Q2 2022 Grab Holdings Ltd Earnings Call
Ladies and gentlemen, thank you for joining US today My name is Catherine and I'll be your conference operator for this session welcome to grab second quarter 2022 earnings presentation. After the Speakers' remarks, there'll be a question and answer session.
Now I'll turn it over to Vivian Tom to start the call.
Everyone and welcome to <unk> second quarter 2022 earnings presentation under the interim head of Investor Relations and joining me today are Anthony Chan Chief Executive Officer, Peter <unk>, Chief Financial Officer, and Alex Holmes, Chief operating Officer.
During the call today, Anthony will discuss our key business updates and Peter who will share details of our second quarter 2022 financial results.
Following prepared remarks, we'll open the call to questions for Anthony Peter and Alex will provide responses for the Q&A.
As a reminder, today's discussion contains forward looking statements about the company's future business and financial performance.
Statements are based on our beliefs and expectations as of today actual events and results could differ materially due to a number of risks and uncertainties, including macroeconomic industry business regulatory and other risks, which are described in our form S. One registration statement and other filings with the SEC.
Not undertake any obligation to update any forward looking statements.
The discussion today also contains non <unk> financial measures, which should be considered together risk rather than a substitute for <unk> financial measures a reconciliation of non <unk> financial measures.
Put it in this quarter's earnings materials.
For more information and additional disclosures on recent business performance. Please refer to our earnings press release and supplemental presentation for a detailed second quarter 2022 financial review, which can be found on our IR website.
If you have any questions. After this presentation. Please reach out to Investor relations at <unk> Com.
With that I will turn the call over to Anthony to deliver his opening remarks.
Thank you everyone for joining us today.
We used to report strong second quarter results.
By robust rebound in our mobility segment and increased focus on cost management and a reduction of volumes have been spent.
For the second half.
We're focused on a salaried ing our path to profitability. This means we will focus on increasing high quality GMB transactions on our platform so that over time.
You did lead to a higher revenue better margins and improved profitability profile for all of our segments.
We'll do this by continuing to innovate our products to increase engagement on our platform and reduce our cost yourself.
As we ride out the remaining months of this year, a number of key callouts that consistent with our overall execution strategy.
First we will focus on increasing high quality GMB transactions. This will come with a trade off of slower <unk> growth.
We're lowering our GMB growth forecast for the year.
Second we will be pulling forward, our KOL food deliveries and our overall delivery segment breakeven timelines by one quarter and two quarters respectively.
Alright, we're also narrowing our 2022 revenue guidance range to the upper end of the previously announced range, we expect quarter on quarter improvement in our group level adjusted EBITDA.
And fourth as we have demonstrated over the past two quarters, we can grow sustainably in the second quarter, we reduced our incentive spend as a percentage of <unk> <unk>.
<unk> record revenues and strengthen our category leadership across our key verticals in southeast Asia.
We also took action to exit some lines of businesses that do not lead to long term and sustainable growth as.
As the macro economy situation continues to remain uncertain.
We are committed to streamlining our business on the cost front adjusting our services to meet changing consumer preferences and continuing to be good stewards of capital.
Our team is committed to growing sustainably and accelerating our path to profitability.
I will now give you an overview of our performance before turning it over to Peter who will give details of our outlook and financials.
In the second quarter, our mobility business saw strong recovery.
Asia opened up and lifted most travel and movement restrictions.
We anticipate mobility demand to rebound in the second half.
We also expect fulfillment rates.
<unk> of how well, we match demand and supply on our platform to continue to trend higher.
In terms of mobility supply, we anticipate further stabilization as average driver partner online our earnings continued to increase as demand recovers.
In the second quarter for example average driver earnings call online hour was up by 12% quarter on quarter and 31% year over year.
On the product side, we continue to make several improvements to reduce our cost to serve and increase partner productivity.
For example, we expanded our zone scheduling feature from sample to more countries in the quarter.
This feature allows drivers to focus on trips within selected zones, allowing us to better match demand and supply crunch areas.
As of June <unk>.
<unk> drivers completed an average of 44% more trips online hour compared to non schedule drivers.
We also improved average passenger wait times have arrived in July to near 2020 levels.
This indicates we are getting better and matching demand and supply on our platform. Despite a mobility supply lagging pre COVID-19 levels.
While we have made progress in getting our mobility business closer to pre COVID-19 levels. There is still much work to be done to give our consumers and drive our partners a better experience.
So we will continue to innovate with product enhancements introduced new affordable services and onboard more drivers to help us get there.
Let's now shift to our deliveries business.
We saw strong revenue growth tripling compared to the same period, a year ago and an improvement of our segment adjusted EBITDA margins from previous quarters.
This was driven by reduction in total incentives as a percentage of GMB and contributions from <unk>.
We did experience a softening in food delivery demand towards the second half of Q2 impacted by dining out as economies reopen.
