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🎙️ | 28 | Pratyush Rastogi
Deep Dive on Grab
My guest (and first-ever return guest!) is Pratyush Rastogi (@FarrerWealth). Pratyush is the CEO & Founder at Farrer Wealth Advisors and was previously Head of Sales at Grab for Business, as well as prior experience in private equity.
This deep dive is all about Grab. We go deep on their business model, Grab’s history, how regulation and management affect them, and what the future may hold.
(For reference, this episode was recorded December 29, 2021)
Listen to this episode on Apple Podcasts, Spotify, Stitcher, Castbox, Google Podcasts, or on your favourite podcast platform.
My takeaways and lessons:
Ride that ASEAN wave!
“Despite everything I’ve talked about, despite all the competition, despite all, the potential issues and the money they’re gonna have to spend, Southeast Asia is still very underpenetrated. […] if you compare the ratio of how much people spend on ride-hailing versus total personal consumption on transport, it’s only about 5-10%, it’s still very low, right. […] So there is this tailwind that they have, that there’s still a lot of room to grow in this part of the world.”
I’m an Anthony Tan Fan
“Anthony Tan is very critical. I was very impressed by two things. He’s very good at raising large sums of money, […] and he has this way to really convince people, to try these things that seem really impossible. And that was really important. Cause he’s really that kind of like that person pushing people forward. And it’s really important when you’re up against difficult competitors, difficult conditions, very competitive environments.”
[00:00:31] – [First question] – Pratush’s background with Grab
[00:03:42] – Grab’s major aspects today and revenue drivers
[00:08:04] – Grab’s history and battle with Uber
[00:15:46] – The supply side of Grab’s business
[00:20:25] – Grab the Super App and why create one?
[00:22:38] – The scale and capital problem
[00:26:29] – Unappreciated aspects of Grab’s and culture?
[00:28:38] – Anything that people fundamentally misunderstand about Grab
[00:30:14] – Grab’s leadership
[00:34:35] – Worried about Anthony Tan’s 2.2% stake?
[00:35:47] – Grab’s story and success with Regulators
[00:37:60] – Biggest risks to Grab’s business?
[00:41:11] – Anything we haven’t talked about Grab that’s consequential for their future?
Connect with Pratyush:
Kalani Scarrott (00:31): So another deep dive today, this time on Grab. So my guest today who will be chatting about Grab is Pratyush Rastogi. Pratyush is the CEO and founder of Farrer Wealth Advisors, and was previously head of sales at Grab for business, as well as having prior experience in private equity. Today’s conversation obviously is all about Grab. So we go deep on their business model, Grab’s history, how regulation and management affect them and what the future may hold. So just for reference, this episode was recorded on the 29th of December 2021, but either way, I hope you enjoy my conversation and deep dive on Grab with Pratyush Rastogi.
Pratyush, thank you so much for being on today, but I think a probably natural or logical place to start would be with Grab and your history with them. So what got you interested with them or what’s your background and relationship there?
Pratyush Rastogi (01:18): Thanks Kalani. It’s a pleasure to be back and looking forward to speaking to you about Grab. Just as a disclaimer, I don’t own any shares in Grab, and this, so this is just a discussion for hypothetical purposes, but to answer your question, my history with Grab, I actually, started working with Grab in 2016. So I was coming back from the US I came back to Singapore and I just finished business school after business school I had taken a break from the investing world and got into entrepreneurship and sales. So when I came back to Singapore, I wanted to continue that and Grab, was doing really well in the region for one, I was really impressed that it was a homegrown startup. That was, I think, I think at that time in 2016, they had just raised about 800 million at a round.
That was about, a big round. That was about 800 million. And then obviously they raised much more money since then. you know, and they were, they were not only a homegrown startup, but they were actually doing really well against a very formidable global competitor, which was Uber. And that was quite impressive, right? Because typically, what would happen in most of the world is you’d have a business model that worked in the US and that would expand and typically become the business or the dominant business in that part of the world, but that wasn’t the case and ed Grab was doing really well. So for those two reasons, I was quite interested in Grab. and plus they had business development roles, which was right up my alley and sales. And so interviewed with them, joined them in 2016.
And I worked for them for about 18 months and my job was I ran, what’s now called Grab for business in Singapore. So Grab for business is the B2B segments of Grab. And you, our goal was to convince companies to ask their employees, to take, Grab for their corporate transport. So whether they’re going through meetings or whether they’re going to the airport anything related to their work, their first thought in their mind is I need to get somewhere I’m gonna call Grab. And we provide them with a tool that made the backend process of claims and reimbursements. Very, very simple. so that was really our goal. And, and, and while my official title was head of sales, I was also in charge of our operations. I was involved in building the product. And so it was really just a catchall, role, for that part of the business in Singapore. And, since Grab, obviously I left Grab to start the foundations of what is now Farrer Wealth. so, but I’m still very much in touch with my ex colleagues, every now and then I’ll meet with some, some, some people who still work there who are, who are my friends. so I’ve kept up with the company throughout the years.
Kalani Scarrott (03:42): Yeah. And that’s perfect for today’s episode, which is all about Grab. So this might be a tall ask for a business, like Grab, but could you maybe just describe, how you think about them as a steady state today? So what are the major aspects of them and like, where does all the revenue come from and how has maybe that evolved over time?
