TIVP076 (Video): Grab Holdings (GRAB): Why Uber Surrendered Southeast Asia w/ Daniel Mahncke & Shawn O’Malley

Sean O'Malley: Should we do it?

Daniel Mahncke: Ready when you are. All right.

Sean O'Malley: All right, so imagine you're stepping into a border, right? And you're there to pitch to an investment committee. And your opening slide highlights a company that, uh, well, they just lost three and a half billion dollars in a single year. And this was not all that long ago. And that company also operates across, well, eight entirely different countries. So they're juggling volatile currencies, fractured regulatory regimes, and they're just relying every heavily on a massive fleet of independent contractors riding through some of the most congested cities on the planet.

Daniel Mahncke: Well, that does sound like a logistical nightmare. On paper, I would say.

Sean O'Malley: Yeah, you would probably get laughed out of the room.

Daniel Mahncke: Honestly, I don't know, Sean, but you're not really selling me here on the pitch that you will do in a couple of minutes.

Narrator: Okay?

Sean O'Malley: Okay, but what if on the next slide, you revealed that this exact same company had fundamentally rewired the the daily economic reality of more than 600 million people.

Narrator: You're listening to the Intrinsic Value Podcast by the Investors podcast network. Since 2014, with over 180 million downloads, we've learned directly from the world's best investors. Now we're applying those lessons to analyze businesses and investment opportunities every week, helping you uncover intrinsic value. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. And now, here are your hosts, Sean o' Malley and Daniel Munka.

Daniel Mahncke: So where do you want to start, Sean?

Sean O'Malley: As I was saying, the company I'll be pitching today, Grab, has transformed from a cash burning, ride hailing app into an increasingly profitable pillar of Southeast Asian economies. And the question is whether that integration into people's lives in emerging markets can mean attractive returns for us.

Daniel Mahncke: Well, that's right. So what that means is that we're here, of course, to assess yet another business for our intrinsic value portfolio that we manage alongside our colleague Kyle Grief. And I have to say, this is an interesting one. Not only because the business is quite similar to Ubers, which is obviously one of our largest portfolio holdings, but also because we've had the chance to actually connect directly with the investor relations team at Grab.

Sean O'Malley: Yeah, and not just that. We're currently planning on interviewing Grab CFO on YouTube. So if everything goes to plan, you'll see that in a few weeks. So keep an eye out for that folks, and you can subscribe to our YouTube channel in the show Notes for updates on that. But yeah. The story today is going to overlap in some ways with another one of our portfolio holdings, MercadoLibre, because like Meli, Grab has leaned into consumer finance in developing markets to help drive consumption. And funny enough, one of Meli's biggest competitors, C Limited, which owns Shopee, is also a player in Southeast Asia that Grab has bumped up again. So I think we have a lot to discuss today.

Daniel Mahncke: We do, we do. And, well, Meli and Sea are also two companies that I happen to know quite a lot about after covering them here extensively on this show. But as you said, I think the best comp is certainly Uber. So I think it will be important for us today to kind of understand the similarities, but also the differences between Grab and Uber, because they do differ in some very important ways. At least that's what he told me. That's also something that I saw with all of the e commerce players around the world. So they're obviously similar in many ways, but because their customers have very different needs, they have over time and, um, sometimes even from the get go, found these different value props and kind of ways of running the business. So Shopee, for example, is much more focused on mobile commerce than Amazon obviously has ever been operating in the US Then Melly built its payment arm because its customers otherwise just, you know, couldn't pay for goods online because obviously they didn't use credit cards back then. Mostly they paid with cash and also just with being outside, going to shops, going to stores and not buying anything online. And I think there were probably similar problems for Grab also. So kind of getting back to the Uber and Grab dynamics. What impressed me most about Grab initially is that despite being confined to just one geographic region, they managed to outcompete Uber in Southeast Asia to an extent that Uber actually exited the region entirely, which we will get into more later. But I think that's pretty impressive because we've seen what Uber can do with all this scale and expanding into other markets. So, yeah, they did a pretty good job on that.

Sean O'Malley: That's, uh, true. You're right. You know me, though, I always like to start at the beginning. I think it's just funny with Grab, fortunately, that's pretty easy for us to do so because the company is literally a teenager. And in 2012, Grab was, for context, the brainchild of two Harvard Business School students who came up with the ambitious plan of tackling one of the most unreliable and unsafe taxi markets in the entire world, with Malaysia. And the original name actually wasn't Grab, but my taxi spelled T E K S I. So I think the new name was definitely an upgrade. And using personal capital and a grant from Harvard, Anthony Tan, who's now the CEO, and his co founder, Tan Hui Ling, scraped together something like $25,000 to launch a business that as well valued at over $14 billion today. And a huge part of that success story is about adapting to their local operating environments as opposed to coming in with a Western playbook like Uber did. So what that meant practically was doing things like creating a system where riders could pay in cash for rides when they ordered on the Grab app, catering to all types of vehicles, from motorbikes and scooters to traditional four wheeled cars, and building their own city maps that were really more reflective of the reality on the ground. Which is to say that on that last point, if anyone has ever been across Southeast Asia, it's an absolutely beautiful and vibrant corner of the world. But in many cities, the traffic is a real nightmare, at least from the perspective of an American or European coming to visit.

Daniel Mahncke: I can imagine. I was actually in Santo Domingo last year, as I talked about on some other episodes, and I was just shocked by how the traffic works. And I could imagine that in Southeast Asia, it's pretty much the same thing, but maybe, um, times ten. So, um, we should have actually been at the Grab X event last month, but unfortunately we couldn't make the timing work. But to your point about outcompeting Uber's Western playbook, that's another thing I've seen with all of these e commerce players. Very few of them actually successful in multiple regions in the world. And it appears to just be so difficult to adjust the business model that works at home to a totally different culture. In fact, it actually seems harder for Western players from developed economies to. To apply their playbooks in developing markets compared to, let's say, Shopee in Brazil going from Southeast Asia to South America.

Sean O'Malley: Well, I know I've told you this maybe like a dozen times, Daniel, but I had the chance to visit Vietnam, Thailand and Malaysia in early 2020, right before COVID shut the world down. And it was easily the most memorable trip of my life. But yeah, the road seemed like absolute chaos at times. I mean, you would quickly get used to it, fortunately. But crossing the street at first felt like, gosh, it felt like you were taking your life into your own hands. And it's just a very different driving culture. It's sort of like a free market approach to driving, honestly. Maybe that's a nice way to say it, where the natural flow of traffic Just sort of works itself out on its own in places like Hanoi, for example, as opposed to having lots of stoplights and clearly defined crosswalks and lane markers and stuff like that. And even when you do have those things, you know, there's another question of as to whether drivers are actually going to adhere to those road rules.

Daniel Mahncke: I got to say, the German in me just gets severe anxiety when I see pictures of the traffic then. I mean, I barely walk over a red light at uh, like 3:00am in the morning on an empty street. So seeing this is just beyond me.

Sean O'Malley: Daniel is famously a rule follower. But so anyways, Google Maps just does not quite work the same way in many Southeast Asian cities as it does in the US and so you've got people racing on motorbikes and using alloys that double ah as backup routes to get around traffic, informal dirt roads and mobs of people clogging up the streets. And then the result is that you really need a local guide to get around in some cases. So by embracing that reality and mapping out the pathways that local traffic actually takes as opposed to the maps drawn by Google Maps, Grab was able to create a much more useful service than Uber, which was much slower to adjust to the realities on the ground because their focus was split across a handful of different markets worldwide that they were trying to scale quickly across.

Daniel Mahncke: That's one of those difficulties, you know, that you just experience if you're in a totally different market compared to your home market. And we always kind of look at these tech companies as obviously growth companies and thus also expanding always sounds pretty good if it's mentioned on an earnings call. But for Uber, I mean, the US market has been much more important and they actually had these local competitors, I mean, most prominently obviously Lyft. So prioritizing that market was probably the best thing they could have done in the past. And I probably bring up the e commerce companies a dozen times today, but I can't help myself. So when Amazon started investing in Brazil, in Mexico, and also some other of the big Latin American markets, investors obviously thought that it was over for local players, right? And more than a decade later, I think it's been about 15 years until Amazon entered Brazil. Amazon is actually bleeding market share and local players are still dominating that market. And I think that's mostly because those markets are just an afterthought for Amazon. I mean, they focus their brain power and also their capital on the home market. And I think it's safe to say that Uber did the same thing. And that's also why they started buying stakes in these international competitors instead of actually competing with them on the ground.