Looking ahead for the year, we expect Dino trends to continuous soften food delivery demand and focus on high quality GMB transactions to spur our path to profitability by moderate our rate of <unk> growth.
Our long term thesis on the op she's within the delivery space has not changed we continue to be focused on building a rich and diversified.
<unk> ecosystem and good on product innovation and delighting our consumers.
This approach allows us to drive segment profitability, while growing our category leadership position in the region.
In the quarter, there were a number of initiatives retail to reduce our cost to serve and improved consumer and partner experiences with.
We ramped up that feature to reduce the wait times are driver partners at food merchants when they pick up food.
By reducing the wait times, they can increase the number of deliveries they make power, thereby boosting the productivity and reducing our cost to serve.
In July for example, we estimate that this feature together with other platform innovations save drivers 12 million minutes compared to February .
On the consumer and we expanded our pilot subscription program called grab unlimited to five of our major markets.
Grabbed unlimited as an ecosystem subscription plan that aim to bring greater value to our consumers while building brand loyalty.
Early results from our grab unlimited pilots indicate that subscribers are more sticky on our platform and they order more frequently.
We also rolled out features that focus on affordability to get price conscious consumers more options.
For example, we launched differentiated delivery time windows in some markets to allow users to choose delivery times that have lower fees. We did this because at certain off peak periods. We have an oversupply of drivers. So by doing this we have more demand because consumers enjoy low fees and drivers get more jobs.
With much lower or no incentives from us.
As a result of these innovations, we improved platform efficiency and drivers earnings potential.
Number of batch orders rising by 71% in the quarter compared to Q2 2021.
Looking ahead, we will continue to focus on growing our third party marketplace and integrating Jaya Grosso <unk> in Malaysia to scale, our delivery segment profitably.
Our <unk> integration is going well as of July we on boarded all of <unk> and in June of Jaya grocery store became one of the top performing <unk> in all of Malaysia.
This achievement gives us confidence that our approach to embed technology solutions and experiment with online to offline fresh grocery experiences while benefit Jaya and our consumers moving on to financial services and.
In the second quarter, we continued to optimize our business by focusing on on platform growth to reduce our cost base and drive more sustainable growth.
On digital payments will reduce our spend on consumer incentives, while reducing costs associated with off platform use cases.
We will seek opportunities to offer more lending and insurance products to graph ecosystem participants when we have built a deep relationship with for.
For example in lending we saw strong growth in our ecosystem loan book over the past few quarters and.
In the second quarter total loan disposals were up nearly three times year on year, while NPL ratios have kept steady and are still at low single digit ranges.
We're big believers that financial services can enable our super App flywheel spin faster, we've seen over the quarters that grab pay users have higher levels of retention rates spending and cross segment usage compared to cash uses.
In the second quarter, one year retention rates for grab he uses were one five times higher than cash uses while driver partners with loans exhibited higher satisfaction with our platform than those without.
We will share more details on our financial services strategy.
Coming Investor day, and how it ties with our digital banks.
On the DG Bank front, we're on track to publicly launch a Singapore <unk> bank in the fourth quarter of this year.
Lastly, I want to go over our enterprise segment in the second quarter, our enterprise revenue rose, 30% year over year, driven by gains in our advertising business.
The bedrock of our enterprise segment is our focus on serving our merchants and other players within our ecosystem.
<unk>, we make merchants more discoverable, thus, helping them growth business. This also provides our users with delightful embedded AD experiences that shape Gal buying behavior. We will also invest in developing our own advertising platform to give businesses of all sizes access to data driven insight.
To help them create shape and launch impactful advertising campaigns.
In the second quarter, we also announced the launch of Grand maps as an enterprise solution we.
We develop grab maps is a cost efficient way to address the need for hyper local mapping solutions in the region.
We plan to further expand grab maps as a <unk> solution to help other organizations will be a location intelligence needs.
By focusing on all of these strategies, we are confident we can meet the challenges ahead.
Continuing to grow our revenue sustainably improve our margin profile and accelerate our path to profitability.
I will now turn the call over to Peter to deliver a review of the financials.
Thanks, Anthony we are pleased to report a strong set of results with revenues growing by 79% year on year, and 41% quarter on quarter to reach $321 million, an all time high.
We saw strong revenue growth across all our segments.
Our mobility revenues grew by 37% underpinned by the continued recovery in ride hailing demand and.
And for deliveries revenues nearly tripled on the back of GMB growth lowered incentives as a percentage of GMB and contributions from Jr.
Initial services and enterprise segments grew revenues, 94% and 30% respectively for <unk>, we recorded growth of 30% year on year to reach $5 1 billion.
Also an all time high.
I want to emphasize that our top line results were impacted by foreign exchange translation, given the stronger U S dollar.
On a constant currency basis <unk> grew by 34%.
