Chit Chat Stocks - Grab Holdings: The Super App Dominating Southeast Asia (Ticker: GRAB)

Episode Date: July 16, 2025

On this episode of Chit Chat Stocks, Ryan gives a research report on Grab Holdings (Ticker: GRAB), the Uber and DoorDash (and more?) of Southeast Asia. We discuss: (02:20) The Birth of a Super App (09:23) Grab's Business Model Evolution (23:40) Expanding Services: Delivery and Beyond (30:59) Financial Services: A New Frontier (34:10) Growth and Risks of GXS Bank's Loan Portfolio (36:41) Challenges of Analyzing New Banks (39:19) Is Grab Trying to Do Too Much? (41:58) Competition Landscape: Grab vs. Uber (46:20) Grab's Market Position and Financial Services (49:34) Valuation Insights and Financial Projections (59:23) Management Evaluation and Future Outlook ***************************************************** JOIN OUR NEWSLETTER AND FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by TSOH Investing Research. Long-term equity research with 100% portfolio transparency.  Subscribe Today: https://thescienceofhitting.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome to Chitchat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. welcome to another edition of the chit chat stocks podcast my name is brett schaefer and as always joined by ryan henderson today we have an episode covering a stock research report a company that is known by i think a subset of the investment community but given that it operates in southeast Asia. It's not known as well among the entire, I guess, US or European investor community.

And that is Grab Holdings. Ryan did a research report on this one. So I'm going to lead him through the episode, let him go through his notes, what he uncovered on this stock and how the business works, its history, and then we'll get to any conclusions and whether he's thinking of buying, what the valuation looks like, all that good stuff. We're going to do a comprehensive report throughout this podcast episode and if you want the written notes subscribe to our newsletter on substack chit chat stocks so ryan grab holdings as you have in the title here the super app dominating or we may or may not use that word but the super app dominating southeast asia how did grab get started yeah grab really has become

what i would call a super app they have more than 40 million monthly transacting users i think it's more than 100 million annually and they operate in eight different countries they are the leading market share provider in most of those countries for their core operations they were the first ever decacorn so i believe that's 10 billion dollar private valuation out of southeast asia and they are one of the largest companies in the region by market cap today. We're going to look at how they got here, like you just mentioned, and then hopefully I can give some thoughts on whether or not I think their ascent can continue. But Grab was conceived in 2012 by Anthony Tan and Tan Hui Ling for a startup competition at Harvard Business School. So both Anthony Tan

and Tan Hui Ling. They were from Malaysia. They connected early on in their time as undergrads at Harvard. Both are actually still a part of the company today. Anthony Tan is the CEO and Tan Hui Ling, not sure on her exact title, but she's still a pretty big shareholder. And Anthony grew up as the youngest of three sons in one of Malaysia's wealthiest families. So his grandfather founded Tanchong Motor, which is apparently a huge multinational auto distributor. So the plan was he would go off to Harvard Business School and come back and work for the family company. He was going to be rich no matter what. So there wasn't this driving financial motivation like he needed to get out of existing circumstances or anything like

that but and he talked he actually talks pretty openly about this because he's like he calls himself a rebel without a cause like there wasn't this dire need to become wealthy but my guess is that he wanted to establish something of his own and he actually talks a lot about like parents in malaysian culture are like constantly sort of like unapproving of like new ventures and new And he was telling his dad who was running Tanchong Motor about this idea that he was after. And his dad was like, yeah, good luck with that. But I don't want you to bother me with this idea anymore. Obviously, it's been a huge success since. So kudos to him, I guess. But anyways, Anthony had attended some conference while studying at Harvard that made him think about the potential that ride-hailing services could have in Southeast Asia. This was 2010 to 2012 time period. So I believe Uber had just kind of launched, if I'm not mistaken.

I think that was like 2008 was Uber's launch. Brett, maybe you can fact check me there. It would have been later. I believe 2011 when this – because the App Store would have had to have been up and running. That's right. More popular on iPhones. Anyway, he attended some conference where it sparked the idea of ride-hailing potential initially in North America, but he thought it could be applied to Southeast Asia as well. And he and Tanhui Ling talked about the idea frequently.

And apparently, one of the biggest issues at the time with the taxi system in Southeast Asia was actually safety, particularly for women. So I think listeners and readers can probably imagine the types of issues that happened here. And in fact, it was such a big problem. Tan Hui Ling, who is female, she shares this story where she was working for McKinsey in Malaysia. She would have some late nights. She would take a late night taxi ride home and she recalls having to pretend to be on the phone the whole time just so drivers knew that she could report issues immediately if they decided not to take her where she was supposed to go or whatever. So they knew there had to be a better system for this. So the idea they conceived was called MyTeksi, T-E-K-S-I. It's changed over time, but that was the Malaysian pronunciation for it. And this was a novel concept in Malaysia at the time. It was a mobile app with GPS enhancements that connected passengers with nearby taxis.