Pratyush Rastogi (03:57): Yeah, sure. So Grab is what, Grab is branded as a super app. And most of, most of your listeners will be familiar with what a super app is. And essentially a, a typically a super app will start with one core business, whether it’s in payments, whether it’s in transport, whether it’s in food, whether it’s in e-commerce right, as you know, the super app concept really came from China, where we had the likes of Alibaba and Tencent and for Grab it’s no different. They had a core business to start with, and that was, mobility and, and specifically ride hailing. Right? So, so very much using your phone to call a cab, or a private hire to get you from point A to point B. And that was essentially how the company started. Right. And, I’m sure we’ll get into the more history and there’s a lot of details there, but, but their core business has fundamentally been mobility.
Now Grab right now has about a 70% market share in Southeast Asia for mobility. It has competitors, its main competitors are, there’s, Gojek Indonesia, which is now, merged with Tokopedia to become GoTo there’s local taxi companies that are really up their game so those are of the key competitors in that space. So, but, but they’re, they’re really the dominant name in transport in this region. And you know, as I said, 70% market share now, obviously that was a starting point. So they have now built up other services on their app. The key second service is deliveries and that is food delivery. It is something, that really ramped up once they acquired Uber in this part of their world. And that battle between Uber and Grab’s is a really important part of their history, which I’m sure we’ll talk about.
So now, they probably have about a 50% share, in food delivery in the region. And then lastly, you know, the third key component is financial services. And this is where, you know, they’re offering loans both to consumers and merchants. They’re offering insurance products, obviously they don’t originate, but are they’re brokering that insurance. And then the last part is payments, which is driven by the GrabPay wallet, right. Which is basically allows you to both pay for Grab services on app, as well as services off app, like at restaurants or anything like that. And just to encompass all this, this is a very Southeast Asia story. Grab is very focused on Southeast Asia. It is in every country, Southeast Asia, except for Laos, Brunei, and East Timor. And that has been their story and their goal is to what they say, drive Southeast Asia forward.
And, and they’ve actually been very successful at that. And the regard is one is the consumer experience has, has, has been much better. You know, if you think about what life was like pre you know, these kinds of services, you know, trying to hail a cab in the rain and, and things like that, or trying to get food delivery done, or even trying to pay for anything. And so they’ve done that, but they’ve also created a lot of jobs. I think, I think on last count, some publicly information that I saw online was I did 2.8 million drivers, which is, which is millions of jobs created, across the region. So they have been quite successful in improving the overall, consumer experience, as well as just welfare for Southeast Asia.
Now in terms of revenue. Most of the driven is driven by, by users, transacting on their apps. They have about 24.8 million monthly users as per the last quarterly release. they do about 16 to 20 billion in GMV a year. And I’m giving you a range because COVID has really caused some parts of business, especially mobility to be reduced in the temporary range. But if you kind of annualize the GMV from Q3, you get to 16 billion. But I think if you, if you kind of ramp up, mobility and assume that COVID didn’t exist, then it would probably be somewhere in between 16 to 20. so as I said, deliveries probably does about 10 billion of that. Mobility does about that 6 billion, but again, it’s, that’s a skewed number and the take rates, there are anywhere between 18 to 20%, depending on the service.
And the take rates have been improving, and that’s where they make most of their money. Now as I mentioned, they have businesses in financial services, but there, the revenues are still really quite small, and they also have a small segment called Enterprise, which somewhat involves what I used to be working on, but is predominantly now driven by advertising. So advertising on vehicles, for allowing companies to advertise on vehicles and on the app on different kind of inventory are spaces that the company might own. and that’s actually quite a profitable business, but again, quite small at this point.
Kalani Scarrott (08:04): So now you mentioned a little bit about Grab’s history and a key part of that is their battle with Uber. So could you just describe maybe what that was like, and maybe highlight some of Grab’s history that we haven’t mentioned yet?
Pratyush Rastogi (08:13): Yeah. So Grab was started by, Anthony Tan and Hooi Ling Tan. They’re not related, they have the same surname, but not related and as a business school case study, project when they were in Harvard. And if anybody’s ever been to business school, there’s a lot of these pitch competitions when it comes to startups, you know, you create a startup, with your colleagues and you pitch it and you’re supposed to actively create run it while you’re, you’re in these competitions. So, so they have of this idea to describe and the history comes from so, the founders are from Malaysia and, you know, at, at times in this part of world, taking a taxi cannot be, safe. There there’s two reasons for there’s the actual personal safety issue, but there’s also an honesty issue, right?
Sometimes the meter’s not very fair or, or drivers will take the wrong route, and it’s not a very pleasant experience. And, so for example, the story we were told when we joined Grab is that, Hooi Ling Tan used to actually she’d come home late from work, at night. And she’d be worried in the cab, she’d be on a cell phone with her mom the whole time, just to kind of talk to somebody because she was worried about the safety issue. And, and, and so really it started related to the safety and, and integrity issue when it, a problem that people had with, with the experience when they took tabs. so it initially started in Malaysia as MyTeksi, that was the original name of the company. And it was just a booking app for actual taxis.
And we’ll talk about how they kind of built the fleet, but the initial story was, is quite a boots on the ground story, right. Basically Anthony Tan and his team had to go basically, they would wait in lines the airport to try to talk taxi drivers, to get them to try to use their app. And almost all of them said no. And then finally they convinced the smallest fleet in Malaysia to kind of take their, to use their app. And that’s how they started. And it was a very kind of transactional model, right? You, you basically, just, just make, I think maybe a few cents, for a booking fee to basically allow that transaction to happen. So it, wasn’t a very, it wasn’t the same model that you saw now, but that’s where they started.
