Grab Holdings Limited Q1 FY2024 earnings call

• Anthony Tan: First quarter 2024 was a standout quarter with top-line growth and bottom-line adjusted EBITDA profitability. Recorded 9th consecutive quarter of adjusted EBITDA improvement, with 38 million monthly transacting users. Initiated $500 million share buyback. - Alex Hungate: In Deliveries, affordability initiatives like Saver and Priority Deliveries drove growth; groceries/mart business growing. In Mobility, inbound tourism boosted GMV, language translation feature reduced costs. In Financial Services, revenue growth from lending and deposit growth. - Peter Oey: Discussed segment reporting changes, provided financial results including revenues, adjusted EBITDA, and updated guidance.

Deliveries: On-demand GMV reached a new record of $4.2 billion in the quarter, up 21% year-on-year in constant currency. Groceries and mart business grew, with Jaya Grocer in Malaysia achieving 12% year-on-year same-store sales growth and over 100% year-on-year growth in Mart sales. Mobility: GMV grew strongly, with traveler MTUs and spend up 69% and 80% year-on-year respectively due to inbound tourism tailwinds. Average driver earnings per transit hour improved 9% year-on-year. Financial Services: Revenues grew 53% year-on-year, loans dispersed in the first quarter grew 64% to $483 million, and customer deposits in digibanks increased, with adjusted EBITDA losses narrowing 34% year-on-year.

• Raised full-year 2024 adjusted EBITDA guidance from $180M-$200M to $250M-$270M while maintaining revenue guidance of $2.7B-$2.75B. - Expect sequential GMV and EBITDA growth in second half of 2024. - Long-term margins: Mobility ~9% plus, Deliveries ~4% plus, Financial Services breakeven by H2 2026.

Q: Congrats on the great result. Two questions. First, on Mobility. You registered a very strong quarter, growing 5% sequentially and 27% year-over-year despite 1Q being your seasonally weakest quarter. Would you say that you are gaining market share? I'm curious about how the competitive landscape have changed across the region and whether you have changed your level of subsidies in recent months as a result of competitors leaning in. Do you think this is -- this will impact your margins? And for delivery business, understand management previously noted that Grab will remain focused on the core business and will be less interested to expand into other local services segment. So -- but given advertising business now, majority book under the delivery business, would that make sense for the company to consider exploring into the complementary service like the restaurant review, table reservation service to enhance your advertising revenue opportunity?

A: Thanks, Alicia. This is Alex. Let me take your -- both those questions. Firstly, against our next biggest competitor in the region in both food and mobility, we believe that we increased our competitive position in every single market year-on-year. How do we do that? Well, we think that travelers, in particular, have been one of the big drivers. Our investments in travelers are paying off, and there's still upside left in traveler demand, especially from China. So you heard earlier that the mobility traveler MTUs and spend grew by 69% and 80% year-on-year, and that was definitely a driver, particularly for premium travelers. We know that travelers spend about double what domestic users spend on Grab per day when they're traveling. We've also managed to capitalize on events in the region that occurred in the first quarter, and we think we executed well on supply initiatives during the Chinese Lunar New Year and Ramadan festivities. Thanks to improvements from some of our auto-adaptive AI tools, combined, of course, with the great on-the-ground efforts from our operations teams. In terms of incentives, we are focused on product-led response, right? We are the largest platform in the region. We have the largest investment in technology initiatives, as Anthony said earlier. So it's not an incentive-first driven response to competitive activity. We can lean in on incentives when we need to, but we believe that we can remain competitive by doubling down more on product and engineering innovation, leveraging on that scale that I mentioned. And then we can pass those cost efficiencies on to users in terms of affordability to bring more users into the platform. And then as we invest in affordability at the same time, as you've heard, we're investing in premium services like priority and scheduled rides, which have higher value and correspondingly higher margins. So our long-term margin guidance already bake in the competition that we know is strong already across the region and that we expect will continue as part of the landscape going forward. So we don't expect this to change in those long-term margins guidance. We remain committed to those. Great question on Deliveries margins and Deliveries growth from adjacencies, your second question. You're right. We're very happy with the traction we're getting from the ad demand gen capabilities that we've been rolling out. As you heard earlier, 46% year-on-year increase in the number of active self-serve advertisers growing to a total now of 119,000. But that's still the minority of our self-serve long tail. So we've got many, many more to sign up, and we'll continue to sign them up. And the average spend of those advertisers on our platform has also increased. So you can tell that the underlying growth in advertising revenues coming into the platform is very high. We believe that we have a good chance to keep that kind of rate of momentum, rate of growth going forward. So that's further upside from further penetration of self-serve, but there's also further upside from things like mobility ads. Currently, as you use the app, you very rarely see an ad as you're taking a mobility service. But there's lots of interest from advertisers to advertise to customers who are in transit or as they book a ride. So that's something that gives us further upside as well. In the medium term, we think the groceries ads, its opportunity is probably ultimately larger even than the food delivery opportunity with lots of interest from FMCG advertisers whom, as you know, have larger budgets. So that's why we're investing in the partnerships that we talked about earlier, for example, FairPrice Group in Singapore and some of the others that we mentioned in the other markets. We're trying to demonstrate and lead the way with the close integration that we've invested in with Jaya, our own grocer in Malaysia. So we've done lots of integration with loyalty and demand gen. And as you heard, that's really helping Jaya. The same-store sales growth was 12% year-on-year and is now the largest merchant on GrabMart. So sales on Mart for Jaya grew more than 100% year-on-year. So we are -- we see lots of opportunity for these adjacencies. We want to be able to help our merchants not just to grow on the online space but to bring more people into their stores to dine out. We've talked about that in the past. That's -- we're finding product market fit with our new services right now. And so you should expect us to be ramping that up in the second half. Thanks, Alicia.