Relative to our second quarter guidance ranges, we recorded stronger than expected performances for our mobility <unk> and financial services TPB.
We came in just below our guidance range for deliveries.
We note that delivery growth rates have started to moderate towards the back half of the second quarter, driven by Dino trends as economies reopen.
Coupled with our focus to drive higher quality GMP transactions as we taper our incentive levels.
We also saw FX translation impacts.
On a reported currency basis deliveries GMB grew at 19% year on year.
On a constant currency basis it grew 24%.
For our commission rates, we saw an overall increase year on year.
Deliveries commissions were up from 18% to 28%.
Financial services commissions up from two four to two 7%.
Well its mobility commissions were down slightly from 23, 7% to 23, 2%.
The movements in deliveries and mobility commission rates were driven by product and country mix, while financial services commissions improve on the back of higher contributions from our lending business.
For our segment adjusted EBITDA margins remained fairly flat year on year, but improved quarter on quarter by over 100 basis points.
A key driver of this was a reduction on incentives as a percentage of GMB, which declined to 10, 4% from 11, 6% in the prior quarter.
On segment basis mobility, EBITDA exhibited strong improvement in margins quarter on quarter from nine 8% to 12, 1%, a 224 basis point improvement.
More importantly, this is in line with our expected longer term steady state margins of 12% for the mobility segment.
In addition, our delivery segment adjusted EBITDA margins improved quarter on quarter from negative two 2% to negative one 4%.
82 basis point improvements looking ahead, we will continue to remain focused on growing sustainably by being strategic in how we deploy our incentives.
Turning to group adjusted EBITDA margins improved from negative five 5% in the second quarter of 2021 to negative four 6% in the second quarter of 2022.
This represents an improvement of 90 basis points year on year.
We also reported strong improvements in group adjusted EBITDA margins of 136 basis points from the prior quarter.
Our regional corporate costs for the second quarter of 2022 was relatively flat quarter on quarter at $214 million.
While as a percentage of GMB.
Clients at four 2% from four 4% in the last quarter and five 2% in the second quarter last year.
I want to assure you that we are very focused on our overall cost management and on driving greater internal efficiencies in the first half of 2022, we initiated a number of actions to reduce fixed costs in our core segments and to be more strategic now incentives in.
The second quarter, we took actions to exit our dark store presence in some countries, while deepening our focus on platform transactions in our financial services segment.
And on a regional costs, we have slowed down our pace of hiring we've streamlined certain functions and we've reduced the overhead expenditure.
As a management team, we are focused on spending wisely and continually reinforcing our lean cost culture without compromising our focus on driving sustainable growth, we are striving to accelerate our path to profitability.
For the second half of 2022, we're expecting to drive a sequential improvement in that.
Adjusted EBITDA compared to the first half of this year.
As for our ISR is loss, we reported a second quarter loss for the period of $572 million representing.
Representing a 29% improvement from a loss of $801 million in the prior year period.
The improvement was primarily due to the elimination of noncash interest expense of <unk> convertible redeemable preference shares which was no longer incurred when we became a public company.
I do also want to point out that our <unk> loss of $572 million includes $317 million with a noncash expenses below outlet just the EBITDA line.
Of this $173 million.
From the revaluation of grips equity investments, which are mark to market each quarter and also a $111 million from stock based compensation.
Turning to our balance sheet.
Our liquidity and cash position continues to be strong and robust.
We ended the second quarter with $7 7 billion of gross cash liquidity, including our one $8 billion of Tim loan B facility.
Our cash liquidity declined by $476 million from the end of the first quarter of 2022.
Predominantly attributed to net EBITDA losses for the second quarter and also the repayment of borrowings and interest payments.
Our net cash liquidity was $5 6 billion as of the end of the second quarter.
We will maintain a prudent stance in how we allocate and deploy our capital.
Cash preservation is top of mind and as I mentioned at the previous earnings the strength of our balance sheet is not something that we take for granted.
As we look ahead to the third quarter and the rest of year for the third quarter, we expect deliveries GMB of $2 4 billion to $2 5 billion.
Good quarter mobility, <unk>, a $1 5 billion to $1 $1 billion and financial services PPV of $3 8 billion to $3 9 billion.
We expect to see continued improvement in the mobility segment with a normalization of ride hailing demand as economies reopen.
Segment margins for mobility have recovered back that 4% as of the second quarter and we will aim to maintain margins at these levels, which is in line with our steady state assumptions.
In deliveries, we have baked in the FX impact into our GMB growth estimates for the rest of the year.
We expect demand levels to remain fib, but year on year GMB growth rates to moderate from prior quarters as restrictions on dining out remain relaxed and as we focus on driving high quality GMP transactions.
We expect our incentive levels to continue to taper down as we accelerate our path to profitability.
We are updating and bringing forward our profitability timeline for deliveries.
We now expect food delivery segment, adjusted EBITDA to breakeven by the first quarter of 2023.
