Amid strong Q2 results, Grab to focus on profitability, not incentives

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Recently, Sea Group expressed its intention to reinvest in free deliveries and other incentives in its ecommerce arm Shopee. But fellow Southeast Asian tech giant Grab does not appear to be moving in the same direction.

In its Q2 earnings call, Grab COO Alex Hungate emphasized that the company is “not so really” into reinvesting as most players in the ride-hailing and deliveries space are focused on profitability. Hence, the company is currently focusing on affordable services – such as its relaunched GrabShare product – and growing the market, he added.

“We’re comfortable with where our margins are,” said Hungate. “[We’re] very close to our steady-state, long-term margins in deliveries. And then we’re already at our comfortable long-term sustainable margin for mobility.”

Grab posted a strong performance in the second quarter of 2023, where it is on track to achieve breakeven on an adjusted EBITDA basis in the next quarter. Its earnings also show that while incentives slightly increased in Q2, they have been on a downward trend over the past five quarters.

That may be partly driven by the GrabUnlimited subscription service, which Hungate said significantly aids the company in retaining customers, thus allowing it to reduce the amount of promotional expenses.

Grab’s affordability push may have also helped it record an all-time high on monthly transacting users for the period. At 34.9 million, the number is a 7% increase year on year.

Hungate said that in Indonesia, new users have come from both Grab’s “traditional stronghold” of Tier 1 cities as well as the “outer cities” in underserved regions.

“It’s more about everyday low pricing, making our services more affordable, getting people to make them part of their daily routines,” he added.

In addition to demand increases in deliveries and mobility, co-founder and CEO Anthony Tan noted growth in fintech properties, notably GXS Bank. He also highlighted that advertising revenue is scaling up to 1% of the deliveries segment’s gross merchandise value.

According to Hungate, Grab is now focusing primarily on endemic advertising, which involves F&B merchants and can also be expanded into its mobility and financial services arms. While ads are still a small business for the company, it recorded a take rate of 54% in Q2 – substantially higher than both deliveries (11.3%) and mobility (15.8%).

Meanwhile, GXS Bank has experienced “a strong uptick” in deposits despite minimal customer acquisition costs after it raised the maximum deposit amount for individual savings accounts to S$75,000 (around US$55,000).

Asked whether Grab might replicate its Trans-cab acquisition in other markets, Hungate said that doing so was “particularly attractive” in Singapore due to the country’s “very high” cost of vehicles.

“It’s not that we would be closed to other such transactions but we have a very high bar on M&A in general,” the COO added. “It would have to be a very attractive acquisition to reproduce the kinds of strategic synergies that we saw in the Trans-cab situation.”