Grab Holdings Limited Q4 FY2024 earnings call

• Product Initiatives: Fourth quarter was the strongest ever with 20% on-demand GMV growth, launched Saver Rides and Priority Deliveries achieving strong product market fit. - Cost Discipline: Achieved first full year of positive group adjusted EBITDA and adjusted free cash flow through cost discipline. - Ecosystem Focus: Cross-selling between Food and Mart with users using both having higher AOV and retention. - AI and AV: Leaning into GenAI, active in AV discussions, partnerships with BYD for EVs. - Financial Services: Digibank loans launching, GFin providing good returns, expected to be profitable by 2025.

In the fourth quarter, Grab achieved strong on-demand GMV growth of 20% year-on-year. For the full year, it achieved the first positive group adjusted EBITDA of $313 million, which was at the upper end of the upgraded guidance, and positive full year adjusted free cash flow of $136 million, an improvement of $370 million year-on-year. Regarding segments: Mobility had margins dipping to 8.4% in Q4, but full-year mobility margins remained stable; deliveries saw Saver Rides at 26% of mobility transactions and 1/3 of deliveries, with deliveries margins expanding 70 basis points year-on-year. Financial Services had a loan book growing to $536 million, revenue at $74 million, with Digibank loans launching and GFin providing good risk-adjusted returns.

• 2025 EBITDA guidance is 40%-50% growth relative to 2024 levels. - Expect to maintain on-demand GMV growth momentum in 2025. - Financial services expected to be profitable by second half of 2025, banks by Q4 2025. - Revenue growth forecasted between 19%-22%.

• Fluctuations in consumer incentives affecting margins. - Uncertainties in FX movements impacting guidance. - Regulatory and infrastructure challenges for AV adoption in Southeast Asia.

Q: Firstly, just wanted to have a better understanding about your product mix shift. Saver is already 1/3 of your deliveries and 26% of the mobility transactions. How should we expect the mix shift to transform over the years? And how will this impact your margins, especially in mobility, where we start to see your margins now dipping to 8.4%?

A: Okay. Thanks, Pang, for the questions. This is Alex. Let me answer both of those. So first of all, on the dip in margins and deliveries this quarter, as you know, we don't operate the business on a short-term margin optimization basis, but we are trying to drive absolute EBITDA and free cash flow growth. So you will see these kinds of fluctuations in our segment margins from quarter-to-quarter. And then sometimes incentives go up, go down, in order to make sure that the marketplace health is in the best possible state and that we're really driving improvements for our consumers. What's key though is like on a full year basis, if you look back, deliveries margins did expand 70 basis points year-on-year -- and the mobility margins also remained stable. And obviously, you've seen now this acceleration in growth, which is a big objective for us. As we look forward to 2025, now trying to address your question on mix. We will continue to grow this momentum, and you will see us focus equally on the high end of our price laddering as we are on the affordability and the price laddering to make sure that we keep that balanced approach to margin growth as well as overall GMV growth. And I could take this opportunity to reconfirm our commitment that the long-term steady-state delivery margins will be 4% plus, in line with the prior guidance that we've given. And then the mobility margin is 9% plus. So we're still very confident that that's where this business will end up. In terms of some of the growth drivers for our high-value services to better serve that segment and to make sure that we keep the margins balanced. I think our partner strategy is very important for that. So we have supply partners like Blue Bird in Indonesia, for example. We have grocery partners, examples of SM and Robinsons in the Philippines; brand partners like Coke, where we've done the Coke&Go initiatives to drive benefits for consumers together. And then, of course, we've got a great set of partners for the banks in each of the 3 markets, Singtel, [ Quackr and TEK ], totally blue chip with great customer bases for us to expand our ecosystems. Maybe I'll turn to your second question now, which is on the financial services loan book and the increase in costs as we grow. So firstly, just to recap for everyone on the call, we've got 2 different businesses within the Financial Services segment. We've got the Digibank and we've got the GFin. So on the Digibank lending first, the loan products were launched very recently in the fourth quarter. And so we're really growing those fast and scaling while within the credit risk appetite that we've set out. So we do expect the Digibank to continue to see increase in direct costs with these new launches. Firstly, the Flexiloans in Malaysia is just launching for the first time for consumers and then the MSME products for small businesses also just launching in Malaysia and Singapore. So we're supporting those launches currently and that obviously brings some increase in direct expenses. But probably more significantly, as you understand, with the loan growth at this rate, for example, GXS in Singapore doubled their loans year-on-year. We do need to build up balance sheet provision. So we're running these ECL through the expense lines of the P&L as we grow. And obviously, as the credit models develop, et cetera, it's good to have a strong balance sheet. But as those credit models develop, we'll be able to sharpen our pencils on that overall. And that will be a driver of the return to profitability because we are confirming what we've told you before that financial services overall will be profitable by the second half of next year. And the banks overall will be profitable by the fourth quarter of next year. On the GFin side, so that's the bank side. On the GFin side, it's already providing good risk-adjusted returns on capital. In fact, comfortably above the Grab's own cost of capital. So that's a strongly performing business with good returns. So we'll continue to put that across our ecosystem. Hopefully, that's helpful to give you some character of the way financial services is growing and continuing to improve.