But obviously they start to do very well. Right. And, and once they saw that Uber model kind of pick up in the US two things, one, it was, it was just a good model, right. We can increase fleet beyond just, just what our legacy taxis, but secondly is also a way to make more money. Right. You’re you were maybe getting 20 cents for booking just for taxis, but then now with the private car model, you could actually get 20% off the entire fare. Right. So it was a very much more lucrative model as well. So, you know, as it started to go into that, that’s when growth really started happening. I think the first couple years were quite sleepy. And then it’s really around 2014, 2015, especially when they got the big funding from Vertex Ventures, which is the VC arm of Temasek, which is the big sovereign wealth fund in Singapore.
They really started to expand and they moved the headquarters from Malaysia to Singapore. And that’s when they really started that trajectory that has continued till this day. And there was a number of competitors at the time, you knowthere was Gojek, as I said, there were local companies, but the big, the big, bad competitor was Uber, which was, you know, everywhere, in Southeast Asia, you know, how did that work? So now to answer your question about why, you know, how they did against Uber. So, now Uber was a very tough competitor and, you know, when, when I was working there, they were, they had very good tech, right? The smartest, they had the smartest talent in California working on their technology. It was a very smooth interface, right.
They had a lot of money, it was very easy for them to come in, and not easy, but it was very feasible for them to come in and go to all these markets very quickly. And they had brand. People had heard of Uber, people had heard, oh, you know, oh yeah. You know, I traveled to America, or I traveled to Europe, you know, and I saw, you know, people using this company is great experience. So it made them a very formidable competitor. Right. But Grab, did three things really well, right. For one is they pioneered fixed pricing. So if you, if you remember back in, you know, 2014, 2015, if you took an Uber, it would give you a range of what the cost could be, but you only found out the final range at the end right now, now Grab started with fixed price.
The funny story was, I don’t know if they actually, you know, saw this beforehand. And I think a lot of the fixed pricing was the fact is they were still trying to get the dynamic pricing going, but they needed to get the app out. And so they kind of just launched fixed pricing just as a stop gap, but they stumbled upon a very unique customer insight that I thought was really powerful. Right. If you think about anything you consume, it’s very rare to know the price at the end of the consumption. Right? If you take a flight, you know, you paid for the ticket, you know how much it’s gonna cost you. Right. If you buy a meal, you see the menu prices, right. You know exactly how much it’s gonna cost you by the end. But taxis are weird, right? Like, it’s the only thing that, you know, the final price after you’re done consuming it.
So it’s an odd consumer experience. And all of a sudden, you know, beforehand exactly how much something’s gonna cost. Right. It’s it makes that, oh, okay. Well, I know it’s gonna cost me $10 to go from point A to point B. Right? So then you can weigh that cost benefit against taking public transport against walking, against doing whatever. So, so that was, that was a really unique thing that they did, and that really allowed them to gain a lot of business very quickly. The second thing was Grab was a local player, right? Uber was not right. Uber operated very much that how America works, that’s how the world works. They were not very good at localization, but Grab new that Southeast Asia is very underbanked. Most people don’t have credit cards. Most people don’t have debit card. And again, you know, they’re based on the, Singapore’s a bit of a different story, but if you travel around Southeast Asia, you know, there’s still parts of Southeast Asia that are still, you know, quite poor and still very underbanked.
So they allowed for cash to transact on their app. And you know, that, that, yeah. And, and, there’s a lot of interesting details of how they made that work, but essentially cash was easy. So, you know, drivers would carry some change, but they also use nice round numbers for their taxi fares. So it was very easy to make change and things like that. So that also really benefited. And if you think about it, it also would reduce any friction for you as a consumer to download the app and start, all you had to do was feed in your mobile number or any could book. You didn’t have to feed in your credit card. You didn’t have to do any of that. You could just select cash and you’re often running, right. So that allowed adoption to happen. And then, you know, they started to do a lot of things that were very localized and one of, you know, and this was later on, but for example, they, they realize that, you know, we need to make it easy for people in or traveler in Singapore to be able to go to Malaysia and use, Grab, or go to Indonesia, go to Philippines.
Right. And, you know, where language, the way that language barrier exists, they allow for auto translation through their app. Right? So you communicate with the driver in your language, whereas it’s translating into the driver’s language. So it allowed a traveler from Singapore to now, because you would this customer in Singapore, but they are now a customer for you around the region. Right. Rather than just in your country. So that was a really powerful scaling model as well. So, so they were very good at the hyper localization. and the last thing was, you know, they also managed to raise a lot of money, right. Anthony Tan, one of the things I always said about he’s amazing at being able to raise money, they raise, you know, they raised a lot of money from SoftBank, I think total, they raised about 10 billion right before this, this combination of imeter.
And, and they were very successful in deploying that to kind of win that battle. And it did help to a certain extent that Uber was also quite distracted during this period of time. If you remember, this is when Travis Kalanick was getting fired, this was when, you know, they were having a lot of issues with their culture in their company. They were having a lot of political battles. you know, so, so these kind of issues caused them to kind of lose track or, or, you know, and they just lost a big battle in China, for example. Right. So companies like that had kind of pushed them outta China. So, you know, they were, they were also licking their wounds and, Grab was putting up this really strong battle. And it managed to kind of, you know, in 2018 caused, the two companies to, to combine essentially.