And our overall deliveries segment to breakeven by the second quarter of 2023.
This revised outlook is one and two quarters earlier, respectively than previously announced.
For financial services, we will also aim to optimize our cost base as we prepare for our DG bank launches.
We will continue to deepen our focus on platform transactions and drive ecosystem benefits by growing partner lending and also partner insurance products.
We believe this can enable us to grow in a sustainable manner and improve segment margins.
Looking at the full year of 2022, we have confidence that revenue can come in at the upper end of our initial guidance range to be between $125 billion to $1 3 billion.
As we focus on optimizing our incentive spend.
We also expect to drive a sequential quarter on quarter improvement in adjusted EBITDA in the second half.
Our efforts to streamline our fixed costs.
Chris on product innovation to reduce our cost to serve and also improve ecosystem engagement will enable us to improve and also accelerate our profitability profile in terms of our group adjusted EBITDA.
Finally, we have revised our GMB growth year over year estimates to be between 21% to 25% year on year.
On a constant currency basis, GMB growth estimates would be 25% to 29% year on year.
This compares to our previous growth estimate, which was 30% to 35% year on year.
As I mentioned earlier, we have baked in foreign exchange impact and we do expect a moderation in growth rates, particularly for deliveries on the back of normalization of demand from dining out trends and from our focus to drive high quality GMP transactions to spur our path to profitability.
<unk>.
Nonetheless, we remain confident on the longer term outlook and deliveries and we will continue to be focused on building, a rich and diversified deliveries ecosystem anchored on product innovation and also delighting our consumers.
In conclusion, and C&I are continually inspired by our team.
And what they've been able to achieve in the first half of this year, we want to thank <unk> for their hard work in making these results possible and we want to express our deep appreciation for our driver and merchant partners, who make up platform what it is.
As Anthony has said we are very focused on accelerating our path to profitability.
While there is still a lot of work ahead of US we are confident that our strong balance sheet.
Cost discipline and strategies will enable us to grow our segments sustainably in order to capture the opportunities ahead and tackle the challenges that come our way.
We also look forward to sharing more details on our strategy and outlook at our Investor day on 27th of September .
You very much for your time, and we will now open up the call to questions.
Ladies and gentlemen, we will now start the question and answer portion of the call joining us for our question and answer session will be Anthony Chan Chief Executive Officer Peter.
Chief Financial Officer and Alex.
Hum.
Chief Finance, Chief operating Officer, and as a reminder to ask a question. Please press star one on your telephone and we ask that you. Please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.
Our first question comes from Teng <unk>.
New icon with Goldman Sachs. Your line is open.
Thank you very much for the opportunity and congratulations on strong set of results.
So question from me Firstly on your guidance.
Are you, bringing <unk> guidance.
Your low end revenue guidance higher how do we push that got you.
And I'm sure you will find a change I think you make and what do you currently see in the market any color about current industry competitive landscape would be helpful. Secondly around <unk> margins strong performance here can you comment on the driver supply issue that they seem to have in the earlier part of the year.
Do you still see any lasting impact scale, specifically why is the basis for your partner, but excess income clip Macau until my SMP down that here as well.
So are we at a steady state now overall. It also appears that you are already reaching a market where you previously guided as long term market. So definitely nomo upside. Thank you Andy if that's going to maintain your current markets.
I think I'll take this funds Peter I'll be here. Thanks for the question, let me address the first one.
Round guidance.
Yes, we did we are lowering our guidance. So let me just kind of break it down a little bit for you as to what's driving that we talked a lot about FX.
In my remarks earlier, so there is some FX component that's been baked in there.
So as we look out ahead in terms of what's happening in South East Asia macro wise.
Taking into account some moderation on our deliveries growth.
Human behavior.
It is natural for them to actually dine out more with the economies reopening here.
South East Asia, and I would say the third piece is we're focusing a lot more also on high quality GMB users into our top of the final also.
That would be focusing since the beginning of this year, we're going to continue to focus that so all of those elements. If you bring it together has some impact.
In terms of how we think about <unk>.
<unk> for the rest of this year, but if you look at our revenue revenue as I mentioned, we are continuing to be very confident and we've actually tightened the revenue guidance and where we're looking at coming in at the higher end of the range between 125 to $1 $3 billion.
In terms of when you ask a question around is there anything macro related in terms of what we're seeing some inflation, we're not seeing that we're not seeing that.
In southeast Asia as yet.
We're quite bullish in terms of where the expectation is for <unk> across all our business lines.
The second question is around mobility.
Yes, we are at 12%.
And.
Kudos to our teams for getting to that through a second in the second quarter a lot earlier than we had anticipated. It is a steady state as we mentioned previously in our guidance and where they are we maintaining this 12% outlook itself. There's been a ton of work behind the scenes in terms of getting to that margin state.