The big unlock here for women especially was that the trip was being tracked by GPS, which made them feel much safer. this concept won first runner-up at the Harvard Business School Startup Competition and they received $25,000 as seed funding to help start the business. So the value proposition from the consumer's perspective was obvious, right? You were getting rides on demand that were much safer. And it obviously meant that a lot of people were interested in the app from the consumer side, but the hard part was getting taxi drivers on board. So I thought this was actually an interesting snippet from an interview with Anthony Tan. The interview says, to get drivers on board in the early days, Tan was on the ground traveling across Southeast Asia,

trying to convince taxi workers to drive grab. Tan noticed that before starting their shift in the morning, drivers in Ho Chi Minh City, Vietnam would stop at a gas station to drink coffee. So he would show up at around 4 a.m. to give out free coffee to the taxi drivers, which is also when he pitched them to join Grab. Nice little hustle story from a CEO in the early days. But that was the expansion model. Get taxi drivers to put themselves up on mytaxi.com. They didn't have to be exclusive with MyTaxi or anything like that, but it allowed them to get greater supply of rides because people were looking for them and people were more confident in it as well so they they really boosted supply for them they were early to the business model

in southeast asia so this really helped with adoption which in turn helped with funding and all in all they have now raised 27 different funding rounds including a series h that might be the highest I've ever seen. Yeah, it could be a record there. They were a Silicon Valley favorite, raising money from some of the large funds, some of the crossover funds that take people into public markets, as we saw with the history of Uber and the competition there. It was a very cutthroat industry at the start. But, and we'll get through some of the competitive dynamics today later, let's go through what the business looks like today. You called it a super app or a budding super app they're trying to do a lot of things for southeast asian consumers

what are these segments what matters and what are their growth trajectories like yeah let me be the first to say i was skeptical coming into the research for this because Because they went public via SPAC, which has kind of become a dirty word. They raised 27 private rounds. Well, actually, the 27 rounds includes their SPAC. But some of these heavily funded private companies tend to attract customers at whatever cost attitude, which I don't always resonate with as a public market investor. but today the business model has really evolved and the management team seems to have the right focus in terms of long-term metrics that matter. But let's go through the business model a little

bit more on the history real quick. In 2013, MyTaxi rebranded to GrabTaxi and in 2016, they shortened the name to just Grab. The shift away from GrabTaxi to Grab was primarily not because they were offering other services, but the types of vehicles that were being offered on Grab were changing. So when it was Grab taxi, it was like you were getting a taxi. When they finally shifted to Grab, there was motorcycles, there were private cars that weren't associated with any sort of taxi organization. There were carpools. It was really evolving to a lot of different ride types so they decided to shift to grab today those vehicles the motorcycles private cars even taxis are still a core component of grabs mobility segment but the business has diversified into

other services which we're going to talk about today you can genuinely think of grab as a combination of uber doordash and instacart in one app and that's i'm leaving their financial services segment out of it because there's like a million analogies you could have thrown in there. But for the core mobility and delivery services, you can think of it as Uber and DoorDash and Instacart for the Southeast Asian market. And I break the business into three segments. There's mobility. Well, I don't break it. The management team breaks into three segments. There's mobility, deliveries, and financial services. I'm going to kick things off with mobility. This is their largest contributor to earnings. And it's very comparable to Uber in

terms of how the app functions. So this isn't some novel concept. It's pretty easy to explain. There's this massive supply of drivers in each market, more than 5 million driver partners in total. In a couple of their markets, they are the largest employer. And they single-handedly impacted the employment rate in some of these countries or the unemployment rate and users can select from a variety of on-demand ride types so there's grab car grab car excel there's you know think of your experience on uber it's very similar uh there's grab taxi which is like metered pricing but there's also the grab bike which is very popular as a mode of transportation in southeast asia so it's kind of good that they got to that early and it's for anyone that's

really curious on how this works in say poor areas of the world you can literally buy a taxi where you just hop on the back of a moped for about 50 cents so not sure that right it's the safest mode of transportation but it is an option out there that is quite popular right and it's It's – yeah, it seems like a funny thing for people in North America, myself included, to just hop on the back of a bike. But when you're weaving through busy cities and you don't have that far to go, but you would prefer a bike ride as opposed to walking, it can be kind of a quicker form of transportation. One big distinction though between Grab and Southeast Asia broadly versus their North American counterparts like Uber is that Grab's driver partners, it's really common for them to actually rent or buy a vehicle from Grab. So this is an option in America, but that's not usually what you experience. Usually when you get an Uber in the United States, it's someone's personal car. They own it, they insure it, they take care of it, and they use it for ride sharing. This leads to a pretty wide variety of car models that a rider will experience.

So, I mean, you see it all the time. You book an Uber, it could be any, really could be any car. And lately it feels like the quality of those cars has been a little poor, but that's kind of a personal gripe for me. For Grab, depending on the particular market, they actually have pretty strong control over the vehicle fleet. So Grab partners with auto companies like BYD, Hyundai, and others, and either buys or leases a fleet of vehicles that they then rent out or even sell to partners. So right now, they're really promoting electric vehicles, and you see them talk about this all the time on their conference calls.

Electric vehicles in particular has a couple of benefits for Grab. One, EVs are cheaper, and it actually becomes a revenue driver for them. So when the vehicle is a part of the, quote, Grab fleet, Grab is actually the ones often paying for the charging and the maintenance of the vehicle. And to kind of save some costs here, they have massive commercial charging partnerships. They offer vehicles that are the same. Their fleet is typically vehicles that are the same make model. So servicing them is easier and cheaper. And they can price this into the drivers who are renting from them.