Sean O'Malley: I think that's a good way to put it in. Partly it's because the friction of these operating environments is just staggering, right? I mean, you're not dispatching Toyota Camrys. In Myanmar, the platform actually integrates Grab on Bain, which is a local three wheeled vehicle. And in Cambodia they literally had to digitize the Tuk Tuk market. And uh, you can Google that if you don't know what that means. And in the Philippines they integrate something called a Grab Trike and a, uh, two wheeled service called Move It. And in cities like Jakarta or Ho Chi Minh, four wheeled vehicles are basically paralyzed by gridlock. So grab bikes and motorcycles are necessary lifelines to get around. And the problem that Uber ran into is that if you come there with a Western software developer perspective, they're going to see a Tuk Tuk driver in Phnom Penh, which is the capital of Myanmar, and just see a completely undigitizable asset. They don't have the cultural context, generally speaking, to solve that problem. And so, for example, the driver probably doesn't have a bank account to receive digital payouts. And that's not a problem you're used to dealing with and encountering in North America. And the local mapping data might be wildly inaccurate because the cities rely on these informal, unnamed, uh, alleyways, as I've mentioned. So if you're going to integrate that driver into a cloud based dispatch system, you have to physically build the financial and logistical plumbing from the ground up, which a player like Grab was always going to be much better positioned to do than an outside competitor like Uber.

Daniel Mahncke: Many of our, uh, coworkers behind the scenes are based in the Philippines, actually. And my impression is that in Southeast Asia, grab has pretty much become a verb, um, for many. So I've been told that people might say, it's raining today, so let's just grab to the mall instead of walking. Or they would say, I'm too tired to cook, should we just grab some Thai food? Which is kind of similar to how many people in the west refer to Uber also doordash. And on that point, my understanding is that it's a huge oversimplification to call Grab the Uber of Southeast Asia, just as it is if you call Meli the Amazon of South America. So for starters, as you alluded to before, the operating environment over there is not some homogenous market with, you know, a single currency or a unified interstate highway system like the U.S. for example, where you the widespread credit card penetration or even just banking access in general. So being able to build a business with a consistent experience across, you know, Singapore, Indonesia, Malaysia, Vietnam, Thailand, the Philippines, Cambodia and also Myanmar, which I mean just includes over 800 cities therein. I mean it's just incredibly impressive. And these are the countries that not only have different languages and regulations, but also sit at vastly different stages of economic development. So I don't know, you have Singapore, which is this hyper modern financial hub with pristine infrastructure sitting right next to Indonesia or Malaysia, where rapid urbanization has vastly outpaced civic infrastructure. And in many places where millions of citizens are entirely unbanked too. So I don't know, they don't have checking accounts, let alone, you know, Apple pay, which is probably what you use most in the US and people here in Germany used to. So pretty much just like Melio C. Grab had to do some heavy lifting itself to kind of build up the infrastructure to even make the app and kind of their value prop work. And that seems like a crucial part of Grab story and one of the most obvious ways in which Grab obviously differs from Uber.

Sean O'Malley: Yeah, that's exactly right. Though I would caveat that by saying Grab hasn't quite had the same degree of revolutionary success with its lending business as maybe Meli or Nubank. And if you break out their business segments by revenue, the financials division is a pretty small part of things though it is growing pretty quickly, so might call it 13% of total revenues. Whereas the rest of the business is divided up between mobility, which just refers to the ride sharing business, and food and grocery deliveries. And actually the latter is the bigger of the two for Grab. And so that's another difference with Uber because for Uber the biggest segment is mobility first, then delivery. And so going back to Grabs financial business. I don't want to make it seem like it's not important here because it is in terms of helping spend grabs Flywheel. Even if it's a relatively small part of revenues, and by controlling digital payment Rails directly, Grab can strip away the barriers to transacting. And so that's imperative for them to be able to operate at scale in these markets. And so correspondingly, these financial services are the glue for the entire ecosystem in many ways. Right? GrabPay users, for instance, have shown one year retention rate that are 1.5 times higher than cash users. And you couple that with much deeper cross segment spending, meaning they spend more on ordering rides and deliveries and other users over time. And so an example would be offering Buy now, pay later financing, where customers can break up payments over a number of months. That is going to ultimately help drive more total spending and keep people coming back and doing things like ordering from restaurants or grocery delivery on Grab.

Daniel Mahncke: I've said before that these fintech and especially lending type businesses, they sort of have an asymmetry to the downside. The other part of it though, is that they are incredibly accretive to these flywheels, where you again and again see that once you have people integrated into these ecosystems, they spend way more money with you and they are way more recurring in terms of using your product. And as I understand it, Grab actually directly undergoes the banking services where they will make loans to their customers using that person's spending and payment history on Grab as the mechanism for underwriting a loan to them. So basically, since conventional credit scores are obviously far from universal in this part of the world, that's how they're taking advantage of their overall flywheel. In comparison to other companies, it's a

Sean O'Malley: very different approach to underwriting consumer loans and in the US but it's not all about consumer financing, right? They also provide loans to drivers on the Grab platform too. So in a sense they're lending to their own employees, or that's a bit of a controversial word. So maybe I better say contractors. But the thing is, drivers with active loans do tend to stay on the platform one and a half times longer too, then work more hours and essentially double their earnings compared to unleveraged peers, meaning just their coworkers who aren't borrowing from Grab in any way. And so for many drivers, Grab is actually their first and only source of formal financing, which is really an important thing, right? If you don't otherwise have access to credit. So Grab will do things like offer cash advances to help drivers smooth out daily cash flows or get emergency access to funds that uh, they just otherwise wouldn't be able to have without having a, uh, traditional banking relationship and a credit card. And so clearly that deepens the relationship between Grab and its drivers in a way that you just don't see in the US with Uber or Lyft. And it's not just completely out of charity, right? Grab wants its drivers to be financially sound and to be able to continue to work as much as possible. And so this is a real way for them to help with that. And for example, a driver might take out an advance specifically to upgrade their smartphone, which is going to be critical to their ability to continue working for Grab, right? You can't, you can't take orders. If you don't have a working phone or if your phone's 10 years old, that's going to be a problem. So in a few different ways, beyond making profitable loans, the financing business, like I said, creates value for the overall company by supporting driver retention and activity.

Daniel Mahncke: I want to already apologize for keeping bringing up melancholy today, but I think it's exactly this kind of high frequency data trail that's so powerful and allows Grab to build proprietary credit models for the unbanked. By, you know, tracking real time income seasonality and also platform activity, Grab can actually safely and profitably offer working capital loans and also these buy now, pay later solutions to gig workers without traditional financial history. And something that again, we've seen with Meli and Shopee and they don't necessarily do that to drivers because they don't have them, but they also give loans to the merchants, for example, that are on their platforms. And the thing is, as I've learned from studying these business models across a few companies now, the model scales with incredible efficiency because it kind of taps into this captive audience. So distributing loans and banking services natively through the app drives customer acquisition costs basically down towards zero, which is also something that nubank has hugely benefited from.

Sean O'Malley: Ah, that's really well said. And just for context, roughly 80% of the initial depositors and borrowers at Grabs digital banks in Singapore, Malaysia were already active Grab users. So clearly they're very much disproportionately catering to people that are already a part of the Grab ecosystem. And these bank accounts are sort of like the gateway to accessing the financial system for many of these people. And, and you know, you'll appreciate this, Daniel. As the lending portfolio matures, it offers significantly higher margin opportunities for growth than let's say just the core logistics businesses. And to me that matters because cross selling these premium financial products to an existing user base acts as a massive accelerant to the company's overall path for sustainable profitability.

Daniel Mahncke: I appreciate that as much as anyone why and how Grab has had success with its fintech business. But I do have one question. Uh, how do they actually solve that cash to digital bridge that you mentioned earlier? I mean, how are they able to accept payments in cash for rights ordered in an app? That kind of baffles me how that is working. I mean, I don't know if I'm a rider in let's say Jakarta and I hand a motorcycle driver physical cash for my ride. How does grab collect its 20% commission? I mean, they can't Exactly. Send an invoice to me via mail.