We've worked very hard in getting drivers back into our platform and I'll ask Anthony to speak a little bit about that how we're doing on the drivers side getting it back and Thats reflective in your question around base incentives versus excess incentives.
We are focusing to get drivers back throughout the platform itself.
And we still have work to do on that front, but we're making very good strides there and on consumer incentives as you can tell we have been bringing that down also at the same time. So again part of that is improving our unit economics, all mobility business, improving our margin and we're very happy that we're at that steady state. So I'll go to Anthony just to speak a little bit more about that.
Driver supply.
Thanks, So much bang on driver supply, we added more than 50000 drivers in the quarter and we are actually getting much better at managing the demand and supply dynamics because of all the platform innovations we've met we've made.
We actually see fulfillment rates trend higher than your pre COVID-19 levels.
And we match suite as we improve these fulfillment rates and onboard more drivers as Peter said, we actually drove down our incentives at the same time, how do we do this we do this by focusing on a much more efficient onboarding process.
Harnessing all platform to allow drivers to fulfill more trips and maximize our earnings potential. So just to give you a sense the second quarter average driver average driver earnings.
Our <unk> was up by 12% quarter on quarter, and 31% year over year. So we're going to continue to add drivers, we're getting better at managing demand and supply on our platform just true constant product innovation.
Thank you.
Thanks Pang operator next question please.
Our next question comes from Mark Mahaney with Evercore ISI. Your line is open.
Okay. Thank you could you talk a little bit more about the path to reducing incentives going forwards and maybe a little bit more on what's allowing you to do that is that there's just less competitive intensity have you reached enough scale and the operational metrics are good enough.
The drivers.
And providers suppliers, whatever don't need as much incentives as they do in the past you just spend a little bit more on whether it's competitive structural or scale factors that are allowing those incentives to come down continue to come down.
Then could you also just talk about this kind of low quality GMP, how big is that.
Deliveries segment and it sounded like you were talking about lower quality consumers. So maybe just a little bit more of an explanation of what's a lower quality.
<unk> consumer versus one that's higher quality. Thank you.
Sure Mark let me address the incentives.
Firstly, and I will get to on the quality of GMB segment, how we're thinking about it.
So on the incentives you're right, we're bringing we've been bringing our incentives down.
In this quarter here in the second quarter, our incentives was 10, 3% as a percentage of <unk> and that's down from 11, 6% from the previous quarter.
And if you look at the fourth quarter was 13% so we've come a long way.
Close to 300 basis points as a percentage of GMB improving our incentives.
Whats whats, causing what's driving that also is just we're getting better at a mark to be honest with you. We're actually looking at the platform as a whole, we're making product enhancements as a whole also at the same time and structurally also the market is rationalizing at the same time. So it's all of those building blocks, that's coming together this making out.
Incentive spend a lot more efficient also and also enables us to bring continue to bring it down in the second quarter and will continue to bring it down also.
In the second half of this year.
Now in terms of as you ask the question about GMB.
How do we think quality users, how we're thinking about it is and.
And it's something also that we've been working.
From the beginning of this year, it's all about targeting the right user base into our top of the funnel and what I mean by high quality GMP use as we're targeting users who are less sensitive to incentives it ties back to our earlier earlier question about incentives and why that's important to us Mark.
Because we see opportunities for more ability to cross sell those users. The data shows that the users. They were able to cross sell has higher retention and highest spin and if you look at the second quarter, 62% of our users use two or more offerings and thats up from <unk>.
56%.
At the end of last year, So we're continuing to drive more cross selling and those users that we are targeting.
A lot more there.
Lifetime value is extending higher so that's why we are very very specific in targeting those users. We wanted to drive greater engagement and part of that actually Mark is the grab unlimited, which is a subscription product also that we are beginning to pilot also it's housing together with those user base.
Okay. Thank you Peter.
Thanks Mark.
Thank you and our next question comes from Alicia Yap with Citi. Your line is open.
Thank you hi, good evening management, thanks for taking our questions.
My question is on <unk> berries, so could management share with us specifically, which countries that you are seeing.
Significant slowdown the user posting economy will be opening and among the flip illegally and grocery delivery.
So if the demand for grocery declined more or is it mainly come from <unk> and kind of within the flip delivery. So do you have like color or detail on what type of restaurant or what kind of crossing that yes.
Pat.
And then my second question is a follow up on the <unk>.
Full year G&A guidance.
Addition to the slow deliveries GSD any business.
Also.
Load growth. Thank you.
Thanks Alicia.
Ill talk.
A bit more about deliveries.
Especially on growth.
I won't go into specific cuisine types, but.
I'll just share.
What we are seeing a slowing of growth trends and consumer behavior as dining out is taking place and we actually anticipate.
Some softening of the food delivery demand.
And Thats why we lowered our <unk> estimates $2, 25% to 29% on a constant currency basis.
Now.