Kalani Scarrott (15:46): Yeah, nah, that’s an awesome insight. And it’s, and it’s common to talk about the demand for the business, but interesting aspect of Grab is, the key part of their business model relies on the supply of drivers. And you mentioned Anthony Tan at the airport. So what’s the history of getting drivers at Grab, how have they acquired drivers in the past and today? Like how have they done it? And, yeah. What are the things that matter on the supply side?
Pratyush Rastogi (16:03): Yeah, I mean, so, so there’s two parts of it, right? There is, there’s always the private hire fleet. And then there’s the taxi fleet. the taxi fleet. It is an element of gamesmanship and a deal making, right. You have to convince taxis who come on your platform, that you’re not there to take their business, but you’re there to enhance their business. Right. And for, you know, and again, I don’t know what the unit economics are now, but for a long time, it was just, you know, all Grab really made was just a small booking fee and what it allowed. And it was a very smart move, right. Is because it allowed them to increase fleet very quickly by getting these taxi companies on board, at least the ones that, that, that agreed to partner with them, because they’re like, look, we have the distribution for you.
We’ll charge you very minimal amounts. Right. And, you know, your drivers, you know, who had now have to, you know, circle around in the rain, trying to find passengers, won’t have to do that. Right. And this is before most, most, you know, most of these, these taxi companies had apps, now they do, but you know, a couple years ago they didn’t. So, so it was, it was a very, you know, smart proposition from God’s perspective. It’s very smart to get all these people on board, because one of the, you know, frustrations you have as a consumer is if it’s, it’s a very emotional thing. If you need to get somewhere, you need to get somewhere quickly and you don’t wanna be waiting a long time. So the, the bigger the fleet, even if you’re not making a lot of money off it, right, the smarter it is in the consumer perspective, because the consumer’s like, oh, it doesn’t really matter to me.
I’m getting a taxi. Or am I getting a private vehicle as long as I get from point a to point B. So for, for those reasons, it was a very smart proposition and Grab kind of launch this, you know, hybrid thing, you know, called just, you know, for a while called just Grab, which was a mix of both taxis and private higher vehicles, because that really just expanded the supply for the consumer, which was that thought a very smart move now. So on the taxis side, you know, you have to maintain relationships with the leaders, the owners of those, the taxi companies, the taxi fleets. Yeah. You have to have kind of good relations with them. And at, at times it was contentious at times it was a very good partnership. So that was just about navigating.
On the private, hire side, it’s really just about you, you have to build not only, you know, trust with the drivers, but you have to give them an ability to become drivers, right. So for example, what happens if they don’t own a car? Are you gonna limit yourself to only people who own a car? what happens if they own a car that’s not very, you know, was quite old or, or, or not very, you know, up to speed in terms of, you know, what you want to present to your customer, right. So they had to create a, kind of a rentals platform where drivers could go rent cars. So that was a really key part of it. And Grab Ron tells was a big part of that story where they essentially gave, they created drivers. It wasn’t just that they were asking drivers to join.
They actually created a whole kind of, history drivers. Secondly, they also had to convince people that this was a viable financial option for them. Right. And that came through incentives. and that was obviously expensive. But, but incentives to drivers that basically like, look, if you drive for us, if you drive eight, 10 hours a day, you will make a good wage. so that was also really key. And then the last thing is that it has to be built from a lot of, a lot of tender, love and care. Right. You know, it’s, it’s, you’re dealing with people, you’re dealing with people who, who are kind of the backbone of most economies, right? These are, these are working class people. and you know, they deserve respect and they, need to be treated with respect.
And so, you know, Grab was very good cause they had a lot of local leaders, they were good at building relationships with drivers and I worked in Singapore, we worked at the headquarters, which used to be at Sin Ming Lane. Now they have this very nice building that they built themselves. But back then we had an entire driver center there where drivers could come in and talk to people and, get all their questions, answers, get trained, get everything they needed. and it was a really powerful way to show that look, you know, you’re not just a random, you know, supplier to us, you are a partner in our program. So they had to do that well. Now, obviously that never stopped bad media reports that said, you, you know, Grab seeking advantage of drivers or Grab’s doing this, or Grab doing that personally, you know, and we’ll talk about this a little bit about culture.
I always found that really far from the truth. I really don’t think, the company ever did anything like that. Obviously they’re still a business that’s trying to make money. So yes, there is some conflict there, but, I always found the media reports to be really, really kind of unfair, but it is a very on the ground effort and it requires a lot of thought to build a fleet like that. And, and it’s very hard to replicate. And, you know, I talked about this in my blog, which I released a couple weeks ago. I don’t see anybody being able to wrestle that position that fleet away from.
Kalani Scarrott (20:25): And you’d mentioned Grab the super app a little bit. Could you maybe explain and talk about like, what happens as a result of going into all those different verticals compared to if that they had to just stayed in ridesharing? So what do they gain from going into those different verticals that enhances all the other ones?