Sean O'Malley: I'm, uh, glad you asked because this was one of my favorite things to dig into, and that's the genius of their financial architecture. They essentially turned their massive driver fleet into this distributed network of mobile ATMs in a way, which is really, really cool. Drivers have digital wallets with Grab, and in order to accept rides, the driver must pre fund that wallet, usually by going to a local convenience store. And so then when you, let's say the passenger hands the driver physical cash for the ride, the driver keeps that cash in their pocket, but Grab instantaneously deducts their commission from the driver's pre funded digital wallet. Meaning the software isn't just matching a rider and a driver. It's, it's acting like a real time micro clearinghouse for thousands and maybe millions of informal cash transactions every single day and every single week. And, you know, something like 27% of all transactions on Grab are made in cash. So this is a significant part of the business. And just to, um, do an example, to make it a little more tangible, if a customer places a $20 food order and chooses cash at checkout through Grab, then Grab sends the order to the restaurant and assigns a driver. The driver picks up the food and delivers it, then collects the $20 in cash from the customer at their door. And now the driver physically holds the $20, obviously. But grab systems record then that the driver was paid in cash. And so later Grab settles the transaction internally, right? It pays the restaurant its portion, it keeps its own commission or platform fee, and then it adjusts the driver's wallet for the amounts owed to the driver. So the customer paid in cash. But Grab still makes the economics work by treating the driver as the cash collection point and reconciling everything digitally afterward. And it's just incredibly, incredibly innovative.

Daniel Mahncke: That's actually brilliant. I mean, it's kind of exactly what I meant when I said that, you know, it's hard for western players to win in these markets. I mean, how is Uber supposed to come up with something like this when it has never faced a problem like this before? And a while ago, this kind of reminds me of that. We covered a remittance company here on the show called Remitly, and they also operate in many countries where you could probably say that cash is still king. And they've also come up with these creative solutions to make sure that the money that is sent via an app is actually converted into cash and makes it to the other end of the world and is then paid out by the doorstep. And I don't know, I love these sorts of business stories where it's really about solving a problem and making life so much easier for people by doing that. Actually, I think Shopee kind of started in a similar way with their fintech, um, arm. I think we talked about how, what was it called Shopee Pay or something like that initially started with basically people going to these local shops, then giving them cash and then that money was loaded onto their digital wallets. Talking about problem though, or solving problems. How did Grab solve the mapping issue that we talked about before?

Sean O'Malley: If you're a fundamental investor like me, you need a research terminal that actually keeps up with you. That's why me and my colleague Daniel Monka use Fiscal AI for every episode of the Intrinsic Value podcast that we do. It's the complete stock research terminal built for people who care about the numbers. Fiscal AI pairs a modern interface with institutional grade data. It has over 20 years of financial statements, 40 quarters of history and company specific segments and KPIs that I love digging into. Want Google's cloud revenue? It's there. You want to see Duolingo's monthly active users?

Daniel Mahncke: It's there.

Sean O'Malley: And I know because we did that in our episode on Duolingo. There's millions more data points too, all updated within minutes of earnings, not days later. Like legacy platforms, you can export data, run screeners, pull earnings, call transcripts and Morningstar reports, track super investor holdings and compare companies head to head just like me and Daniel do, and even plug Fiscal AI into Claude to power your AI research with institutional quality data. Head to Fiskel AI tivp. You'll get two weeks off Fiscal Pro Free and if you upgrade, that same link will save you 15% on any paid plan. Again, that's fiscal AI TIVP. If you're listening to this show, you're already doing the work most investors won't tearing into individual businesses, pondering intrinsic value and thinking in decades instead of quarters. At some point you start to want people to do that work with though. That's why we built the Intrinsic Value Mastermind group. And you've probably heard me talk about the intrinsic value community before. And this is that same space with the name Refresh. It remains a home for serious long term investors committed to compounding their knowledge, relationships and finding great stock ideas. And as a member, you'll join monthly video Calls with me, Kyle Grief and Daniel Maca where we'll dig into what's actually happening in the markets and in individual businesses you'll sit on private conversations with fund managers, business operators and authors that we respect. The kind of access that does not fit inside of a 90 minute podcast. You'll have the chance to join us in roaming Omaha together during Berkshire weekend too. One of my favorite weekends of the year. If you're looking to expand your circle of investor relationships, get smarter about assessing intrinsic value, and are always looking for new stock ideas, there's what are you waiting for? Apply for free now@, uh, TheInvestorsPodcast.com mastermind. That's TheInvestorsPodcast.commindmind. and if your application stands out, I'll be reaching out to you personally to schedule a call. Oh, it's another good question because the way they did it also sounds sort of absurd, but they literally strapped proprietary cameras to the helmets of thousands of Grab Bike drivers. And so as these drivers went around, they were effectively helping map these informal alleyways and these hyperlocal pickup points that ah, traditional map providers would just completely miss. And so accordingly, they Transitioned from using third party mapping APIs to building their own product called um, Grab Maps, which is their own proprietary routing engine tailored specifically for the realities on the ground of Southeast Asian streets.

Daniel Mahncke: For whatever reason, I immediately think that if you would try that in Germany, there would be some form of regulation that doesn't allow you to film while you're driving. That's also kind of fascinating because despite the Uber comparisons here, they have very different type of competitive barriers to entry. Right. Just by this mapping. For example, having the best mapping makes a massive difference in being able to leverage the economies of scale of this business by just connecting drivers and riders as efficiently as possible. Because they know exactly that. Maybe Google Maps shows that way, it takes you 10 minutes, but their mapping actually knows, hey, there's a shorter way and you will actually get there in three minutes if you take this route. So that obviously helps a lot. And I would imagine that even if a well funded startup would kind of come in tomorrow, they don't have access to that data and their service is going to be a whole less efficient if they rely on maps from, you know, satellite data provider. So to offer a remotely one to one product, a competitor would actually have to build cash reconciliation networks across thousands of convenience stores, uh, and map thousands, maybe millions of unmapped alleys, which is going to require a lot of cash burn upfront to say the least. Which is kind of why you showed that there were eight quarters of just completely burning through cash that Grab has experienced.

Sean O'Malley: Yeah, emphasis. There on, to say the least. Unsurprisingly, I do agree that once you have the infrastructure and network effect in place to support a ride handling and delivery business, it becomes nearly an insurmountable moat. And that's exactly why we love Uber as an investment so much. And Grab has sort of another layer to that moat that Uber doesn't have, admittedly with this mapping data advantage. But you can also see why Uber looked at the Southeast Asian market, realized they were clearly number two, and decided to seed market share rather than try and navigate eight different regulatory frameworks, while also just being slower to roll out cash payments and better localized mapping and burning cash all along the way while you're trying to compete with a competitor that's just much better positioned to be able to do that.

Daniel Mahncke: And just for the listeners, since I know that you know this, Sean, but Uber took a very sensible approach, in my opinion, kind of mirroring what they did in China too. Ahead of the ipo, which is a time you want to get all your Dax in a row, they made the very pragmatic decision, I would say, to sell their operations in Southeast Asia to Grab in exchange for almost 30% of the company. I think it was 28.5% equity stake in Grab. And that has since been diluted down. It's significantly less today. But I do think it's fair to say that we both kind of love the idea. You know, rather than burning cash indefinitely against a better position competitor outside of their core market, you kind of leverage the success that you have had and turn that into an investment in what's supposed to be the most likely winner in that region long term.

Sean O'Malley: Absolutely. And so in a limited sense, we do actually already have some exposure to Grab in our intrinsic value portfolio right after grabs, IPO and stock based comp dilution. Uber's position in grab is about a 13 stake now, so we'll call that worth being maybe $1.8 billion. But Uber's market cap is about $160 billion. So 1.1% of Uber's market cap is its Grab stake, we could say. And with Uber being a 10 holding in our portfolio, we have what, a 0.1% exposure to Grab. So I don't know. That's just some quick mental math there.