And it allows driver supply to grow really quickly because by offering the vehicles, drivers have less upfront costs to get started, which means Grab can get more supply, more supply means lower prices, lower prices means more rides and so on. So it's kind of this nice feedback loop. Basically, it's allowing people that wouldn't become drivers to make this one of, if not their biggest gig work or their biggest sort of employment service. And by controlling the fleet, there's actually a lot Grab can do to improve drive – ride volumes and margins. So they have a lot of margin control by these partnerships with different automakers and vehicle makers. And you see this actually pretty common apparently where individuals will take out a loan from Grab – and this kind of leads into the financial services segment. They'll take out a loan for a bike from Grab. Once they're paying that off, they'll get two more bikes from Grab. They'll give them to two of their friends and have them start driving and paying them off, if that makes sense. People are building businesses around this by renting or taking out loans for bikes from Grab.

For this segment overall, they're not some niche provider here. Grab is the clear leader in the space in Southeast Asia. They've got 97% market share in Malaysia, 91% in the Philippines, 85% in Thailand, 67% in Vietnam. Some of these numbers might be slightly outdated, but they are the leading market share provider. The only core market for them where it's still competitive is indonesia now this is the largest market in southeast asia so indonesia for reference has 275 million people all of southeast asia has about 650 million and they split the indonesian market pretty much 50 50 with a company called gojek which is ride sharing plus food delivery and the parent company is called go to and they're actually the rumors are grab is looking to acquire

go-to, the parent company here, they just raised a $1.2 billion convertible note, which does make it look like they're pulling together financing to make this deal happen. They have denied that the deal is going to happen, but it would make sense that they go after it because this would really consolidate all market share and give them tons of power in pretty much all of their markets. And they have done a similar deal to this, which I'll talk about in a second, but really they would be like the only player in town in indonesia if that were to happen to put some numbers on grabs mobility segment over the last 12 months they have generated 1.1 billion dollars in revenue i believe it's around like six or so billion in gmv gross

merchandise value uh let me double check that yeah 6.9 billion in 2024 in gmv and they've got 55% EBITDA margins from this segment. I mean, you think about, it's just a take rate, right? So the revenue is kind of misleading here, but it's basically, I believe 9% of their GMV gets converted into EBITDA dollars for that segment. So I'll leave it there. Thoughts on the mobility segment overall. Any questions, Brett? It makes sense that they're financing stuff with them. I guess that gives them a larger piece of the pie. Maybe that could lead them to some financial liabilities down the road if they're not smart about this. But they do have the balance sheet to absorb that and kind of grow with the business if maybe it doesn't seem to be a problem yet.

For anyone that understands the Uber or Lyft business, I don't think this is one that's hard to comprehend. You still have the similar take rate model. It's technically outside of that other thing they do with the financing. Pretty asset light. You just build the marketplace and get your cut, as you mentioned, 9% of GMV. My question is, do you know what the penetration is across these countries compared to the traditional taxi market? How large are the addressable markets in these nations?

Are they way behind, for example, United States or China when it comes to ride-sharing apps? Because that would give me, since it's really hard to know these lower GDP per capita countries, It's different just from where I live and where to understand how big of a potential market this is before they try to move into adjacent opportunities. per month, including initiation reports, as well as regular updates on current TSOH holdings and watch list stocks. Plus there is 100% portfolio transparency on the service. This coverage includes companies like Airbnb, Celsius, Roblox, Netflix, and many others. TSOH is a premium research service. If you're serious about investing, this is like outsourcing a professional analyst. We read his write-ups every week. And to be totally honest, I lean on him for quarterly

coverage on many of the stocks i own if you are interested head on over to the science of hitting dot com the link is in the description again that is the science of hitting dot com i don't have exact figures for uh grab versus like the taxi system but they report they've gotten to basically 44 million monthly transacting users the overall southeast asian pie is 650 million roughly It's total population. Yeah. And digital penetration overall is not as high as North America. And you actually see that sometimes.

We're going to talk about this in a second. They'll provide smartphone financing to get drivers on basically using their apps. so it's everything i've seen says that there's a lot of room to grow overall like awareness for this type of service and grow the people that are regularly on it and they've been really really pushing towards lower cost rides to make it more accessible to everyone you see this with now i think a third of their they have they offer like saver fare which is like the cheapest possible ride. And that's become now a third, I think, of their booked rides. So they talk about this, like basically we're willing to sacrifice margins in the short term to get more people

using the service. And they really, they want to be a lower cost provider. They want to lower their prices as much as they can by increasing supply so that they can get more and more people using the service. The affordability is part of what's holding them back from, I think, increasing their transacting users is just whether or not people can afford to take regular rides every day. 100%. That would be my one concern is if you're looking at, say, 40 million users across Southeast Asia, I would ask, given that, and I just kind of looked it up as we were talking here, the GDP per capita of these countries, you have Indonesia just under 5,000, Thailand, And actually, I think probably the highest at 7,000 per year.

Are there that many people over, you know, with, say, an existing Uber type service that how many people over 40 million could technically afford this on a regular basis and be a valuable customer? So I guess I understand why they're going into these areas, but doesn't mean that not everyone uses Uber or Lyft or what have you in all these markets. Let's go through some of the other services, though, what they're adding on here to try to expand their total addressable pie. And the first one you have here is delivery. Yeah, Grab Delivery is similar to DoorDash and Instacart for those in North America that use those services.