Q: I have 2 questions. First one is a question on management's guidance philosophy entering into this year. Now we've seen in prior years that we have demonstrated a track record of beating and raising your numbers through the year. And of course, the implication of that is that you typically start with a softer guide at the start of the year. Now my question is that while this time around your guidance for sales and EBITDA is pretty much in line with consensus, and of course, I'm ignoring Bloomberg's incorrect reporting on sales guidance versus estimates. Do you really see this juncture a room for upside to your guidance? And what have you broadly baked into the assumptions. So that's the first question. The second question that I would like to ask is a bit more medium to long-term in nature. If I want to take a step back and look at the bigger picture, how do you plan to balance your priorities and the capital allocation between various initiatives, which I guess I put out there for you. Specifically, I would like to sort of discuss autonomous vehicles versus, say, the speculated -- widely speculated innovation M&A as well as your expansion into Digibank. So how would you balance between these probably say exciting, but relatively more resource-intensive banks?

A: Venu, this is Peter. Let me take the first one around guidance philosophy. And I'm going to ask Alex and Anthony also just to chime in around your second part of the question, around where we think we'll -- from your question around priorities and capital allocation. So let me just tackle the first 1 on revenue -- on guidance itself. The 2025 EBITDA guidance is a 40% to 50% growth relative to 2024 levels. And the revenue growth that we're forecasting also is somewhere between 19% and 20%, 22%. It's a strong top line growth. If you look at where we landed in 2024, we landed revenue somewhere around the 21% mark on a constant currency basis. Now around guidance philosophy. And if you look at since we went public 2 to 3 years ago now, there is a pattern that you're seeing. And as a management team, we embrace the philosophy of [ being race ] when it comes to our guidance, especially on the EBITDA side as well as on the revenue. So when we put out numbers at the beginning of each year, we do bake in some potential uncertainties that we can predict -- and I'll give you a couple of examples of that. We looked at, from a seasonality perspective, especially in the first quarter, the first quarter is a very important quarter for us, where we look at the Ramadan and the Lunar New Year, where this year, it's a little bit odd where we do have a convergence of those 2 festivities all in the same quarter versus last year or the previous years, where the Ramadan actually extends to the second quarter of the business. The good news is we're seeing a very strong January so far, but it's too early to tell. So there is some uncertainty that we're baking in on the revenue guidance and the EBITDA guidance. Now as the year progresses, and you've seen this in the last couple of years, the outlook improves. And we make those adjustments to reflect the latest outcomes in the business. And also, we always remind our investors to take that lens when it comes to considering our guidance, especially at the beginning of the year when we put out there. Let me just finish off. Most importantly, we always take, as a management team, a balanced approach when we are driving 2 things. We're driving top line growth, and you're seeing that momentum in the business. Second half was critical for us to exit strongly because that will set us up with 2025 and you saw that on-demand GMV growth at 20% on a quarter -- on a year-over-year basis and also maximizing adjusted EBITDA and free cash flow on an absolute basis. and we're very committed in growing that EBITDA and free cash flow in 2025. So Venu, hopefully, that will give you some picture and also how we think about our guidance philosophy. And your second part of the question, there's an area here where I think we would need to address, which I'll ask Alex and Anthony to chime in. Ping Yeow Tan: Yes. Thanks, Peter. I totally agree, Peter. And hey, Venu. So first of all, with regards to what Peter shared, I think we are very bullish. We believe that there is plenty of headroom to drive organic growth in Southeast Asia specifically in mobility, in food, in groceries. The addressable market is still significantly under-tapped. We've shown and proven we've had an all-time high of 44 million MTUs and this represents about 17% growth year-on-year, but