Daniel Mahncke: There you go. So we're already talking about a portfolio holding here today, so maybe that means that we should just, you know, call it a day and say, okay, well, we've looked into Grab now, it's already part of the portfolio, but obviously I would Say it's much more, um, let's say additive to our knowledge base and also the listeners, if we actually discuss it even more if it's already part of our portfolio. So one of the things that kind of goes through my mind here with Grab is a problem that a lot of international businesses face relative to the US which is that for a company starting its life in the US you kind of have the benefit of expanding into the world's biggest domestic market rate. So by the time Uber reached scale in the US they were already one of the biggest companies in the world. And that obviously gives them the resources to tackle new markets head on. And if you, I don't know, you would say that you'd be the Uber of Germany. You can only grow so fast before you kind of have to expand and learn to navigate this cultural, legal and also the political differences of operating in, I, uh, don't know, let's say France, the uk, Italy, Spain, those type of countries, and actually a dozen other countries before you even begin to approach the scale of a business that simply expanded across all the 50 states in the US where you have this much more unified market to actually operate in. And so that point goes for Southeast Asia as well, right? I mean, it strikes me as being incredibly difficult to operate across so many different countries, which on the one hand it's impressive, but on the other hand perhaps tells you why grab is a $15 billion market cap company and not a $150 billion market cap company like Uber.

Sean O'Malley: That's a good point. And think about the friction of entering a new city in a developing nation for Grab. You're maybe telling the local taxi union, which might have deep political ties, that you're going to digitize their industry, and then that's probably not going to go very well. And so if you come in with this Silicon Valley arrogance and you're lacking in corporate humility, local regulators could just simply shut your servers off, or the local drivers might actually blockade the streets. And so Grab has succeeded instead then by explicitly focusing on economic empowerment, by proving to local governments that its platform actually increases the daily take home pay of a previously marginalized workforce in many ways. And so in other words, they have to buy political capital. And so far they have proven adept at doing so. But really, it is a highly precarious balance of power between the technology platform and Grab, the gig workers, and the state across multiple different countries.

Daniel Mahncke: I gotta say, it's, I don't know, it's somewhat difficult for me to figure out how different those markets are and how hard it would be in Southeast Asia to expand. But looking at Europe, which is generally pretty similar across countries in terms of regulation and maybe also culture, and then seeing how many problems there still have been for companies like Uber, for example, to operate in these markets, it does give me some pause. But before we do go deep into that, and we will, how about we talk about delivery? Because, you know, we've studied delivery businesses twice now with Uber and DoorDash, and we like Uber's prospects better of the two, but still, it's a difficult business to be in. That's something that we've definitely seen. When we covered DoorDash during the pandemic, you had, uh, these VC funded subsidies on all kinds of deliveries. And now on the other side of that, the prices of food have risen dramatically. And energy prices are much higher for delivery workers too, which has to be baked into the pricing. And at the same time, customers need to have the spending power to pay a platform fee to the delivery platform and also tip the driver. And that's where we've joked in the past that virtually has the money for doing that consistently. You know, maybe on a Friday night you do it because you don't want to go out, it's rainy. But to actually do that multiple times a month, it's pretty costly. And you kind of have to figure out how many people are there that actually want to spend that money. And people, of course, are doing it at scale, but I know it violates especially our value investor sensibilities.

Sean O'Malley: It does. It's not a cheap habit to have, but man, it did feel worth every last cent back in college to get a Chipotle burrito delivered to your door after a long day of studying. Right. But for Grab, the deliveries business includes Grab Food, Grab Mart for Everyday Essentials, and Jaya Grocer, which is an actual physical supermarket chain they acquired to anchor their supply chain. Sort of like Amazon with Whole Foods and like with Uber. I wouldn't say the delivery business in a vacuum is hugely attractive to investors, but it's all about combining restaurant, grocery delivery, ride hailing and a consumer finance business into one super app. Right? That's the holy grail. And we can see the power of this flywheel by looking at the number of users using two or more services from Grab on a monthly basis. And in 2025, they had 62% of their total monthly transacting users, which by the way, sits at around 50 million people. 62% of them use multiple M services monthly. So that's incredible.

Daniel Mahncke: I would say there's this general trend that we do see in Asia, right? I mean, I'm talking about the trend of super apps, super apps that basically connect many different use cases and become these huge ecosystems over time. And we talked about it with Sea Limited literally starting out as a mobile game company and then deciding to go into E commerce, fintech and banking and all those type of fields. And I just can't imagine that would work in the US or in Europe. I mean, it's also part of this mobile first culture in Asia and also many developing markets in the world. I mean, you could say that the same is happening in Latin America. You could also say that delivery and ride hailing work well together. And that's something that we have also seen from players like Uber operating in the US and in Europe. But generally speaking, delivery and ride hailing are just a lot better at scale. So, you know, you can increase order density by reducing the amount of idle time for drivers and increasing the number of trips they can complete in an hour by, say, picking up multiple food orders from the same restaurant at once. And that would obviously make the economics much, much better for the business. So in some ways, having an existing user interact with Grab more can actually be more valuable than acquiring a new customer actively using Grab. But let's just take a moment to better understand the unit economics here. Because if someone orders a bowl of VO for delivery, for example, how much actually goes to the restaurant, how much goes to the driver, and then how much goes to Grab?

Sean O'Malley: That's a good question. So let's say somebody orders a $15 bowl of pho for delivery in Ho Chi Minh City, which, for the record, I know from experience, is way more than pho costs in Vietnam. But just let's use simple numbers here. So, you know, answering your question requires getting comfortable with two quirks of grabs accounting that can sometimes make reported revenue look different from the underlying economics. So that's how Grab treats the incentives it pays out across its ecosystem. And correspondingly, the distinction between agent and principal revenue recognition. That's what I'm referring to. And so just to start with the simpler structure, Grab is a matchmaker. It connects the consumer who wants pho with the restaurant that makes it, and the driver delivers it, and it earns a fee for arranging the whole thing. And so Grab is purely acting as an agent by accounting considerations here. So the $15 order might break down as roughly $11 for the food, $3 of delivery fees, and maybe $1 of service fees. And, you know, with this Agent accounting model, Grab might record say a $1 commission from the restaurant, a 50 cent commission from the driver out of that delivery fee, and then a $1 service fee paid by the consumer. And so that's $2 and 50 cents of revenue for anyone who's doing their math alongside us at home. That is being recorded on Grabs income statement derived from a hypothetical $15 order. And everything else the food costs and the driver's base pay, none of that is ever touching the top line. And under the principal accounting model, the full $3 delivery fee hits revenue instead, and the $2.50 paid to the driver is recorded as a cost of revenue instead. And so the merchant commission of $1 and the service fee of $1 still appear in revenue too. And so the reported revenue goes from $2.50 to $5. Twice as much recorded revenue on the exact same transaction. Even though economically speaking, Grab share of things has not changed at all, right? Their gross profit is still $2 and 50 cents. And so the driver still got two 50, the restaurant got $10 and the consumer still paid $15. And so nothing about the underlying transaction actually change, just the way that you record the accounting of it. That's sort of the important takeaway is that under these two different revenue recognition models, they can either record twice as much revenue or half as much revenue in some cases. Sort of on the extreme right, that's an extreme case. But for the majority of Grabs businesses, revenues are recorded under the former model. We talked about the agent accounting approach where they would sort of understate their revenues comparatively. But in at least one market, Grab takes on direct contractual responsibility for the delivery itself legally, and that makes them a principal for accounting purposes. And so Grab disclosed exactly this and it's 2023 result where a change in their business model in one market shifted certain deliveries from agent to principal accounting, and that added $180 million to reported revenue that year, but increased cost of revenues by roughly the same amount. So economically again, there's no difference in the agent versus principal accounting. You can do the same volume but legitimately record different revenue figures. And that's what makes it challenging at least looking at this 2023 period, looking at Grabs revenue numbers straight up. It's not an apples to apples comparison across a multi year period.

Daniel Mahncke: It's one of those things that you just have to be aware of to understand the results that are posted by the company. And personally, I don't know, I feel like the agent accounting approach is a much better representation of what Grab actually earns because ultimately the $3 driver fee is not really what Grab makes. So it's just one part of this three sided business model. Anyway, though, I think this is a bit too complex and I think you kind of made the case in a way that everybody can understand it. So I want to get back to the elephant in the room regarding the super app business model, which is that, you know, the prevailing wisdom of being a jack of all trades means you're fighting very costly war on three fronts. So you're battling Pure Play food delivery apps, Pure Play Ride hailing apps, and then also to additional banks simultaneously now going into this fintech part of the business. So how do you avoid leading capital to incentivize all these different users to stay on their platform?