Pratyush Rastogi (20:37): Well, it’s a story of customer acquisition costs, and it’s a story of TAM, total addressable market. So customer acquisition cost, see, look, you’ve already spent all this customer acquisition costs, getting this customer to become a ride hailing customer of yours, you would be foolish to not then want to onsell them to something else because they are now using your app. So if you present something to them and they use it, it’s almost done at zero customer acquisition cost. And then certain products not only are zero customer acquisition cost, but also increase is the lifetime value of the customer. So for example, if you go from a transacting customer where each time you’re paying in cash to a transacting customer who has a credit card, on file to a transacting customer who has not only the credit card on file, but also has credit in the terms of their Grab wallet on the app, the lifetime value that’s sticking this to that customer increases significantly.
Than if you only have riding on a platform. So it’s, it, it’s a really important story that it’s not just, it’s a customer acquisition cost and higher LTV story. Right? The other thing of it is the TAM for ride hailing and again, my memory’s a bit hazy, but so people can fact check this, but, you know, back in, you know, when we, we were talking about internally, it was about a 50 billion mark, whereas payments is at least a 500 billion to a trillion dollar market, right? So it was a significant scale of difference and significant scale of opportunity difference, right? And if you only stick to ride hailing, which, you know, you’ve seen, you know, the likes of Lyft do, you know, you are to a certain, and if you’re not gonna expand right. And, you know, Grab’s, you know, in Southeast Asia, but, then your evaluation, your values, as a company will always kind of be stagnant.
So, so, so because as they get into new products, your TAM increases and, and lastly, you know, it’s, it’s just a good CU. It it’s a better customer experience, right. If I can go to one place to get a lot of these different options, right. So for example, I am a regular Grab user still, right. I will use it regularly for, for transport, for delivery and occasion, I will use it to pay, pay for things. so, so, you know, immediately for me, I have three kind of needs taken care of through one app. So that’s where that benefit comes in. Yeah.
Kalani Scarrott (22:38): Great. And I’d love to understand your view just on Grab’s scale and capital. So you’ve already mentioned about the 10 billion total they’ve raised, which is a decent chunk of their current market cap, but they spent a fair portion of that cash just to get this level of scale. So is that a yesterday story? Is it still current? And do you think maybe that need for capital continues into the future and does it concern you?
Pratyush Rastogi (22:55): So the answer is yes, it, it is, it is a factor to very much pay attention to, and it certainly could be a concern. So let me kind of put this in perspective. If I look at the Q3 filings, that they just released, deliveries did 422 million of gross billing, gross billing being just the total money Grab gets, from, not GMV, but, but the, the actual, you know, revenue that Grab gets right. and I’m being a bit loose with the word revenue cause Grab defines revenue, different ways and, and ride hailing and delivery companies actually across world define revenue various ways. Right. But if you just look at the, kind of the revenue they bring is four 22 million off that 422 million, they paid up 374 million in incentives. Right. So you’re, so you’re only looking at a kind of an 11% gross margin, right.
You know, if, if you kind of look at it in that perspective, so it’s a very tough battle because you have a number of delivery companies that are in Southeast Asia competing against them. You know, you have delivery, you have food Panda, you have, you have, you have Gojek’s delivery services. Every country, I think they compete in, they have at least two pretty strong competitors. And these are, these are not Uber type competitors. These are local competitors. They’re not going anywhere. So they’re gonna fight for that, that share of the pie continually. And it, it it’s quite, you know, and you know, there’s a lot of conversation to this. And to, while we thought, you know, deliveries is gonna do super well in the us, you know, the likes of, Instacart and things are doing really well in the US, but have a whole bunch of new delivery companies that raised tons of money, right.
That are essentially, you know, focused on really, really quick delivery, you know, 10 minutes, five minutes, 15 minutes. And, you know, you know, there’s a, there’s like Gorilla in the US that are, that, that, that are doing really well or, and raised a lot of money. So, so, so that delivery’s battle is never, it doesn’t seem to be finished in the us. And I really don’t think it’s finished in Southeast Asia. And it is, as I said, you know, in my blog post, it’s a night fight, and now you have, you know, a new player, which is, Sea and I know you just did a deep dive on Sea with our friend PunchCard Investor, they are getting into deliveries through shopping food. And, you know, they have a lot of money to spend. To put in perspective if, you know, Grab, has probably on their balance sheet about 9 billion in gross cash.
After this combination Sea has 11.8 billion. But if you think about it, you know, Grab while it does a very good job in drawing margin out of its it it’s it’s mobility business, right. They they’ll probably, you know, max, I think within the next year, maybe do 500 million in EBITDA that business, whereas, Shopee funds it’s, it’s, it’s, uh, it’s business through, through Garena. And they’ll probably do about 2.5 to 3 billion. Right. So, so there’s a scaling difference here that Grab’s gonna have to reckon with, and they’re gonna be in this fight, I think for a while, when it comes to deliveries and to your point, they’ve raised all this money because they know this fight is coming right. And they know, oh, sorry. Or it it’s already there. and, and they’re gonna have to be prepared. So while I think they’ve done a good job of locking up transport, although that being as I, as, as I wrote, that turns out Sea has actually partnered with Bluebird, which is the largest taxi fleet in Indonesia to offer transports service.
But I, I actually think that’s, that’s more, Bluebird flight its muscles rather than, and Sea just kind of seeing an opportunistic element there. But you know, so, so, you know, as much as I, but that being said, I still think in Grab do is fine. And on the mobility side, I think the, the delivery side is, is a very difficult battle and it’s, and it, it is still to be seen who in the end will really come out victorious or who will win without too much damage to their balance sheet.
