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Grab leans on Tencent and Amazon in rush to turn profit

Written by Nikkei Asia Published on   4 mins read

Singaporean superapp cuts sales promotions to focus on monetization

Singapore-based superapp Grab has formed tie-ups with fellow tech giants Amazon.com and China’s Tencent Holdings, hoping to generate extra revenue needed to achieve a profit by the end of the year as promised to increasingly impatient investors.

A tourist from China arriving at Singapore’s Changi Airport can now call for a ride by pressing the Grab icon embedded in WeChat, the all-purpose messaging app from Tencent. The Grab mini program prompts the user in Chinese to enter the destination.

Once the Grab vehicle reaches the intended address, the tourist can pay the driver through WeChat’s digital wallet.

This arrangement comes courtesy of the collaboration Grab and WeChat rolled out in December. As Southeast Asia’s leading ride-hailing platform, Grab operates in 480 cities across eight countries in the region, and the WeChat feature can be used in each of those markets.

For a ride-hailing app, airport trips are moneymakers in terms of fares, and the number of these rides affects overall revenue. By integrating with WeChat, Grab can draw more customers by saving them the time of downloading a separate app.

The tie-up with WeChat, which boasts 1.3 billion users worldwide, will bring Grab enormous benefits. Tencent apparently charges Grab a service fee, but the boost to its earnings is likely to outweigh the cost given that Grab’s ride-hailing segment generates a profit margin topping 10%.

In early February, Grab started providing map data to clients of Amazon Web Services, Amazon’s cloud computing arm. Through this GrabMaps service, AWS customers can tailor map data in eight Southeast Asian countries to fit their businesses. GrabMaps receives revenue based on usage.

Luce SG, a Singaporean cleaning firm, has expanded to Indonesia and the Philippines, and uses GrabMaps data to shorten travel time for service staff and prevent late arrivals.

“It has been challenging for us to obtain reliable map and routing data in order for us to dispatch our service staff, especially given the large number of informal roads in this region,” said Jason Zhang, director at Luce SG. Grab distinguishes itself from off-the-shelf competitors by constantly updating maps using data from drivers.

“With Amazon Location Service and GrabMaps powering our dispatch and routing, we are confident that we can deliver the same on-time performance in all the regions we operate, including those outside of Singapore,” Zhang said.

Alex Hungate, Grab’s chief operating officer, cited direct and indirect benefits from the tie-up with the U.S. tech company.

“We believe that the AWS contract will not only provide revenues directly to Grab, but it’ll also make it very easy to attract new [business-to-business] customers on the back of that very strong endorsement from one of the world’s biggest technology companies,” he said.

In consumer finance, Grab will focus on customer transactions with digital banking partner Singapore Telecommunications, Indonesian group Emtek and Malaysian conglomerate Kuok Group. This is on top of financial transactions Grab fulfills with its own customers and drivers on its platform.

Grab will focus on transactions with people who already have provided personal data, cutting costs on customer acquisition and credit checks.

The Singaporean company previously focused on drawing customers and boosting usage rates through large, splashy promotional campaigns. Now Grab is shaking up its strategy in part to reach a profit more quickly.

Grab has been racking up quarterly losses to the tunes of hundreds of millions of dollars over the past several years.

Investors and other stakeholders in the Nasdaq-listed company have dialed up pressure to improve finances. Phasing down ineffective advertising campaigns and discounts was an easy target for boosting the bottom line. In the fourth quarter of 2022, Grab cut sales promotion costs by 29% on the year, which sliced the net loss by at least 60%.

Grab last month said it aimed to bring adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to profit in the fourth quarter of 2023, earlier than the second half of 2024 targeted last September.

Net cash liquidity topped USD 5 billion at the end of December. But Grab has indicated it will continue to cut costs where possible.

“We’ve frozen hiring across most of our regional corporate functions,” said Peter Oey, Grab’s chief financial officer.

Grab also is recalibrating its approach because the company has amassed a wide, deep bench of customers. The most recent monthly user count was 33.6 million people, up 4 million from a year earlier.

The share of accounts that use two or more Grab services, such as ride-hailing or food delivery, climbed to 61% in 2022 from about 42% in the pre-pandemic year of 2019. A rising percentage of frequent users means more fees per capita, reducing the need for promotions.

For three straight years, Grab has dominated Southeast Asia’s food delivery market with shares hovering around 50%.

With a limited margin for growth, concentrating on existing food delivery customers appears to be an effective way of improving profitability.

But Grab has failed to excite the stock market. On Feb. 23, when it announced the faster EBITDA profit target, shares still slipped by 8%.

Sachin Mittal, an analyst at DBS Group Research, thinks Grab will remain in the red in 2025. Mittal has set Grab’s target price at more than 70% below its debut price in December 2021.

“Long-term margin is a key concern,” Mittal wrote, saying the margin eventually will peak due to the limited nature of one-driver-one-customer businesses.

“Investors will remain tough on Southeast Asian tech companies as long as the macroeconomic headwinds arising from high interest rates and inflation persist,” said Tong Yen Hee, associate professor at Nanyang Technological University in Singapore.

Long-term inflation could push consumers away from ride-hailing and delivered meals, and platforms could face higher costs from rules safeguarding gig workers.

Grab, once known as Southeast Asia’s quintessential growth startup, is navigating a business environment reshaped by the collapse of the global tech bubble. To rise into the black — and to placate impatient investors — Grab must staunch the bleeding from its financial arm while maintaining growth in its mainstay ride-hailing and delivery businesses.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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