We are optimistic on the long term potential of our diversified deliveries business given the huge market opportunity.
Relative use of our grocery segment. If you look just as an example, our mod business is only about two years old and Mark.
<unk> grew close to 200% year on year.
More about the consumer behavior changes.
How do we think about it is what levers do we have we didnt deliveries to meet these user needs. One lever we have been thinking about and we've been acting on is just diversification for example customers wanted to save money.
By not only ordering food delivery.
Just show a preference to order groceries to cook for themselves and we have that on our platform. We are also actually introduce differentiated delivery time windows to let users choose a time that has a cheaper delivery fee when we have cheaper off peak supply.
So we are seeing this despite of the headwinds.
Optimistic on the long term opportunities in the delivery space and we will continue to invest and innovate on our product offerings to adapt to these consumer preferences.
And paying on your question around.
The guidance for the GMB you asked specifically around.
<unk>.
Switching.
Frances.
And finally on your question around.
The guidance for GMB, you asked specifically around.
<unk>.
Switch segments actually if you look at it if you step back the <unk>.
Ability segment is.
Is going very strong and as the economy has been reopening in South East Asia. You saw that we grew 50% year on year on an <unk> basis.
And we're seeing organic demand.
Continuing to be very strong. So we feel we feel very bullish on mobility. If you look at it we're only at 67% pre COVID-19 levels for mobility. So we still have some ways to go there if order rates are up close to about 9% now also as.
As a percentage of GMB. So we still have a lot of room headroom for growth. There. So we're pretty strong there we said probably deliveries Anthony just mentioned.
Tied to just the behavior of consumers, but also within all of this we've got FX that we baked in also.
<unk> been taking a more conservative stance on the FX side.
Thank you.
Our next question comes from Mark Goodridge with Morgan Stanley . Your line is open.
Thanks, guys.
Questions from me first one just on the crop unlimited subscription product, although ultimately quite interesting could you give us a bit more detail specifically what percentage of GNP is currently and also can you share a little bit more what evidence do you guys.
<unk> really seen that customers are ready to take up these subscription products, particularly in the markets like Indonesia and Vietnam.
I know you did mentioned that increasing order frequency, maybe you can give us a bit more detail on the percentage changes or something of that order frequency.
Helpful.
Second question on your capital allocation priority.
So when we have a look at your balance sheet, you guys highlighted almost $8 billion of cash liquidity can.
Can you give us a little bit of understanding all the priorities over the next couple of years.
Clearly funding losses is going to be number one you need some capital there, we'll get banking licenses I know in the past you've mentioned potential industry consolidation of deliveries can you sort of run us through what are the capital priorities I think the next couple of years. Thank you.
Hey, Thanks, Mark I'll take the draw by unlimited question.
We're actually very excited about grab unlimited because it's unique it offers.
Users ecosystem wide benefits for a subscription fee.
It's still in pilot phase.
Right now its rolled out in five of our eight markets.
So on subscriptions, we actually see.
That.
It should be viewed as.
A profit per user play and not a profit per auto play because grandma unlimited is useful in driving user stickiness.
Been useful in driving retention order frequency and larger basket sizes in our platform.
And as you know is the commissions business.
We have larger basket sizes, it translates into higher commissions that we are able to generate in.
In Q2, the average number of transactions by grab unlimited subscribers was more than double that of non subscribers in food delivery and mobility. So we are excited about the potential of Garmin Ltd. We believe it strengthens our sue Brown moat and will become a key differentiator for us from one online food delivery a mobility company.
Yes.
Hey, Mark I'll take the capital allocation question.
Yes, we do have a lot of cash in the balance sheet, but like I said in my <unk>.
Prepared remarks, where you don't take that for granted so we're going to be.
Very careful how we deploy our capital.
And cash is king and cash preservation is very much top of mind for us. So in terms of how do we think over the next couple of years.
Definitely al did your bank is important for us and we're about to launch.
In Singapore for example, we've got Malaysia, and Indonesia ahead of US. So it's important for US we continue to make sure we have enough resource there in allocated capital wise for the DG banks.
In terms of also our lending business you have heard from Anthony our lending business is scaling up.
And we've washing out obviously the credit risk also profile on those and it's been very very encouraging for us our NPL is very low single digit.
We're taking more of a cautious also prospective in terms of how we lend hence why we love lending to our drivers we love lending to our merchants with lovely anytime very own ecosystem, because the risk is much lower and we usually equity to do that.
Out of that as we continue to scale that also there are opportunities for us to look at outside about our own balance sheet and then third I would say we need to continue to invest in R&D. We continued focused on product innovation continue to also look at the opportunity in southeast Asia is still an untapped market and we know that there are still opportunities where there is.
Across all our core segments of our business. So we'll continue to double down on that part also but doing it very cautiously also at the same time.
Thanks, guys very helpful.
Thanks Mark.