Kalani Scarrott (26:29): And you touched on culture a lot earlier, from your time having worked at Grab, like, what do you think are some of the unappreciated aspects of Grab in their business and culture?
Pratyush Rastogi (26:37): So I’ll talk about the, what I think are the goods. And I’ll talk about where I think there could be some, some potential issues as a culture. I think, I think Grab was very much, you know, as I said, there was all, there was, you know, at times there was these negative articles in the press. I always thought they were unfair. Grab was very much a culture of, you know, do right by the drivers, do right by the consumers. And, try to stay in business. Right. So you couldn’t give away everything. You did what you could to do the best job possible for the drivers. And, and sometimes you fell short, right. You know, in the end, the company’s made of humans and humans error and they fall short. And, and, and sometimes that happened, but there was never this, you know, this notion that, oh, we’re gonna try to, you know, you know, get our pattern flesh off the driver or the consumer, nothing like that.
It was just trying to build the best product possible. and I think that was, was, was kind of misrepresented. I think the other thing that people maybe don’t quite understand is, you know, and Dennis Hong from Shawspring partners, quote, you know, has coined this term as cognitive cognitive reference, right. Where essentially, Grab is now a verb. Right. You, you, you don’t think about, you know, you don’t say call taxi you’ll oh, let me call a Grab right. Or if you want delivery, we’ll be like, oh, we’ll just order from Grab. Right. So it is become, you know, it’s kind of like that Airbnb, type situation that Uber in the US, or, or, you know, or Xerox for, you know, I don’t know if, there are any Indian, listeners on this, but you know, we never said photocopy. We would always say Xerox.
Right? So, so these are, these are the things that implant themselves in the mind and Grab is quite ubiquitous across Southeast Asia. And it’s quite a feat considering Southeast Asia is not a monolith, right? Every country is different. Every country is a different language, culture, you know, religion. And, you know, it is not, you know, this one blank space, like, you know, what one similar space, like, you know, the US or, or China is it, it, it is quite similar. So the, but, but beyond, you know, they’re quite ubiquitous across these markets. So I think, I think those are, are, are really impressive parts of Grab’s culture that I think will help them sustain no matter what happens with these businesses. So those are really powerful parts of Grab’s arsenal, I would say.
Kalani Scarrott (28:38): So you touched on it very briefly there, but is there anything that people fundamentally misunderstand about Grab in your opinion?
Pratyush Rastogi (28:43): I don’t, if there’s, a misunderstanding per se. I think there is just a couple things that I think I’ve heard investors talk about that I would say, are I think not as straightforward as they wanna present, as I said, Southeast Asia is not ubiquitous, right? It is not, it is, it is, it is not a homogenous market. You, you do each country is different. Each fight is different. And, you know, you can’t, you can’t simply say, oh, well, success and a will lead to success and B or C right now, gravity done a very good job of that, but that is no means granted or guaranteed. The key part of the, I found that in terms of where people don’t quite understand is their business is actually really quite profitable. And, and people, you know, have a long say, you know, Grab, has no way of making money and that’s not really true if you think about what they make in terms of EBITDA to GMV, they make about 15, 12 to 15%.
Again, you know, COVID kind of S skew that number, but 12 to 15% Uber makes 5.5%, DiDi makes zero. Right? So, so it, it is a very pro they’ve done a very good job of making that business profitable. And there’s a lot of, you know, commentators who say, oh, there isn’t a single ride hailing business in the world. You know, that’s made money. That’s not true, right. Grab is making money. now you can argue you that after overhead costs and so on and so forth, how much money are they making? And again, you know, that remains to be seen, but they are at least on the EBITDA level of making money, on, on, on that part of transport. so, so I think that is kind of misunderstood by a lot of the market. So
Kalani Scarrott (30:14): To talk about Grab’s leadership, how critical do you think Anthony Tan and Hooi Ling Tan do you think are critical in Grab’s future?
Pratyush Rastogi (30:20): Anthony Tan is very critical. I was very impressed by his, two things, right? As I said, previously, he’s very good at raising large sums of money, but, you know, I would sit into meetings with him, or, or, you know, we’d have, we’d have leadership meetings. And, you know, a lot of times pre-meeting, we would be talking about something and be like, oh, we don’t know if we can do this. Or this looks hard. And he would walk into the meeting and, and people would tell him about it. And then he has this way to really convince people, to try these things that seem really impossible. And that was really important. Right. Cause he’s really that kind of like that person pushing people forward. And it’s really important when you’re up against difficult competitors, difficult conditions, very competitive environments. so he’s, he, he was, he was very good at that.
And I think a lot of the vision and, you know, that image of driving Southeast Asia forward, it really comes from him. Let me say this. I think it would be a very bearish thing if you were to ever leave the company. In my personal opinion, now that being said in terms of leadership, and this is one of the things I touched on in my blog, and this is sometimes where I, and, and this is not just a Grab problem. I, I, I do worry about this. A lot of companies that have had a number of success and the type of leadership that they, they put into place, right. It is, is sometimes when they get big, you know, and Grab’s no longer startup, right. It’s now a listed entity it’s, you know, it’s worth depending on the day anyway, between 25 to 30 billion.