Basically, users can buy food or items from restaurants and grocery stores, and a driver will pick those items up. The market here is large. It's bigger than mobility in terms of overall GMV, as you'd probably assume. I mean, you're buying food in addition to actually delivery services. And Grab is the number one player in all of their markets except for Vietnam, where it's number two. And I think there's kind of a local company there that's done pretty well, but they're still growing share overall. and beyond just taking a cut for facilitating these transactions grab has actually become pretty involved with the merchant side of things so they offer a variety of financial services to

like when you hear them talk about the delivery segment they talk about onboarding merchants that they really want to get as many merchants on online as they can so that they can increase instead of ride supply they're increasing like the sku count the number of items on there the number of different meal types on there. And so they offer services to them. There's like working capital loans for merchants. They offer invoice financing. I think they even have a point of sales system as well. And then the other element here is they actually got into the merchant side of things themselves. So in 2021, Grab acquired Jaya Grocery, which was a large supermarket chain in Malaysia. And they've acquired some smaller chains since to help

expand jaya's footprint what do you think of this i i don't like i don't like it at all yeah initially i was yeah i was certainly suspicious looking at this early on my guess is that they did this to increase sku's available on grab like maybe they weren't getting enough merchant supply for this to really work so by buying jaya grocery which isn't like it's not some massive chain but it was like 40 plus convenience stores initially so it's not like completely affecting their business model i guess and like their financial statements aren't totally different but it did increase the number of skus and so far it seems to have worked in terms of delivery gmv can has grown at a really solid pace today they generate far more

They generate twice as much GMV from deliveries as they do from mobility, and it did not used to be the case. That wasn't the case previously. And I am pretty skeptical anytime a tech company gets into grocery, but it seems like this helped increase the amount of supply on their delivery business, especially GrabMart, which is their grocery service. It's hard to say. They say positive things about it every quarter, but yeah, I would be a little hesitant. It's nice for them to start the service this way, like increased supply. They have to do it inorganically because they weren't able to go out and get enough merchant partners in the early days. But I don't necessarily want to see them continue investing in this heavily, I guess, would be my worry. I don't want to see them become a grocery business overall. I want to see them continue to be a take rate business primarily. But so far, the results have gotten – they've gotten really good in the deliveries overall. So today, deliveries is Grab's largest segment by revenue, and they have turned the corner to profitability pretty quickly.

So in 2022, they had negative 54% EBITDA margins. Today, it's positive 14%. And long-term, management expects to convert 4% of their GMV in deliveries into EBITDA. I think right now it's at like 1.8%. 8%. Side note, advertising is a big business for them all over the place. So they have different places where they can advertise throughout the app and especially on the delivery side of things. So here's a quote from the last conference call. It says, advertising revenue as a percentage of deliveries to GMV continues to expand in the first quarter to 1.7% from 1.3% in the prior year. that's i mean that advertising revenue is very low cost so it's going to be a huge profit driver for them if they can continue to increase that and they continue to talk about basically like we're generating really good return on ads for our merchant partners which makes sense i mean

we we talked about this with instacart like if you're a grocery store you want to offload some inventory throw out some major discounts on a service provider like this like instacart or GrabMart and you're getting right in front of customers and it's really a perfect place to advertise because you know it's a captive audience. And so I suspect that advertising penetration as a percentage of GMV will continue to rise and that should help them get to that 4% target would be my guess. In these countries where there's, at least I think, no expert on it, but where there's larger levels of income inequality compared to say the United States or Western Europe, which for anyone that doesn't know, it's hugely misleading that the US has giant

income inequality, but that's besides the point. In these markets, these type of businesses, which is food and grocery delivery, can work much better because there's a lot of people that are interested and it gets them higher incomes to become drivers. And there's also a lot of people on the other side of the marketplace that can afford these services. So it seems like a promising business not surprised that it is profitable on doing well i guess instacart and doordash actually i'm not sure if doordash is profitable but it seems like they're doing almost better than some of these other ones and again it makes sense you have the you know the the huge fleet of moped drivers that can drive around to to deliver this stuff to people yeah i think generally

when you're just such a market share leader there's a lot you can do a lot of levers you can pull to a increased margins, but also be like, take margins down if you want to, to increase volume. Like we talked about the saver fares, saver fares are especially popular with deliveries. They can become in the early days. You don't want to be just, well, even though they did this, they were really subsidizing rides just to get people on the app. Now they can kind of pull that lever again and not have the concern of, okay, I'm going to lose out to competition. Like if they want to decrease prices or cut margins on certain drive or ride types, they know it's going to be likely accretive to volumes overall. Makes sense. Okay. What is the third pillar

and what are your thoughts? And this seems to be a little different than the Uber and door dashes of the world so maybe we have to go through on kind of exploring whether this is a good business model for them yeah so financial services this is there's a lot to unpack here but this was actually similar to why they started ride sharing in the first place where grab initially got into financial services for safety reasons apparently in the early days drivers were often paid in cash. And I'll also mention that overall, these are still heavily cash-based societies. I don't know the exact split, but you don't see as much card or digital payments penetration as you do in more developed or Western markets. So that might bode well for

them in terms of just an overall tailwind for financial services. But so drivers would hold a bunch of cash basically in the early days. Usually it was a day's worth of cash because they're making all these rides. They don't have time to go put it in their safe or whatever. And so this made them, as you can imagine, easy targets for theft. So Grab launched Grab Pay. I don't remember what year this was, but it allowed for cashless transactions. And this actually was sort of the spark that led them into the payments world. So while it started as a simple rider to driver payments. Grab has moved into a whole world of financial services that I'm going to talk through. I cannot go through all of these in a single hour long podcast