Our next question comes from the New Gopal Ravi with Bernstein. Your line is open.
Hi, Thanks, a lot for the opportunity.
My first question is on ride hailing.
We are clearly seeing an improving momentum in the business. We are still at 65% of pre COVID-19 levels that you had mentioned.
Your next quarter guidance with Q3, Youre looking at almost a similar number compared to Q4 of course, some modest growth.
So is it like.
Ah seasonality element to Q3 versus Q2 or is it more like kinds of retail sort of a number that you are heading towards the.
Do you have sort of given or is it more driven by the <unk>.
<unk> supply, which you don't want to accelerate that quickly given that you are still focusing on profitability.
Sure Yeah, no there's still a lot of upside in mobility.
We did bake in FX.
Into into our forecasts out there taking a more conservative stand out there.
Driver supply is coming back so we're continuing to to make sure that the marketplace that the demand and supply.
Getting calibrated.
But we're very very we're very bullish in terms of where mobility is heading and theres still a lot of headroom for growth.
Got it.
The second thing is that.
Help us an EBITDA <unk> is of course of.
Something that you had guided for that to go to sort of hit in the second half you've done that in second quarter for ride hailing.
For delivery as well this pretty substantial improvements in it with the dnb even sequentially.
So at the same time.
Continuing to intend to reduce incentives.
And improve or reduce losses overall from an EBITDA point of view now what I wanted to understand is that incrementally.
Not a lot of EBITDA improvements come from overhead moderation or does it have very sticky number that overhead not necessarily decline in an absolute basis, <unk> investments, especially in focus towards expansion on the <unk>.
<unk> site so.
Perhaps had been certain elements of costs that sit there as well.
Yes.
We're going to continue to focus on the overhead and I'm going to refer to regional cost specifically here you've seen a regional costs come down on the quarter you saw.
So that our regional cost.
Went down from four 4% last quarter down to four 2% and it's actually about 100 basis points improvement on a year over year basis. So we're chopping away at it and we're making good good progress there is still work to be done.
On that front for sure the mobility margin of the 12%, we're continuing that will.
We're continuing to maintain that steady state.
And as we look at other levers that we have in our business today to improve the profitability path we have.
Got also other discretionary spend that we're looking at or any incentives is a key component of that we're continuing to be very disciplined in terms of how we're deploying our capital towards incentives.
Step that you have seen that also theyre coming down quarter on quarter, and we'll continue to watch that at the same time also we're very cognizant that.
We have a very strong market leadership also out there and we'll continue to make sure. That's also being maintained at the same time.
Thanks, a lot.
Thanks Vanessa.
Our next question comes from <unk>.
<unk> salary.
He with HSBC. Your line is open your line is open.
Hi, good evening.
Congrats on the good set of numbers two questions.
Firstly can you share a talk about what prompted you to exit the deal.
Store operations, and some upward with Merrill Lynch.
What were the key learnings.
For the company from a picking these dark stores.
And secondly on the financial services could you talk a little bit about the profitability a bit.
That thing is going forward given the headwind to launch the bank in Singapore, and Malaysia, and Indonesia, and any kind of midterm or long term EBITDA breakeven targets that you can share for our financing services.
Thanks.
Hi, Piyush this is Alex <unk> on.
On your first question on dark stores.
We realize that the customer experience of receiving groceries is a really key thing for us to drive, but we realize also that we can drive some of that through partnerships in certain markets and of course in the case of Malaysia through owning a grocer jaya growth directly.
The reason for this is because the infrastructure the supply chain and the points of presence around the cities.
Already there for the partners and for our own Jaya grocery stores as well and we believe this is a better cost structure for delivering one P grocers in the longer run.
There are some players out there who are building networks, but from our experience. We took the decision that we thought that the existing infrastructure leveraged through great store technology with a better bet.
That's a formula for long term cost leadership.
Yeah.
On financial services, we are creating value from on our own platform payments and lending.
And we want to continue to grow that what we're finding though is the off platform is dragging down the results and you can see some of that in the second quarter numbers. So going forward. We are actually we are actually.
Going through all those off platform transactions and trying to bring them in neutral or better transaction economics, but if we can't do those then we will we will actually end up.
Limiting the off platform and just growing those areas on platform, where we know we can create value.
Clearly the reason we can create value it's because we've got the lowest possible distribution costs. We've got an exceptional data advantage for our credit models, where we have seen from our history of <unk>.
More than a year that we can outperform without credit models and of course, we also thirdly collections advantage, where we're lending to tax and mix who are getting income from our platform.
So we believe that those advantages also can be extended to the digital bank and the digital banks of course has the key advantage of being able to gather deposits as well and therefore, reducing cost of funds. So it's a very it's a very similar strategy for our existing nonbank financial operations as we will have for a future banking operations that means that.