Uh, but, but sometimes what happens is that you tend to then hire people from organizations, who are used to a steady state, right. And, Ben Horowitz actually talks about this in his book, the hard things about hard things, right. And you know, a lot of times with startups with the mistake they’ll make is they’ll hire these guys from Cisco or from IBM. You know, these companies that have had, you know, very low growth, but very stable growth over long periods of time. And they, they put them into this chaotic environment and it just doesn’t gel. And if you don’t mind, I’ll, I’ll bring up a story from history that I think is really, really relevant here. So, you know, in world war I, France was actually known to be quite a, a fighting force, right. They had a very developed army. They had been in a number of conflicts across history, and in Europe, they were actually known to have a very strong military.
So in WW1, when the Germans attack, people expected that the French to be able to repel them off the German Western front, actually what happened is the Germans smashed the French military on the Western front. And the commander of the time, of the French army was this guy named Joseph Joffrey. And he was like, what just happened? Right. We are a formidable fighting force. And he found out that a lot of the generals who had gone to the front were generals were very experienced, but they had experienced peace time for many years. And they were actually teaching at the university. They were teaching the military academy and, and forgot what it was like to fight. And what he did was that he then replaced all of them with people who had far more re recent military, fighting experience. Right.
And that, that, that helped change the tide significantly. Right? And so you want generals in the field who are, who are battled heartened, and, you know, bringing that story back, I hope, you know, Grab remembers that it’s still in this kind of fight, right? Especially on delivery and in financial services. And you want your, your battle hardened general’s going there. And, and Sea has just done this right. Sea for example, has just elevated Chris Feng, right. Who was, who was head of Shopee and a very aggressive battle hardened general, to, to basically, a more senior where he’s gonna oversee even more things. Right. And what they’ve done is, you know, they, they have this, this global expansion where they’re going to south America, they’re going to Europe to, to launch e-commerce business there, they’ve sent all their successful kind of generals from those parts of, of, you know, from this part of the world there to win those battles.
And the reason I bring this up, and again, I, I feel like I, I might be kind of unfairly dumping this, but they just hired a CEO right. From SATS, which is a very stable company. and, you know, it grows four to 5%. It’s a very protective space. They basically doing invite catering from, from, from, Changi airport in Singapore. and as CEO, he’s gonna oversee very, very important parts of the business that are in a fight. So, you know, this is, this is where I see a potential risk in leadership, and I hope I’m wrong. but certainly a risk that I’ve noticed that happens at Grab and has happens at a lot of companies that after they’ve achieved a certain level of success, that complacency kind of kicks in. And, and I hope, I hope that’s not the case. Yeah, no, that’s a
Kalani Scarrott (34:35): Great answer and story. Does it worry you at all, Anthony tans 2.2% stake in Grab? Like, how do you think about that? How do you view that?
Pratyush Rastogi (34:42): So it’s no secret. Anthony is from a very rich family in Malaysia, you know, his, his family, runs Tan Chong Motor. They’re, you know, if you look at any kind of rich list in Malaysia, usually the family’s mentioned, it’s not unusual. you know, so, so I don’t think that he’s in this for the money. I think he was wealthy before this, and I think he will be wealthy. You know, even if all those, you know, all of those are wrong, he’ll still be wealthy. I really don’t think he’s in it for the money. So I don’t think that’s an issue, you know, but that being said, he still owns most of the voting rights, you know, so he’s still very much in control of the company. And I think that’s important because I think, you know, is still trying to build out this vision for what he wants, what Southeast Asia could be. And, you know, you know, when I did have in my one, on one with him, you know, he was very much about this, right? He was very much about, I wanna, you know, do these things. I wanna help that farmer in Indonesia. I wanna do these things. So that story is far from finished. And as long as he has control of the company, I think that’s far more incentive than, than the money would be my personal opinion about the issue.
Kalani Scarrott (35:47): Yeah. Fair enough. And in terms of regulation, what can we learn from Grab story dealing with regulators and that aspect of the business. So you wrote how Grab has an ability of working with governments, where Uber has a tendency to maybe antagonize them. How did Grab achieve that?
Pratyush Rastogi (36:01): Well, it’s a little bit like, again, Uber had this, this, this culture of, of, you know, this Silicon valley of move fast and break things, right. And that works to a certain extent. You’re seeing governments push back across that all across the world, whether it’s Facebook and its privacy issues, whether it’s with Uber and what’s happening in the UK, you know, it’s with, or big tech in general. Right. And I think, I think Grab saw, look, we are trying, we are a Southeast Asian startup, right. Or when it was a startup, we want to work with governments. We wanna be on their good side. And I think that was a very smart move, right? You don’t necess want to antagonize governments here, which, you know, which to a certain extent, have a lot more ability to shut you down than say in the west, which it would have to go through courts and, and, and so and so forth.
So that was done through relationships with the government built, you know, they had, dedicated teams working with the months. they did a $2 billion deal via SoftBank, so SoftBank invested in Grab and Grab, you know, committed to investing 2 billion in Indonesia including in [UNSURE], which is the local payment system. So that, that showed that they look, we’re, we’re here, we’re here to, to build Southeast Asia, we’re here for the long run, and we’re, we’re here to work with you, not against you. And I think they, they played that part very well. And, you know, even in my role, when I was, was head of, Grab for business Singapore, we actually worked on, on business with the government to, you know, allow government employees to take transport.