we are still only serving 1 in 20 Southeast Asians. So we are actually just scraping the surface in terms of users that we can outserve across this region. So what does that mean for us? We are going to double down on the core because the core is still expected to grow strongly. And on top of this, we are also looking at the new growth areas. Now specifically, you called out AV or autonomous ride hailing. For me, personally, AI and robotics are top of mind. As you know, when large language models were first released, we leaned in very early last year to drive GenAI adoption across the org. Now on AVs, we've been watching this space closely and are very excited about the long-term opportunity related to this tech. I personally and our leadership has actually taken many rights across the world, across various brands, just to understand and be forward leaning in this space. We believe we are in prime position in supporting the AV transition over the next few years. And we have a very significant role to play in this region by a hybrid AV human fleet. When we think about our right to win, we have strong relationships with players around the world as well as OEMs. We have the highest utilization across the whole region. We have a long track record of working hand in hand with regulators and governments to ensure passenger and driver safety. So as we think about this AV transition, we're also proactively thinking about how can we play a part on upskilling our driver partners as part of this shift because that is core to our mission and an important aspect of our strategy. As we've shown before, we've collaborated with global partners like Mastercard and Microsoft and have a track record of working governments and regulators to up-skill workers, to upscale our driver partners and to equip them for more tech-enabled future. So going forward, I can confirm we are in active discussions with regulators. We intend to work closely every government in Southeast Asia to drive this forward. We do anticipate a longer road to mainstream AV adoption in other parts of Southeast Asia, and this is because road infra is different, regulations are different, but we are very excited about this space. So in the meantime, we are actively pursuing several partnerships, and we'll look to share more updates in the coming weeks. Alex, go ahead. Alexander Charles Hungate: Thanks, Anthony. And on the question of allocation towards organic growth, particularly Indonesia, we're very happy with the acceleration of our on-demand GMV overall as a group. In Indonesia, in particular, on demand, GMV grew 10% quarter-on-quarter, so faster than our overall group average actually. It was an important focus for us in 2024, and Indonesia will remain a key focus for us to serve our drivers and merchants in 2025. I mentioned the partnership with Blue Bird earlier, and we're also expanding our EV fleet with BYD. So we're adding more drivers and more merchants in the quarter. The online earnings for those drivers per hour and the average deliveries merchants earnings have also increased. So I think we have a very healthy and fast-growing marketplace. And we continue to invest, not just in Indonesia but across the region on some of our tech advantages like mapping, hyper batching, just in time allocation as well. These are very difficult for competitors to replicate. So we're doubling down on organic opportunities in Indonesia and across the region. Peter Oey: Venu, just to add to Alex, from an inorganic perspective, because your question is around capital allocation and also we do balance priorities but then just chime in here a little bit just to give context. As you know, as a management team, we have a very high bar when it comes to inorganic opportunities. And these opportunities we evaluate on a case-by-case basis, but the bar is very high. We have to make sure that key synergies and value add is instrumental in these inorganic opportunities. And this is very consistent with our capital allocation policy that we've shared many times with all of the investors. In terms of the capital allocation framework, it's always been very consistent. Organic growth comes first in the business, and that's to drive EBITDA growth and free cash flow. And second is having that high bar on M&As that I just talked about. And then third, when there is excess capital, as a priority, we will return it to our shareholders. So we're continuing to deploy those capital allocation framework and 2025 is no different for us. So hopefully that's helpful in addressing your questions.