We can maximize the relationship with the customer we can maximize the trust of the customer hasn't grabbed and hopefully that will drive us to having a quicker breakeven and return from those that you bank build outs than others, who are starting without any ecosystem to work with.
In terms of more details I'm not going to share those with you today, but as Anthony mentioned earlier, we will be actually having an investor day, where we hope to give you a few more details in terms of the strategy for financial services overall I hope you can join us for that.
Thanks, Alex.
Great.
Our next question comes from Marvin Killer with UBS. Your line is open.
Hi, Thank you for the opportunity and congrats on the strong results.
I actually had a couple of questions. So firstly I know you talked about the regional headquarter costs a little bit.
The growth rate I am looking at it more from an absolute perspective, rather than as a percentage of <unk>.
But the growth rates have come down quite a bit compared to 20 plus percent to I think high single digit. This quarter can you talk a little bit about some of the initiatives that we're taking to drive these growth rates lower.
And is that how we should look at the trajectory of these costs going forward.
And then secondly, within the delivery segment in trying to understand.
Both the weakness in second quarter kind of a lower guidance for the third quarter I'm, just trying to understand whether your dark store shutdowns would be a driver of that so just trying to understand like.
Food delivery versus gross see what.
The trajectory will be different and within food delivery.
If I were to understand.
No.
<unk> versus number of orders.
Where are you seeing the pressure points in terms of thinking about I guess.
Total going forward.
Sure. So let me take the first one on regional cost first so in terms of growth rates for our regional cost.
We're continuing to.
Chop away at this.
Both on an absolute as well as on a percentage of GMB.
I outline a few things that we're working through.
<unk>, we've slowed down the pace of hiring for example.
We've continued to streamline certain functions.
Within within our corporate structure.
We're continuing also to look at other non head count related costs within the business also there's been a ton of work there.
That's going on at the moment so.
We're looking at all our cost optimization opportunities in the business.
And we still have some ways to go on that front, but we're making since the beginning of this year, we're making some good progress on that front.
So you're saying you're going to see a continuing trend as I mentioned earlier.
In my prepared remarks part of this is is seeing also sequential improvement.
EBITDA from Q2 onwards.
Our rent deliveries.
And actually we saw strong deliveries growth on a quarter on quarter.
There are some seasonality that you need to bake in also we have Ramadan in the second quarter and also FX that kicked some FX headwinds that kicked in.
In the second quarter also and also we as we are continuing to focus on the high quality users on the top of the funnel also.
That has some impact so baking in all of those elements.
We are continuing to guide our deliveries business.
<unk> for the second half to be moderated at the same time also we're continuing to.
Pushed the unit economics of that business I am continuing and part of that you saw that we brought forward by two quarters. The deliveries positive profitability now the dark stores shutdown component.
Not reflected in the second quarter a lot of that was done at the back end of the second quarter. So youll see some of that coming through.
In the second half of this year.
Thank you.
Thanks <unk> bin.
And our last question comes from Thomas Chong with Jefferies. Your line is open.
Hi, Thanks management for taking my questions I have one strategic question that while it is still.
I've got some more color about the past.
But management.
Just about the fed ends up between.
Growth and profitability.
Given that we are seeing.
Our macro business, we are focusing more on the profitability side.
We do use that incentive.
However, as the macro the corpus.
How should we think about our strategies.
Looking into <unk>.
As profitability and also our market share. Thank you.
Thanks, So much Thomas really appreciate the question.
It comes to profitability versus growth.
So in the quarter is that we actually can manage to grow sustainably.
We grew our top line, while improving some of our key profitability metrics and Peter talked about it right. Jimmy went up by 34% revenues went up by 85% on a constant currency basis, while we improve EBITDA margins.
So looking ahead, we'll.
Our focus on increasing high quality transactions.
So that we can drive growth sustainably what does this mean, we'll focus on profitable loyal customers with higher net average order value transactions, who orders with better unit economics and high order frequencies.
How do we do this.
Just doubling down on product innovation.
To engage consumers and reduce our cost to serve.
Ill give you. An example, the rollout of a feature we've talked about this that reduces wait time for drivers add much and when they collect food and we estimate that this feature continues to deliver.
Time save of about 12 million minutes, while our drivers compared to February .
And then just another quick one is we increased the number of batch orders in a quarter with a number of batch orders rising by 71% and a border compared to Q2 2021.
We are focused on driving growth and a sustainable profitable manner, and we will do this via product innovations to reduce our cost to serve and increase engagement for our profitable use us.
Thank you.
Thank you. This concludes our question and answer session I would like to turn the conference back over to Peter for any closing remarks.
Sure I. Thank you everyone for taking the time to join our call today.
Do you have any questions just feel free to reach out to our investor relations team or visit our Investor Relations website. Thanks.
Thanks, again, everyone and we look forward to seeing you at our Investor Day, which is September patients team or visit our investor relations. Thanks, everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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