Right. So, so these kinds of things are, are done so that we, so that Grab has, you know, a multiple relationship touchpoints with government, both as, as, as somebody, you know, as, as constituent, as a supplier, as, as, as tax paying entities, you know, so on and so forth. And I think that is done quite well. And you’re seeing, you know, Uber have a lot of these problems in Europe and for a while they had privacy issues in the US. So I find in this part of the world, it’s much better to work with governments, than against them.
Kalani Scarrott (38:00): Definitely agree. And you wrote that, you think Southeast Asia is Grab’s to lose. So in your opinion, if we envision a scenario, how do they lose? Is it mismanagement, competitors, hiring problems? What’s the biggest risk to the business overall, do you reckon?
Pratyush Rastogi (38:13): I think competition is the number one thing, and they are still gonna have to spend a lot of money to maintain market right now, the pie is growing. So there’s a counter argument to me say, okay, they might lose market share, but the pie is so under penetrated that, you know, even if they lose market share, they’ll still grow their business, which, which very much could be the case. But, you know, when you are priced in growth valuations, and you start to lose market share the market, doesn’t really love that very much. Right. They start to start to see that as a huge negative, even though you might be growing your top line. so competition is I think, a significant part of it. I think certainly, you know, success can bring complacency. and you have to remember that there are, you know, there’s still a lot of work to be done.
And I think they’re realizing that, for example, and sorry, I gave this example about, you know, potential, uh, you know, hiring, you know, you wanna hire battle hard generals. They are now actually internally promoting, battle, you know, people who have been with the company a long time and you know, one of these battles to more, how do you say higher, higher levels and responsible for more, more business lines and, and more important business lines. so for example, you know, they made, Kell Jay Lim who, somebody I have a lot of respect for. He’s head of Grab financial group in Singapore now, and that’s a really big part of their story going forward. So having him, someone like him there is actually a very, uh, a strong indication that they haven’t forgotten that they still have a long way to go, and they need their best people behind these, these, these, these projects.
I mean, sorry to answer your question. I think that the biggest risks or competition, the biggest risks are, complacency and regulation’s always going to be a risk, right, when you’re dealing with, you know, drivers and delivery, people that can always become political. you know, drivers are watching what’s happening in some parts of the world where governments are saying, you know what, these are not, these aren’t contractors, they are actually, your employees need to treat them as such, right. And you know, the funny part is this doesn’t necessarily have to be a government push thing. Competition could force them to change their business model, because as I mentioned, you know, in the delivery business, in the US, for example, with Gorilla and, and these companies, they’ve actually hired all these delivery people as full time employees.
Right. So all of a sudden people will start looking at that model and being like, Hey, you know, why aren’t we doing that? So, so that, that could also be a risk, to their business model. So I think, I think those are the three things that I would, I, I would say the, the other thing is, it’ll be interesting to see how they retain talent now that they’ve listed. And now that people have a chance to liquidate their holdings, right. You know, will people move on, will they have to hire a whole bunch of people now Grab has a history of not being able to, you know, hold onto a CTO for a while. They’ve had multiple CTOs. And if that churn increases, especially on the top level, that that could cause the problem. So I think those are the potential risks behind the story.
Kalani Scarrott (41:11): Yeah. So maybe to wrap up and close it. Is there anything we haven’t talked about Grab that’s consequential for their future, in your opinion?
Pratyush Rastogi (41:15): I think the only thing that perhaps we might not have, you know, touched on, or that’s important to bear in mind is that, you know, despite everything I’ve talked about, despite all the competition, despite all, the potential issues and the money they’re gonna have to spend Southeast Asia is still very under penetrated. It’s very under penetrated in terms of, I think, you know if you compare the ratio of how much people spend on ride hailing versus total personal consumption on transport, it’s only about five, 10%, it’s still very low, right. deliver raise is still quite under penetrated. Financial services is quite under penetrated. So there is this tailwind that they have, that there’s still a lot of room to grow in this part of the world.
And I think that’s, that could be an interesting story that plays out over the next couple years. And we see how big some of these businesses could potentially grow, especially financial services. And I say that because if you look at a company that’s done really well with financial services, Mercado Libre in Latin America. And they, I think are, you know, they will start within, I think within the next couple years, earning 30% of their EBITDA through loans and through businesses that are actually very highly profitable. Andwhile Grab app does offer merchant loans and stuff, it’s done at very low interest rates, and it’s done, I think very carefully, whereas Mercado Libre has taken this thing where we’re gonna lend pretty heavily, but we’re gonna charge very high interest rates. So even though they have like a 30% default rate, they still make significant money off their, that, that business. So I think those are things. I, I think that could really surprise the market from the upside if, if those elements of the business are, done well executed well, and can really lead to, to significant profitability, which I think the market is wanting to see more and more now, right. As interest rates rise. So I think that under penetration and the fact is that they have a lot of interesting things they can do in financial services are, are, are large, upsides potential for the company.
Kalani Scarrott (43:16): Yeah. That’s a perfect way to wrap up your, thank you so much for coming back on again. Final thoughts, anything you wanna plug? Anything else?
Pratyush Rastogi (43:22): No, it’s always a pleasure to talk to you. As usual people wanna learn more about me. it’s, farrerwealth.com. That’s F A R R E R. And, that’s usually the best place to find out information, and you can subscribe to our blog through that. And we have all our contact details there.