Sean O'Malley: It really plays into the super app Flywheel that is designed to address this in the sense that each touch point is meant to reinforce the value and positioning of the other touchpoints points. So if you think of traditional customer acquisition as being like a standalone store on a desolate highway, to get a customer to pull over, that store has to spend a fortune on billboard ads, TV ads, and maybe promotional discounts. And, you know, that's kind of similar to how a traditional bank might try to acquire a new user too. They almost have to bribe you to open an account with. You know, if you deposit $6,000 in your first six months, you get a $50 or $100 bonus or whatever it is. But Grabs financial services or are more like a small kiosk located in what is essentially a bustling grocery store, right? The customer is already walking past it three times a week. And so when Grab launched their GXS bank, their digital bank In Singapore, over 90% of the depositors were already active Grab ecosystem customers. And so that just completely flips the economics of banking. They didn't have to spend millions on advertising or use huge signup bonuses to bring those people in. They just push an in app notification to someone who was already opening the app to order a taxi to the airport, meaning the cost to acquire that depositor was practically zero because the user trust and the digital real estate were already established for them to be able to do so. And. And they further actively engineer retention through a program called Grab Unlimited. And this is their paid subscription tier. And it's very similar to Uber one, where for a modest monthly fee, you get discounts on food orders, deliveries, subsidies, vouchers toward rides, stuff like that.

Daniel Mahncke: The psychology behind that is that just by paying a flat monthly fee to waive, you know, delivery charges and get right discounts, the user experiences this sunk cost fallacy. So saying that if I already paid my $5 for the month, I kind of feel financially obligated to order my lunch through Grab rather than a competitor just to make sure that I actually get my money's worth out of the subscription. We've actually seen those, of course, many businesses that we've studied and we sometimes talk about these subscription fees that make so much sense that you just wouldn't cancel. Right? Amazon prime is one of those examples. And I actually used Uber one recently and signed up for it. And as people who listen to our original Uber apps, it would know I wasn't a big user of the app before that. But now that I'm paying five viewers a month, I see myself ordering food way more from Uber because I just, I feel that, why not? You know, this charge of just getting the food here being like 3 or $4 seems like a lot of money. But if I don't have to pay for it anymore, I sometimes see myself ordering food that I didn't order a year ago.

Sean O'Malley: That warms my heart. Daniel, it took me a long time to sell you on Uber, both as a product and as an investor, so that's really good to hear. And you know, I, I think Grab Unlimited subscribers do tend to transact at significantly higher frequencies. Sort of like Daniel, with Uber generally shown much higher retention rates than non subscribers, it just locks them in. And again, we've seen this as kind of a phenomenon against so many companies that we've studied. It also transitions the company from a defensive posture where they're constantly having to offer promo codes per transaction to win every single meal to a, uh, more offensive posture based on just cultivating habitual loyalty.

Daniel Mahncke: I gotta say that in theory the logic of the Flywheel is pretty elegant. You know, you have lower customer acquisition costs, you have high retention and obviously high cross selling opportunities for these high margin financial products to. Right hailing users. But the only problem is that theory doesn't pay any dividends, as we know. And if I look at the financials of 2022, the investments into the Flywheel seem to be quite expensive. I mean Grab posted a net loss of over 1.7 billion. And we've seen these type of investments for other companies, but it does seem quite intense for grabs.

Sean O'Malley: What happened here, the spending definitely wasn't going toward building factories or laying fiber optic cables. You know, nothing like that. Instead it was a massive portion of that was going toward incentives and that was a big cash burn. Right. In 2022. Partner and consumer incentives. So not just the incentives paid to customers, but also the incentives that they give to motivate drivers to go out and fulfill deliveries, participate in the network that was running at 13.3% of their on demand gross merchandise value. And that is sort of jargony. That's a very big number. And so they felt they needed to put the paddle to the metal to keep drivers on the road and to ensure customers would continue to choose GRAB over other competitors as economies, uh, reopened post pandemic. Right. It was incredibly important that GRAB made sure that as we're going through so much economic change, that people are still thinking about using GRAB in this way. And so GRAB was heavily subsidizing both sides of the marketplace. The supply in terms of the drivers and the delivery folks, and like I said, the consumers. And again, it's a pretty classic blitz scaling playbook to try and gain market share or in some cases protect market share. And I think it was a little bit of both here. But that game only works when capital is free. Or it certainly works better when capital is free. Right. But when the macroeconomic environment shifted, you had a lot of inflation, interest rates started to surge globally. All of a sudden, capital is no longer free in terms of the interest rates on debt. And so from here, this is where we see a real dramatic pivot in strategy.

Daniel Mahncke: And how exactly did that pivot look like?

Sean O'Malley: Uh, so the era of buying low value transactions was over. Right. I say buying as in subsidizing. Right. There's another way to think about it. It just didn't make sense anymore. So instead they began aggressively weeding out unprofitable subsidies. And they focused intensely on what they termed high quality users. And they define that as the demographic that relies on the platform out of convenience, not because they're hunting for a, uh, 20% discount code. And so by 2024, they had driven incentives down to roughly 10% of gross merchandise value, which is more than 20% contraction. Right. But they didn't just cut marketing spend, nor did they simply fire staff to save money and try to boost operating leverage. They optimized the underlying algorithms. And so what they did is they improved their AI driven dispatch system M to reduce the time a driver spends idling between rides, for example. And obviously, if a driver is earning more money per hour because the routing is more efficient, GRAB doesn't have to pay them as many direct cash subsidies out of the corporate treasury to keep them happy and to keep them maintaining the supply side. Of the network, which ultimately ripples across into if you can order delivery and get it delivered quickly, you're probably going to order more frequently. And so supply drives demand in some ways.

Daniel Mahncke: We actually saw this with Uber, right? Efficiency is everything for a scaled three sided marketplace business like this. And even just small things like having a driver be able to pick up multiple orders at once can make a massive difference to profitability. And this is really at its hard a logistics data business.

Sean O'Malley: Yeah, I think that's right. And so we saw the culmination of that leverage in 2024 going into 2025, where they posted their first full year of operating profitability. And maybe that doesn't sound so impressive, but for operating margins to swing from negative 22% in 2023 to 3% today in the last 12 months, I mean that's a massive 25 percentage point swing, right? And that happened in just a few years. And so we saw the exact same thing happen with Uber a few years earlier. But Grab swing toward profitability actually looks more dramatic than Uber's, honestly. And it's important to say that they were both businesses that uh, just a few years ago there were serious questions as to whether they could ever be profitable. And Now Uber has 10% operating margins and we think that can double, if not more than double in the coming years thanks to further scales and autonomous vehicles and advertising. So there's no reason not to expect something approximately similar to happen with Grab and autonomous vehicles I don't think will benefit them in the same way for at least a longer period of time, with the exception of Singapore where they could see that sooner. Because I just think that AV rollouts are going to be slower in places like Jakarta, Indonesia than in most of the US naturally. But still that will eventually come and that will position them to cut out drivers on the margins. And drivers are their biggest expense in ride hailing. And so of course that's going to help with profitability. But for now I don't think it's something we need to linger too much on. I know we spent a lot of time talking about AVs in our Uber Deep Dive, which you can find a link to in the show notes. But it is safe to say GRAB is very much doing some cool stuff in this space. And like I said, a lot of that's happening in Singapore in particular.

Daniel Mahncke: It'll be interesting to see if we see AVs on the streets in Germany or in Jakarta earlier. I kind of would bet on Jakarta probably. But you know, as you said, we can talk More about where grabs margins may settle out as the business matures. But this is really what, if I can speak for you, Sean too makes you think about the investment opportunity in terms of being interesting right now. Right. I mean we mentioned before the call that this is basically play that if the margins will actually see anything like a similar development as they did for Uber, this will be pretty interesting. And the market sees a Stock that's down 70% since IPO and I think just 30% since last year. So for you and me also, we do see a business that's inflecting to profitability with a lot of room to run on top line. And also the margin while enjoying some similar advantages to again one of our favorite businesses in Uber, but adapted to this I think you can say diverse markets that they actually operate across, to say nothing of the opportunity in the fintech business, which obviously is also still there.