in any depth. So I'm going to name some of them and then we can talk about what I think is important. So Grab offers eWallet, a rewards program, GrabPayCard, BuyNowPayLater, smartphone loan financing, driver cash loans, incentives advances, merchant working capital loans, merchant invoice financing, driver insurance, consumer insurance, cash management. And now they've become like a full-blown bank, which we'll talk about in a second too. I'm probably missing something in there as well. But the three categories that I think are the most important here are payments, banking, and lending. So the payments business is fairly straightforward grab pay can either function as a prepaid wallet where you load money onto it

or just as a pass-through payment method where it's linked to like a credit or debit card they offer rewards on it too so if if you are like a regular user of grab and you constantly buy deliveries or you constantly take rides it makes sense to use grab pay for this and as you might assume grab pay just takes a small fee from each transaction and then on the banking and lending side, this is where I start to get a little hesitant. So they are turning into a full-fledged bank. In 2020, they got a digital banking license in Singapore through a partnership with Singtel. And then through that same, I think it's the joint venture, they got a banking license in Malaysia under the name GXS Bank. So far on the deposit side, things look really good.

And this quarter, they reached $1.4 billion in customer deposits, which is up from $479 million last year. So they've tripled deposits in a year, largely because they're leveraging the Grab ecosystem. And they can do high-interest cash accounts through GXS Bank, and they can promote that on Grab. And there's all the different kind of cross-sell stuff you can do with consumers. But here's where I hesitate. They have grown their total loan portfolio from $196 million to $566 million in two years. And this portfolio is full of all different types of loans. Like the ones I mentioned above, there's the smartphone financing, the merchant loans that

they provide, there's loans for motorcycles to drivers, the list goes on and on. They provide a number of different longer-term loans as well as micro loans. Now, they do give us the sort of standard context around it. So one quote from the last conference call was, we continue to maintain a prudent stance on credit risk with 90 days non-performing loans within our risk appetite. That's useless information. That's useless. Yeah, it is. It doesn't say anything. What's your credit risk appetite? Yeah.

Also, it's like – it's a lagging indicator, right? I mean when things are always – things can be good for a bank until they aren't, right? Like if you get some sort of a big recession or a really difficult interest rate environment or something drastically changes, like how do those loans perform? I really have no idea. That's where I get really cautious is new banks – and by new banks, I mean NEW, not like NewBank, the Latin American company – new banks that are growing their loan portfolio really, really quickly. it worries me because it's like how much history of underwriting do they have like how much experience in the underwriting segment do they have have they endured any sort of big uh event in the in the past to know whether or not these these loans will hold up in an adverse environment

so a it's frustrating just because i don't know what this is going to look like in five years and b analyzing a bank is very different than analyzing a tech company uh especially like a ride-sharing app it's and maybe that's why so many people just kind of have discarded grab as throwing it in the too hard pile but i just yeah it it throws a wrench in things because there's a lot of uncertainty around uh operating a new bank especially in economies we've never been to we don't know much about the consumer landscape what's going on on the ground it is one thing to invest in a bank in the united states or the country where you're from but investing in one internationally that's something that i mean i i think it banks are my favorite

type of thing to invest in even in my home market going abroad that is much tougher than analyzing oh they have a lot of users a lot of gmv they're doing advertisements and what have you that's Easy to understand and you can kind of go, oh, well, through the market cycle, that should be fine. It's an asset-light business to a point, although they're doing – buying the vehicles and buying these grocery stores, which is kind of another thing that you add in there. Now, I will – Ryan, or what do you want to add there? Sorry. I will say they maybe have a leg up relative to some other lenders in that they have clear visibility into how much some of their borrowers make, right? They can see, okay, this guy does eight rides a day at this price. Here's how much he's making.

Here's how much you could potentially pay out. I think they actually have – I'm not 100% on this, but I believe they can just deduct it from their bookings from the day. They can deduct the – they can basically make it auto payment. So if someone's got a loan out on a bike from Grab and they're doing 20 rides a day, maybe a certain percentage of that volume every day goes straight to the loan. However, that doesn't mean these loans are bulletproof. Yeah, it's just a lot of stuff. So the question is, and you wrote it in here, is Grab Holdings trying to do too much? all right folks if you are a regular listener to chit chat stocks then you know that we use

fiscal.ai formerly known as finchat daily fiscal.ai is our complete stock research terminal it's where we have our investment dashboards it's where we create financial charts it's where i read all the transcripts for conference calls sell side events shareholder meetings and it has morningstar's high quality reports on more than 1700 companies it really is the complete research platform for stock-focused investors. If you use our link, fiscal.ai.chitchat, you will automatically get two weeks of Fiscal Pro for free. And if you find that it's worth upgrading, which I think you will, you'll get 15% off any paid plans with our link. Again, that is fiscal.ai.chitchat. The link will be in the show notes. My gut says yes, they are trying to do too much.