Q: Congratulations for the good set of results. Two questions from me. Number one, on your upgraded guidance, can you provide more color on what has led to this meaningful increase of your EBITDA guidance range? In particular, can you walk us through what has changed in the last 2 months since your previous guidance and how it looked like for each of the segments' top and bottom line as well? Also, what do this new guidance mean for growth beyond this year? Second question is on fintech. We saw a substantial reduction in losses this quarter, as you also pointed out, partly come from lower-than-expected credit loss and other segment. Does this mean that the worst in terms of the burn is already behind us? Or in other words, how sustainable is this improvement? And if this is the case, why don't you bring forward your breakeven guidance forward given the current trends?

A: Thanks, Pang. Let me take the first one around the EBITDA guidance, and I'll ask Alex just to chime in on your second part, fintech question. On the EBITDA guidance, what we did see in the first quarter with a very strong mobility demand, it was more than we had originally anticipated. We saw a strong momentum in tourism. There was a lot of demand that we saw. That was also helped by a lot of the events that took place in Southeast Asia in various countries. But also local commute actually surprised us, and we saw an uptick in local commute also at the same time. So that momentum that we're seeing in our Mobility business and with the margin that we delivered around 9% gives us confidence that actually this tailwind of Mobility will continue to maintain, and we'll see sequential GMV growth and EBITDA growth for our Mobility business. So that's one part. The other part I would say is a combination of costs in our business, how we're continuing to be optimizing those cost structure. We talked about in the prepared remarks just in how net cost of funds have continued to improve for us. Alex talked a little bit about that. We also saw that expected credit losses also continue to improve, and we disclose our nonperforming loan over 90 days, roundabout the 2% mark. So our credit scoring engine is getting better. And we're continuing to exercise prudence also but also scaling that loan book at the same time, both at the GrabFin side as well as on the bank side. Now I would say also on the cost -- the second part of the cost side is we're just seeing greater discipline when it comes to operating expenses. So we are flexing operating leverage in the business. We saw regional corporate costs was down 11% on a year-over-year basis. We saw headcount costs down 20%. We saw other parts in our variable costs that are coming down. So we're going to continue to make sure that discipline is maintained but also that discipline, also that greater operating leverage is flowing through also to our EBITDA, and hence, the combination of those things, we feel very confident, and we feel very good in raising our guidance now to $250 million to $270 million for the rest of the year. Alex? Thanks, Peter. And thanks, Pang, for the question. Yes, we're executing on this fintech strategy that we announced during the Investor Day, I guess, going all the way back to September 2022, where we said we would focus on ecosystem payments and ecosystem lending where we really knew our customers deeply in a data science sense. And that is paying off. You can see that in the results this quarter. We're getting a lower cost of payments relative to what we would get from third-party providers. And our deep credit modeling skills using data science, where we now actually ingest something like 185 variables in our data models, many of them highly unconventional relative to what a bank could access, and that allows us to grow our book at this kind of rate but maintain an NPL of only 2%. The banks have a similar strategy. And as our regulators allow us to grow our balance sheet, that allows us to extend our lending further using similar credit modeling. So we do expect the fintech profitability to improve progressively from here. With -- as Peter said earlier, Financial Services overall as a segment breaking even no later than the second half of 2026. Why are we not upgrading our forecast? Well, I think it's still early days. The public launch for the bank in Indonesia is coming up, so it's still not fully launched. The lending product in Malaysia is still not launched, so pretty early days for us in the bank terms. And also, frankly, we want to let those credit models that I referred to, we want to give them time to mature. So before we really accelerate the growth of lending, we want to steadily improve our approval rates and then test the models for different user segments, different tenors, different quantum, et cetera. So this is something that I think is prudent for any lending business that is growing as fast as we are, and it's in the interest of our shareholders to give ourselves the space and the scope to do that at the right pace.