Sean O'Malley: That's exactly right. They've stopped the bleeding and reached this critical threshold where I don't want to say it's all smooth sailing from here, but at the same time the biggest questions facing the business, the possibility of being profitable at scale. Right. Uh, those uh, are behind them. And of course the flywheel can really start to spin once you're able to fund reinvestments into the business without needing to use debt or relying too much on stock issuance and stock based compensation. And beyond that, what this hopefully means is that we see some curtailment in dilution. Stock based comp as a percentage of revenue has come down by about half since 2023, but the total share count has still compounded at more than 2% a year during that period.

Daniel Mahncke: Whenever you increase the share count, I mean you're not just hurting, let's say your earnings per share this year or the next year, but really it's kind of a permanent consequence. Right? I mean all of your future earnings will be divided buy a larger denominator which in plain English just means that you're spreading your profits across more shares and sort of more people. So everyone gets thinner slice, uh, of the pie than they otherwise would have, all else being equal. I mean, to some extent, you know, it sounds pretty good if Uber owns almost 30% of the company, but now it's only 13%. So you kind of see that illusion play out in real time. And 2%, I mean that's a serious headwind if you invest in that company. Right. It's not like we've never seen this before with the businesses that we've studied, but still I mean, to the extreme. That's how you get a situation like Snapchat where they have created more wealth for employees and insiders than they have ever, uh, for outside shareholders, right?

Sean O'Malley: Oh, uh, gosh, Daniel, come on, don't bring up Snapchat. I don't even want to think about Snapchat. That's pretty much the only company we've ever pitched before where we just came out incredibly bearish on the other side of looking into them. And we don't love every business we cover. But yeah, there was not a lot for us to like about Snapchat. And so fortunately for Grab, they have announced a 500 million share repurchase program. And so over the last year, the share count does look steadier. But still that gets into this whole debate, which is something Michael Burry has written about. Michael Burry of Big Short fame. And there's this dynamic where you have companies diluting themselves for cheap by issuing employees options to buy the stock at much lower prices then the levels that the company later does share repurchases at. But I digress. I don't want to, uh, go down that rabbit hole too far because, you know, sometimes you just got to take your wins where you can get them, right? Grab is flattening out dilution and buying back more stock and that's not such a bad thing.

Daniel Mahncke: And I would give Grab the benefit of a doubt here when it comes to an sbc simply because they have shown, um, such an impressive business turnaround and already brought it down to, to some extent so that I at least know they are aware of it and they will work on it in the long term. And until then, it obviously hurts a bit. But you know, if the company keeps growing at, let's say, 20 plus percent on the top line and then margins improve over time, I think I can take that, at least in the short term. I actually saw a line from the CEO Anthony Tan, where he described their management philosophy during his turnaround as having strategic patience, but, uh, tactical impatience. So the strategic patience was believing that the super app Flywheel would eventually work, but the technical impatience was ruthlessly shutting down unprofitable business lines and aggressively restructuring their fixed costs, which seems to have succeeded in bringing their break even timeline forward by several quarters. So going back to this discussion of margins, what catalysts do you see mattering most to whether, you know, in 10 years from now we look back and say, wow, I mean, look at how far margins have actually went up in the last 10 years.

Sean O'Malley: Let's start with One of their most promising cash engines, and that's the lending business, because the loan portfolio growth, I mean, it's staggering. It grew 65% year over year, hitting nearly $1 billion. And as we know with lending businesses, growth is sometimes good, but not always good. Right. If they're making super risky loans that won't ever be paid back, well, that's a huge liability and a big problem. And underwriting loans to gig workers and street food vendors in emerging markets, I mean, that sounds incredibly risky, doesn't it? And you know, the traditional banks are probably not totally crazy for avoiding these lending opportunities or minimizing their exposure to them. And yet the difference is that a traditional bank looks at a loan application from a noodle stall owner and sees a blank slate. And so they have no visibility into the stalls daily cash flow. So the bullish argument for GRAB is that, you know, these traditional banks would either just deny the loan or have to charge an exorbitant interest rate to offset the perceived risk because they have to assume the worst. But the advantage that GRAB at least arguably has is that they're not blind. In the same way, if that noodle stall uses GRAB food and Grab pay grab is a real time, minute by minute ledger of that business's economics.

Daniel Mahncke: Right?

Sean O'Malley: GRAB knows exactly what time the stall opens every day. They know the average basket size, they know the cancellation rate, the customer review scores, and the seasonality of that business's revenue. And so GRAB is literally processing the revenue for them after all. And so they can assess the probability of default with a level of precision that a traditional bank simply can't match. And because of that, they can extend microloans for working capital to these merchants or cash advances to drivers like we talked about earlier, and do so with incredibly low non performing loan rates. And so in earnings calls, management has noted that their 90 day non performing loans were well within their risk appetite. So at least so far they've been able to safely monetize a segment of the population that, uh, traditional finance just structurally abandoned. And so in other words, they're leveraging the sunk cost of their delivery network to underwrite a highly profitable lending business. And you know, Daniel, we were talking about this before the call, but one of the yellow to red flags here is that GRAB does not disclose a ton of data around their lending business. And so that makes it very difficult to underwrite the risk that you're taking because the growth is very, very promising. But we don't really have a lot of data on what percentage of loans are non performing and what the net interest margin after losses are. And so it's going to be something that they'll probably be increasingly transparent about over time. But and this is sort of a scary thought at the moment, you're just going off management's word and so they're saying it's well within the risk appetite and whatever that means. Right.

Daniel Mahncke: You had to ask you about it because I feel like I'm a bit spoiled by now by looking at, you know, especially Meli. I mean Sea Limited also had, I would say its problems with giving us all the numbers that they should. But I mean Melly's reporting, they are just incredible at that. Right. They give you so many details, they give you so many insights into how they think about this business. And I do think that's pretty important. I mean lending in these regions, as you said before, I mean that comes with plenty of risks. And I would say that credit businesses again have this asymmetry to the downside. So you want to know exactly what risks you're actually buying into. And I don't know about the economics of a noodle sand and I could imagine that the data insights that grab half actually are a uh, benefit to them and adventures compared to these other banks. But I could also imagine that the cash flows are quite volatile. Right. And it's not the same as lending to merchants that they'll send on that then sell their products on Melly or Shopee with probably significantly more cash flow. And again Melly gives you all sorts of data and that's something that I would expect grab to do at some point as well. And you could argue it's still a small business. But also you said it's like 13% of revenue. Right. And if we talk about a uh, loan portfolio of $1 billion that's growing at over 60%, I do want to know what their risk appetite actually is and compare that to some of the other players.

Sean O'Malley: So I think those are all really important points. But we are talking about things to be optimistic about here. Right? And, and something that I am optimistic about on top of at least the potential of the loan book is their B2B software offerings are really interesting too, uh, for growth and for margins. So they took the maps that they've built and that we've talked about and they turned that into a B2B software as a service offering, meaning they're licensing their proprietary mapping tech to other companies. And on top of that there's the same advertising opportunity here that we talked about a lot with Uber in the past, when you have 47 million people opening your app with high intent to purchase, whether it's for a food or for a ride, that just creates incredibly fertile digital advertising, real estate. And so merchants can, for example, pay to boost their visibility with the app promoting their food and their restaurant as a recommendation to people hunting for, you know, lunch or dinner on the platform. And while for Grab, that ad revenue is essentially a pure profit margin and has hit an annualized rate of several hundred million dollars for them, so it's increasingly material part of the business for Grab.

Daniel Mahncke: I mean, I certainly see a lot of, you know, stuff to be optimistic about with Grab. And intuitively, I think seeing the stock price so beaten down even before we've gotten to the valuation does make me, I would say, excited when we look at everything going in Grab's favor. And also the fact that the business model generally is something that we know and we like. But I also know some things on the regulatory front have, well, let's say, not been going in their favor. So perhaps you want to elaborate a bit on that.