And I'm a big believer that for public companies, focus really matters and that when a company starts to spray its people and resources across too many bets, it can lead to – I mean sometimes it can lead to degradation of the core service and it can make it even confusing for consumers. But the other concern is that it's just wasted expenses. They are not giving their all to every small bet that they have here and so a lot of them are going to end up being money losers. However, I will caveat that by mentioning that most of these bets, not all but most, are solving existing problems for their current customers. So let's take smartphone financing as an example. By helping potential drivers buy a phone, Grab is able to attract more drivers who can then offer more rides and use more Grab services such as GrabPay. And this helps also give a read to the creditworthiness of those drivers for other lending products potentially down the road. So that to me isn't them just going after a new market purely for expanding the TAM. It's just solving clear problems that help grow the rest of the Grab business. Not all of their other bets I would describe as that, but most of them feel like logical next steps. It would be one thing if they were just doing this with a banking partner, like not taking on the credit risk themselves, but they are. I mean they want to become a bank. You've seen that with their banking licenses that they've acquired.

So yes, I do feel like it's maybe taking away some focus of other services, but I haven't seen any sort of lapse in quality or performance from the other divisions. and they seem to think that they can get profitable by the second half of next year. If you're a shareholder, I think you really got to hold them to that. Yeah. And if, again, I know the Latin American market more, but if there is an opportunity to build a neobank in some of the Southeast Asian countries, maybe that is a huge market opportunity for them. The thing is, it's just risky. It's two different core competencies and they overlap a bit. But I would say more of that for the payments one. Yeah, it would be interesting if they could partner with a bank that has experience lending over long periods of time. But that leads us here

to, you talked a little bit about competition, but the competition and the overlapping stuff you're with, and the two companies that come to mind, I know you mentioned one in the title here, Uber. What happened to Uber in these places that they tried their international expansion? And how much, because I know this is a very popular stock, how much do they overlap or not with Sea Limited? Let's start with Uber. So why didn't Uber win in these markets? It wasn't for a lack of effort on Uber's part. They invested heavily to try and win in all the Southeast Asian markets, if I remember correctly. And they actually had gained pretty good traction using a similar model to what they had in North America, which was constant

customer incentives. And by 2018, Uber was operating ride-hailing services in eight different countries and they were operating Uber Eats in three of them. However, they still didn't have a dominant position in most of these markets the way that they did in North America, for example, partly because of the success of Grab, but they were in price wars. It was back to those like vc backed days where you would get like free rides from uber all the time free meals from doordash you remember those as consumers it was they were in a price war and an incentive war with grab and if you think back to that time for uber as well it was a bit of a transitional period for the company so kalanick had stepped down as ceo dara had taken over the company was uber specifically

and grab was hemorrhaging money and they were planning to go public so i think dara really wanted to clean up their financials and kind of rein in the focus but also soft bank and dd were major investors in both companies and they say they didn't have any involvement in a transaction that i'm about to talk about but i think they probably did and they didn't want these endless price wars between two of their own portfolio companies. So in March of 2018, Uber sold their Southeast Asian ride hailing and food delivery options to Grab in exchange for a 27.5% stake in the business. This ended up working out really well for Grab and Uber, I guess, since they still hold the stake and it's valued at 2.6 billion, Uber's equity stake.

But it worked out for Grab for a couple of reasons. So one, this took out one of their biggest ride-hailing competitors. They gave riders and drivers a two-week notice that the Uber app would be shutting down and encouraged them to move over to Grab. So they likely gained a ton of drivers in the process, greatly expanding their supply, and they'd no longer be fighting a price war with their richest competitor. Two, this was actually their entrance into the food delivery space, which as we're going to talk about here in a second, I think it could potentially become their biggest profit driver in the coming years. So prior to this, Grab didn't have any food delivery presence whatsoever. So when this deal was getting set up, they started to build out a separate app called GrabFood. Grab preloaded merchant data into the system and started automatically migrating all the restaurants and delivery partners from Uber Eats over to GrabFood and then continuously prompted Uber Eats customers to download GrabFood instead. This, to me, was a huge step in Grab's progress. Anytime you can take out your biggest competitor, you're going to consolidate a whole bunch of market share. So this really changed the economics for the business in a big way. They're no longer needing to fight these price wars with their richest competitor. You have seen the margin inflection in their different business lines since this time. And when you look country by country across deliveries market share, mobility market share, it's gone from this constant battle to Grab being the winner in, I think, pretty much seven out of eight of their markets for both segments. And it's just had a massive impact on their financial statements.

Yeah, the biggest positive, I think, for this company is the fact that in the core delivery and mobility space, they've turned into a monopoly in these areas. And I think the downside is, one, you mentioned the risk of going to financial services and just the unknowns for investors. but two, just adding on some of these other things like the grocery stores and things that kind of makes you go, what are they going to reinvest in? There's just some questions there. Now, what about C-Limited? They're overlapping, I would think, with the financial services, but is there any e-commerce overlap? Because at its core, they're almost somewhat similar where they're trying to get people to buy stuff from them and use their personal finance products. Yeah. So I know they overlap specifically with Shopee food. I'm not sure on the market share split. On all of the market share charts I saw, which some of them were outdated,

Grab was the leader relative to Shopee for deliveries specifically. Mobility, I don't think there's any overlap with Shopee. It seems like they fend them off pretty well, but financial services maybe. From what I remember, Shopee is bigger. Yeah. The other part is like – I mean financial services is massive and I don't know how much Shopee and Grab – or sorry, Sea Limited and Grab overlap specifically with some of the loan types that Grab offers like loans for bikes and I don't know, like merchant invoice financing. Maybe there's some overlap on some of the broader categories, but my guess is that for the specific lending niches where Grab is operating, I would guess C isn't a big competitor. But honestly, I don't keep up. I didn't do a dual research report here and look at C enough.

