slight uptick due to increasing order volume. About 40% of corporate costs are variable, and they will rise with order volume as well. Fixed costs may increase if we invest further in productivity improvements, such as AI. We maintain a focus on measuring corporate costs as a percentage of revenue to monitor our efficiency. That’s important for helping guide our approach to corporate costs in future years.

Thank you. This concludes Grab's third quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.