Sean O'Malley: We always talk about wanting to use consumer insights to inform our investing opinions. And that's not simply a question of having used the product or not, but it also extends to, you know, having a feel for popular sentiment and in which way the regulatory winds are blowing for a company. And that really has been a big challenge for Grab. And so in Thailand, the government officially categorized food and parcel delivery under the Department of Internal Trade, which legally opened the door for the government to impose strict price controls on the delivery fees that Grab can charge. And in Malaysia, there's new regulatory frameworks that require delivery platforms to apply for specialized, highly monitored licenses. And in Vietnam, there was bureaucratic friction that's so high that Grabs application for a, uh, specific trading license was delayed for years due to this opaque and shifting administrative procedures. And Daniel, I know you have an appreciation for bureaucracy in Germany, you like to joke about it a lot. And, you know, beyond all of that, there are still these things like data localization laws that require servers to physically reside within a, uh, country's borders. You've got massive foreign ownership restrictions in constant legal battles over whether their drivers should be classified as independent contractors or full time employees entitled to benefit. So it's, it's messy.

Daniel Mahncke: I think we thought that Uber's legal challenges over the years have been a nightmare, but I don't know, this sounds much worse and also somewhat intimidating as a potential investor.

Sean O'Malley: And so that's to say nothing of them becoming an Increasingly important lender either. Right. I mean, that just doesn't amplify their business risk at a downturn. It also exposes them to even greater regulatory scrutiny and potential penalties. And so that all does make me nervous and would maybe be my biggest hesitation to investing in Grab. Besides not having better insights into their loan book, which could go hand in hand with regulation. Right. Those might not be totally unrelated things in the future for them. And so they might spend three years optimizing their routing algorithm to increase margins by 2%. And then with the stroke of a pen, a, uh, regulator and let's say Bangkok just caps your fees and wipes out that entire margin gain.

Daniel Mahncke: That's brutal.

Sean O'Malley: And more recently, we saw this come to a head in Indonesia. And as of May 2026 at the time of recording, the main issue here is that Indonesia is forcing Grab to give drivers a bigger share of each ride. And so previously the platform could take up to about 20% of a ride fare, leaving the driver with roughly 80%. But under this new regulation, Grab can deduct only 8% from the transaction amount for themselves. And so drivers must receive at least 92% of the fare. And the regulation also pushes the company toward more driver protections like health coverage and work accident coverage. And so plainly this is a take rate cut for Grab. Their business overnight became vastly less profitable in Indonesia. And, um, on the bright side, management has suggested that the regulations are only focusing at the moment on two and three wheeled vehicles. So Grab's entire ride hailing business is definitely not being affected. But who's to say whether that comes next, right? I certainly don't know. I'm not closely dialed into Indonesian regulatory politics. And so on the other hand, Indonesia is just one market and ride hailing is just part of their overall business. And the regulations are, like I said, targeting a subset, uh, of that business line. So I don't want to frame this as being a devastating issue for the company, but it's not an inspiring precedent for investors either to see being said. And, um, naturally when you go and listen to Grabs most recent earnings call, it was a question that came up multiple times.

Daniel Mahncke: I mean, if you see a take rate decline from 20% to 8% and you basically take so much time to even just get your take rate to that level, that's certainly a risk. And I got to say, this probably even is a potential deal breaker. I mean, companies like Grab, an Uber have, uh, to fight for 1 percentage point of margin basically for years and, you know, build their flywheel that we discussed today through huge investments in the billions of dollars. And then when it's time to benefit from all those investments, their take rate is cut in half by regulators even more than that. So that's the type of stuff that can actually break the entire investment case and it's close to impossible to account for that. And in terms of other risks competitively, we might want to talk about Sea Limited. I recently pitched Sea on the podcast again, and you told me prior that Grab is a competitor, so I expected to come across it quite frequently. To be honest though, that wasn't really the case. There wasn't too much. I looked into Grab for my C Limited episode and I think Shopee has a food delivery service called Shopee Food that directly competes with Grab. But I at least got the feeling that probably it's an afterthought for Shopee. So I would expect Grab to win that game. And then a greater long term threat to Grab is money, I think, and money is basically Seas payment and credit business. And I think there are just much greater ecosystem advantages for an E commerce player in the payment space generally. So I don't know, I think this could hinder Grabs, progress in payments. And ultimately, if you would think about Grab as a super app and payments is a huge part of the flywheel, I could also see how that's a problem if they lose that game to money, especially in the biggest markets like Indonesia for example. But if we were to get bullish on Grab again, what kind of things would you want to highlight to say, well, this is what makes Grab stand out in comparison to Uber and some of the other companies.

Sean O'Malley: Firstly, Southeast Asia is an incredibly young and fast growing corner of the world, and it's also one of the largest smartphone markets in the world, where there were more than 90 million units sold in 2020. And correspondingly, Southeast Asia has one of the most digitally engaged populations in the world too, spending on average more than eight hours a day on the Internet versus 6.9 hours on average globally. And so the point being, both of these dynamics are very favorable for Grab as a smartphone native business, being able to gain market penetration and scale. And so at the same time, underdeveloped infrastructure is also a huge obstacle that Grab can aid governments with by helping them find the best ways to route traffic. And maybe if they're able to be helpful with that, that might increase the reluctance of regulators to, uh, crackdown on take rates and stuff like that. And so for context, the Asian Development bank estimated that there is an annual infrastructure investment shortfall of more than $100 billion in Southeast Asia outside of Singapore. And that has resulted in increasingly crowded mass transportation as population density is high and increasing. And yet, private car ownership is prohibitively expensive for a large segment of the population in Southeast Asia, making them potentially more reliant on Grab than most users in the US Might be with Uber comparatively. Right. The average passenger car ownership rate is about 80 per 1,000 people across this region of the world. And for context, it's about 167 per thousand people in China own a passenger car, and in the U.S. it's as high as 436 per 1,000 people. But Southeast Asia is among the fastest growing economies in the world still and is expected to become the world's six largest economy by GDP in 2030. So that alone is very, very promising.

Daniel Mahncke: Before we get to the valuation section now, maybe we can just run down some comparisons between Grab and Uber, because I think ultimately any dollars from our portfolio that we would invest into Grab would also implicitly have to basically say, okay, well, no money invested into Grab is money that we don't invest in Uber, so they are kind of competing. We often talk about opportunity costs, and I think the opportunity cost of investing in Grab is most likely the cost of not putting those monies to work in Uber. So what can you tell us about the differences there? Maybe especially looking at the financials.

Sean O'Malley: Well, Daniel, don't forget we would get that 0.1% exposure through Uber. Right? They do have a stake and Grab, but. No, I'm kidding. I mean, from deliveries to mobility, Uber has better margins than Grab. And that's not too surprising because Uber is a, uh, more mature business in some ways. But due to the regulatory restrictions we mentioned earlier, I do wonder and worry that it might be challenging for Grab to reach the same level of margins that Uber has. And also because they just don't quite have the same potential for scale that Uber has. Uber is operating across much larger markets around the world, whereas Grab is focused on really one specific region. And so Southeast Asian consumers are also more price elastic, which means they're more sensitive to price increases and don't have the same marginal propensity to spend. And so Grab has kept fares low on purpose due to competition and to try and gain market share and increase the number of users of the platform and the frequency of service usage. Whereas Uber can, you know, raise prices more aggressively in developed markets without risking their volume in the same way, which is again, another relative advantage for Uber from an investment perspective for us.

Daniel Mahncke: Right.

Sean O'Malley: We were recently in Omaha for the Berkshire Hathaway shareholder meeting. And we were talking about, you know, we were Ubering everywhere. And sometimes for the same ride, the price was 15 and it was 18 and it was $22. And for the most part we didn't really care. Right. I mean, it wasn't like a deal breaker. You know, maybe if it was $50, that would be a deal breaker. But the point being Uber has, when you're dealing with wealthier populations, there is a much higher tolerance for being able to, uh, absorb higher prices, which gives Uber much higher margin potential than Grab generally speaking has. And so another important difference is also the composition of the vehicle fleets on Grab versus Uber. Roughly 75% of grabs mobility trips are done on a two wheeler. And so those rides are just generally going to be cheaper and shorter. And again, that compresses the Take rate that Grab can justify. And since Uber operates an overwhelmingly car based fleet, trips tend to be longer and of higher value to people. And that opens the door to a higher take rate and better margins. And Uber also has more capacity to lean into premium experiences for its riders that Grab just can't recreate at the same scale based on the populations they're dealing with. And so for Uber, those premium rides also come with higher margins. So I don't think Grab will be as profitable as Uber as a steady state business, at least in comparing the segments that they overlap in. But Grab's advantage is that Southeast Asian cities are so densely populated that they really can benefit from having a much higher utilization ratio and greater efficiency with their gig workers. And so that could certainly boost Grabs margins comparatively. We've talked about how, you know, order density in idle time for drivers. That is such an important factor for whether the business at scale can be profitable. But for me, I do like to simplify things. And I got a bit less excited admittedly when I saw that despite Grab supposedly being so much earlier in its growth story, its monthly users is growing at 16% year over year, while Uber's is actually growing 17%. So for as big and mature as Uber is, they are growing their user base faster in percentage terms than Grab. And of course that's just one year. So we don't want to make too much out of that data point. But you know, it actually makes me even more bullish on Uber than it does make me excited about owning Crab.