So C is a much bigger company overall. I think it's five times the market cap roughly. but yeah i believe most of c's business is just general e-commerce which isn't really what grab's going after the one yeah with competition the one thing you just worry about is someone entering from another area you have the chinese players you could have probably not amazon at this point but you could have someone like coupon trying to enter into there it seems like grab has a big enough scale now but that would be the one thing with their quote-unquote monopolies within this market you could see say in a singapore or some other area an outsider coming in and saying well

we kind of hit maturity in our area and we'd like to throw money at this one um i'd be fairly confident that grab would hold off just because they had the local expertise but that's probably the one thing to worry about competition wise let's talk financials though how did you do the valuation work what are you looking at and what were your forward projections yeah the valuation it was honestly a little messy because it's hard to like you kind of have to work backwards from like gmv assumptions and then the bank kind of throws like just a big wrench in it as well so So for quick numbers, Grab has a market cap of $20.6 billion. They have $6.1 billion sitting in cash and short-term investments on the balance sheet,

which I might also add seems a little high, but I guess it's better than them totally wasting it on needless initiatives. But yeah, $6.1 billion in cash on the balance sheet. They had a huge SPAC. So I'm assuming that was a big contributor there. So the enterprise value is roughly $14.5 billion. Over the last 12 months, they earned $700 million in segment-adjusted EBITDA. Pause, pause, pause, pause.

I see Brett's smirk there. We will talk sort of normal EBITDA, which should have good conversion to real cash flow. But so face multiple is an EV to segment-adjusted EBITDA of 18 times, trailing numbers. The questions I'm thinking about for the valuation are, one, how much GMV will Grab generate from mobility and deliveries in five years? Two, what percentage of that GMV will turn into EBITDA? Three, how much EBITDA will convert to real earnings? which kudos to them because they actually split out like they do segment level adjusted and then they have like corporate costs like overall corporate costs they actually break out as a

line item and they've been very they've been reducing that actually like not reducing as a percentage but just straight up i think it's down like 15 corporate costs are overall over the last two years and then the last one is what is the financial services business worth which is really hard for me to tell, but I have a little projections. She, if you're interested in looking at the specific numbers, you can check out our sub stack and it's totally free. It'll be up there, but I'm not going to do all the math here on the podcast. I will talk over some of what I think are the big drivers. So my take is that I think they are really well positioned to grow volume in mobility and deliveries. This year, management's implied guidance expects mobility

GMV to grow somewhere between 17% and 20%. Deliveries is expected to grow 15% to 17%. I think the growth rate will come down for both over time, especially mobility where they're already like the mature player. But like I said, there's a lot of levers they can pull to increase the amount of uh riders like they can offer consumer incentives get people on board and then there isn't really that much competitive or competition in a lot of these markets so it's like anyone that becomes a frequent rider is probably going to be sticking around with grab uh they can offer like different ride types saver fares that kind of thing the the by reducing the fleet expenses with electric vehicles they can reduce the cost to serve rides they're so they're

really going a layer deeper now at this point in terms of how can they get more riders on the service i assume gmv for mobility will grow at an average rate of 13 over the next five years it could be i expect it'll be somewhere more like 10 in in five years who who knows honestly it's impossible to assume but my guess is that mid-teens or sorry low teens seems reasonable as an average deliveries i think will be slightly higher 14 to 15 just because there's a lot more room to grow in that market and a lot of different levers they can pull and and they actually they should see more margin expansion there as well so in terms of the profit margins management expects on the mobility ride-sharing side, they expect 9% of GFV to convert to EBITDA. Right now,

it's basically at 9%. And some quarters, it'll be lower. Some quarters, it'll be higher. And management has talked about, look, we don't care about short-term margins. We care about long-term EBITDA and free cash flow. And getting people on the service is the step towards doing that. So either way, I think 9% is reasonable. For deliveries, they expect 4% of GMV to convert to EBITDA. I don't see any reason why that isn't possible. They're at 1.8% today and they've turned the corner really quickly in terms of operating leverage there. So 4% seems reasonable. All in all, I expect mobility and deliveries to produce $2.1 billion in segment level EBITDA in 2029. I really don't think corporate costs will grow that much. They were down, I think it was like

13% this quarter. They've made it very much a priority to reduce corporate costs. Maybe it'll grow a little bit. So I have it growing at basically 2% a year from now until 2029. So I know that was a lot of numbers. Here's my final thing that's worth tracking. Between mobility and deliveries, I think they will do $1.7 billion in normal EBITDA in 2029. Today, they have an enterprise value of $14.5 billion. So that would mean they're trading at 8.5 times 2029's mobility and deliveries EBITDA. Assuming – this is assuming financial services, no value. Exactly. And that's basically what I pegged it at. I don't know what valuation to give it because so far they are losing – You can have upside.

Right. Honestly, I think it's pretty cheap, maybe reasonably valued for a very high-quality business in Southeast Asia on the deliveries and mobility side of things. the bank and the financial services broadly, they expect to be cashflow positive next year, like second half of next year. And if they're, if they just continue to be profitable from that point on, like, yes, this is, there's some real value there. And it could be really big. I could be totally underestimating this business. It could be like looking at Amazon in 2010 and chalking up no value to AWS, but I don't know what it's worth. It could also lose money. So I'm just kind of writing it off, just giving it like, what do I think the deliveries and mobility segment is worth independently? And then what is the bank worth? And I would say it's at a reasonable valuation purely on the deliveries and mobility side.

I know listeners are probably asking, what's the stock-based compensation like? I wanted to pull up this chart from our friends at Fiscal AI. Remember, if you want these type of charts, use our link in the show notes. Get 15% off any paid plan. $265 million in stock-based compensation over the last 12 months. So that's not going to totally wipe out earnings. It's at a fairly reasonable level, I would say, and the development versus that. And I know you just talked about financial services, so perhaps free cash flow isn't

perfect here, but maybe you can correct me if I'm wrong. If we go back to 2022, they were doing $448 million in stock-based compensation, and they had negative $1.5 billion in free cash flow. By 2023, they were break-even free cash flow and had $300 million in stock-based comp, and then today it has fallen. So they've scaled up with, I think, and looking at their corporate costs as well, I think that's showing some good spending discipline as opposed to a lot of other technology companies,

but we're at $854 million in free cash flow over the last 12 months. Pretty good developments there. We're seeing the operating leverage, and just under 2029 earnings seems, what is that, four years from now? It's not, it's good. It's not, I would say it's reasonable.

um i looked at another metric which i think is ev to gross profit i won't show the chart but i think they're at about 12 which is also okay um i would say not dirt cheap but you really you're definitely put in a position where you have to make some assumptions on future growth you can't go we'll still make money if growth goes away completely yeah i'm not sure how useful gross profit is just given that it's like the the conversions to ebitda are really high in mobility at the moment and i suspect revenue to ebitda will be pretty high in deliveries if they get to that four percent figure that they've talked about but yeah it's you you have to believe that this business is going to grow for sure there's no if growth stops this is uh you're probably

going to lose money, but I don't see why that would happen. Okay. One of our three pillars of investing is the management team. What do you think of management and the founder, Anthony Tong? Yeah, I like Anthony. He doesn't do a lot of press. I tried to look for podcast interviews and stuff like that. There really isn't a lot out there. I would say he seems like a good CEO. He's managed the business really well so far. He's in his prime, I would think, 43 years old and he's been running the company for, I guess, 13 years. So I don't think he's probably too fatigued as the CEO yet. He owns 3.7% of the shares outstanding and has 63% of the voting power. So this is his company really. The big thing for me is that Anthony Ton and the rest of the

management team broadly, they do genuinely seem to think long-term and manage the business less for short-term margin optimization and more for long-run EBITDA and free cashflow growth. One good example of that is the SaverRides. So I already mentioned this, but they launched the SaverRides. They continuously promote SaverRides in the app. And so far it's been a big success. It accounts for one third of delivery rides and 26% of mobility rides. These are lower margin transactions, but it opens up the amount of people who are able to use the service. The other thing, I didn't jot this down, but Dara Khosrowshahi, I believe is the way you pronounce his last name. He's on the board. I think they might be the biggest shareholder

actually uh of grab that's a great person to have on your team and as an advisor given how well like any sort of best practices from uber he has all the incentive in the world to share it with grab he's not going to compete with them he's on the board it helps their equity investment uh so So I think that's a good guy to have in your corner. I like Anthony Tan and so far for a company, they've honestly been a lot like Uber. They were a huge money losing business prior to coming public. Valuation got crushed after 2022 and they kind of found religion in let's reduce costs, let's get profitable. We have the ability to do it. We have the market share in most of our markets. Let's try other things. They've probably been more willing to try other things than Uber.

But in general, I think he's just run the business really well. Okay, we're coming right up on an hour. What are the conclusions here? You interested in Grab? Watch list? Hold? Sell? Hate it?

Love it? What are your final thoughts on this stock? i think i'm putting this at the top of my watch list for now there's a good chance that changes and i end up taking a starter position the only thing holding me back would be the banking efforts it's way outside my circle of competence like brett said not not necessarily banking i think i understand the general uh gist of banking but it's in a market i don't understand and And frankly, if you're going to buy a bank, you really got to do a lot of digging into what you think the long-run default rates are going to look like relative to what they earn. And I do think they're in an awesome spot to continue growing mobility and delivery volume for years to come.

I mean they are the leader there. There's a whole bunch of geographic tailwinds in terms of digital penetration and rides becoming more affordable. And I think that'll just continue to be a tailwind for their business. I honestly think they could be generating 15% of their current enterprise value from cash or in cash from these two businesses alone in five years. If that's the case and financial services doesn't lose a ton of money, I think you're going to get a really good return from Grab here. Okay. If you want all the charts, everything in the notes, Ryan's going to have his report on our newsletter. The link there is in the show notes, Chit Chat Stocks newsletter.

I believe not Chit Chat Stocks podcast newsletter. It'll be easy to find. If you enjoyed this episode, if you enjoyed the podcast in general, if you're a new listener, please give us a review on Spotify or Apple podcast. It takes 10 seconds and it's the easiest way to help the show grow. We'll have more Wednesday episodes coming out along with our investing power hours that get released in the podcast feed every Friday morning. So lots of investing talk coming into this earning season. We're going to be having some fun interviews. We're going to be doing some more research reports. I have one coming out

on Oscar Health in a couple of weeks. We're going to be studying a super investor, lots of fun stuff. So, Ryan, thank you for this research report. Anyone that's interested in Grab, please reach out to us. We love to discuss with other investors, but let's hit the disclosure and get out of here. We're not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I or any podcast guest may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, everyone, for tuning in once again, and we'll see you next time.

I'll see you next time.