Daniel Mahncke: It's just incredible how Uber achieves that. And also, you know, when we had the app is that we call it like, I think last year I was asking Myself. Where do all of those users come from? It feels like Uber is such a household name by now that everybody knows it, and everybody who would actually take an Uber has already done so. But apparently that's not the case. And it kind of goes back to this dynamic that you mentioned that basically Grab. And you mentioned that, I think before the call we talked about, you know, Grab, Uber and the dynamic. And you said that Grab kind of feels like public transport in Southeast Asia, so that it's just needed for people because they don't have cars, for example. Then I said, well, in Germany, Uber, for example, just feels so premium. Like if you're an Uber user, you just don't care if you know the ride costs like $10, $15, $20. Because if you take Uber, that's a decision that you make that you don't take your own car and you don't take public transport. And if that's the case, I don't know what your reasoning is, but you certainly don't care so much about the pricing. So it's just a significantly better business model if you cater to people who don't care how much they spend on the ride. And that's basically, you know, the core markets for Uber. Whereas as you said for Grab, it just feels like they will always compete on price because that's the most important thing for their main customers. And, you know, that's just, uh, difficult to get into. But then also, as you said, I mean, I would have expect them to grow users significantly faster than Uber did, and apparently that's not the case. And that's also at least something you want to have an eye on, right? Like, how does that develop in the next couple of years? Will they continue to accelerate user growth, or will they actually only trail what Uber is also doing in developed markets? But enough of that. How do you feel about going into the evaluation section? Tell us, what is Grab actually worth?

Sean O'Malley: For sure, yeah, let's do it. I don't want to spend a ton of time on this because I don't want to pretend like the numbers matter a ton if qualitatively we can't be comfortable with the regulatory concerns or the loan book or, or having more emerging market consumer credit exposure in our portfolio generally, since we already have investments in Mercado Libre, in Nubank, and there's some exposure through Uber as well. And so, you know, modeling only takes you so far and it can't be the rationale alone for an investment decision. But, uh, I'll get off my high horse and Stop preaching. There's just to say that if Grab can hit, you know, let's say, 20% operating profit margins in the next, you know, five, six, seven years while the business continues to grow strongly, I could easily see Grab being effectively a double from current stock prices using a 10% discount rate. And, you know, in a base case scenario, Grab would probably be worth, yeah, call it, I don't know, $6 and 50 cents per share today, which is a pretty hefty premium compared to the $3.55 price that the stock is trading at at the time of recording here. But the problem is I can't underwrite a base case to factor into my intrinsic valuation of Grab with any confidence because, you know, what you don't know in this case just feels so extreme. Right. I worry about the direction of regulatory crackdowns across Southeast Asia and how they're moving against Grab, and I worry about the risks that they're taking in their loan book. And I just see these as being, you know, really big considerations for potential shareholders and, you know, also the economy. So Southeast Asia, just on their own, are notoriously volatile. Right. And the currency risk that you're taking. Right. Lots of currency depreciation for, you know, a business where its stock trades in dollars. So if you're earning in Thai bot, you're really taking a lot of currency risk. That BOT will have a favorable exchange rate with the US Dollar over the course of a year or two years or several years, and especially in Latin America is a huge issue we've seen there, too. But Mercado Libre and nubank, for example, have grown just so ridiculously fast that they're able to really make up for a lot of that concern. And so, anyways, we've seen these Southeast Asian economies be hugely, disproportionately impacted by the war with Iran, and that's constrained oil flows through the Strait of Hormuz, and many of our colleagues in the Philippines at this very moment are dealing with power outages related to that. And so the ripple effects of that, from defaults on loans to cutbacks on spending, I mean, that could all be devastating to grabs business and be beyond their control. So I just think it's hard to even define what degree of margin of safety I would need here to feel comfortable with grab, even though I say, you know, in a base case, it might be undervalued by up to half as much. We just don't know how much the downside is. And that really concerns me. And you would need to factor that into, um, your fair value assessment of the company. And so I would say, like, it's important to notice that I'm not entirely ruling out investing in Grab because I see a lot to be excited about and if I had to guess, I think it could be a very good investment at current prices. But it's just one of those things that I need to do more homework to get comfortable with the risks before I could consider recommending it for a portfolio. And, and that's sort of where I'm at with it.

Daniel Mahncke: Yes. Said to one of our Mastermind members in Omaha after my Meli presentation that besides the credit situation, what gives me some pause is that I don't have consumer insights. And in Melly's case, um, I understand the company pretty well, I think, and it doesn't worry me generally. I do feel like I have a good picture of what they are trying to do and also they're communicating a lot in terms of what their strategy is and you see that play out in the numbers. And with these consumer facing companies you just have a massive advantage if you are a daily user. And that's why I was biased against Uber in the beginning because again, in Germany it was illegal for quite some time and even now you just don't need Uber to the same extent as India, thanks to public transport. So that's why, you know, I said that I don't have many friends who actually use Uber that much. With Grab, I don't necessarily need to have that consumer insight to the same extent, at least not to figure out the competitive dynamics, because it feels that Grab has by far the strongest position, rather sort of to its competitors. But if regulation is an even bigger threat than it was for Uber here in Europe, that's a pretty strong head run. I mean, I would need more information on the business and also details on the unit economics to kind of get comfortable with that, I guess. And we might actually get those insights, you know, after talking with the cfo, which is again planned soon. But until then, hearing stuff like the takeaway being cut in half just by regulators is just, it's a pretty massive headwind compared to, you know, what we face with Uber. And then you add to that all of the pressure that comes from currency and even that's probably one of those other deal breakers. For me. The fact that you don't see them outgrowing Uber to the same extent that I would have hoped and kind of thought they do. Again, like Melly is growing 30, 40, 50%. Some businesses are doubling every single year. They're outgrowing these headwinds and it doesn't look like GRAB is doing that to the same extent.

Sean O'Malley: Okay folks, well, it's been a fun one. On that note, let me leave you with a quote from grab's CEO Anthony Tan. When asked about one piece of advice for aspiring entrepreneurs, he said, quote it has to be your life calling. Unfortunately for GRAB shareholders, I do think that for Anthony this very much has been his life calling and and having it deeply aligned and inspired founder, CEO and I know we didn't talk about him a ton today, but having somebody like that at the helm, that can lead to wonderful outcomes. And so on that note, we'll see you all again next time. Just a quick note before you go. This episode would not be possible if it weren't for our friends at Fiskel AI. It's our complete stock research terminal that Daniel and I use on every single episode and with every company we dig into pooling 20 years worth of financials, digging into segment data, grabbing quotes from the latest earnings calls, and making use of real time institutional grade data all in one place. And if you want to try it yourself, well, head to Fiskel AI TIVP. That'll include two weeks of Fiskel Pro for free and 15% off if you upgrade to a paid plan. That's fiscal AI tivp. Thanks for listening.

Narrator: Thanks for listening to tip. Follow the Intrinsic Value Podcast on your favorite podcast app and visit theinvestorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax or legal advice. The content is impersonal and does not consider your objectives, financial situation, or needs. Investing involves risk, including possible loss of principal and past performance is not a guarantee of future results. Listeners should do their own research and consult a qualified professional before making any financial decisions. Nothing on this show is a recommendation or solicitation to buy or sell any security or other financial product. Host, experts, guests and the Investors Podcast Network may hold positions in securities discussed and may change those positions at any time without notice. References to any third party products, services or advertisers do not constitute endorsements and the Investors Podcast Network is not responsible for any claims made by them. Copyright by the Investors Podcast Network. All rights reserved.