Southeast Asian tech giant Grab is best known for its ride-hailing, payments, and food delivery services across the region. And while the decacorn is betting mostly on the fintech business to cement its position as a superapp, its lesser-known enterprise arm is quietly emerging as the underrated golden goose.
Grab’s enterprise division currently includes advertising under GrabAds, and an online fraud and risk detection service under GrabDefence, with plans to eventually launch mapping technology as well.
The company’s June quarter results showed that the division posted a “segment adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation)” of $1 million. While this is minuscule compared with the ride-hailing arm’s $90 million segment adjusted EBITDA, the unit has performed better than the deliveries and financial services arms, which posted segment adjusted EBITDA losses of $20 million and $85 million, respectively, in April-June.
Grab posted a total segment adjusted EBITDA loss of $14 million and a net loss of $815 million at the group level in the quarter.
The company is currently in the throes of completing a SPAC merger with Altimeter Growth Corp to list on the Nasdaq by the fourth quarter of this year.
According to its F-4 document, filed with the US Securities and Exchange Commission last month, the enterprise division’s segment adjusted EBITDA was at $9 million in 2020. For the ride-hailing arm, this figure stood at $307 million. Deliveries and financial services posted segment adjusted EBITDA losses of $211 million and $331 million, respectively.
And though its EBITDA projections were lower compared to ride-hailing and deliveries, it is still in positive territory.
Unlike “segment adjusted EBITDA”, EBITDA includes regional corporate costs, legal, tax and regulatory settlement provisions, and unrealised foreign exchange gains or losses.
More merchants, more advertising
GrabAds, which started in 2018, allows businesses to advertise on its platforms, including its app and cars driven by Grab drivers. User data helps Grab to create targeted ads.
In its SEC filing, Grab said 46% of its food and grocery merchants tapped its marketing services in 2020.
In the second quarter, the number of Grab food merchants doubled from a year ago. The company currently has around two million merchants, its regional head of deliveries Demi Yu told Forbes Asia. The higher number of merchants could translate to higher advertising revenues for Grab.
Momentum Works’ corporate strategy lead Brandon Yee called this a “promising revenue area”, citing how advertising makes up a significant portion of the Chinese food delivery giant Meituan’s and e-commerce behemoth Alibaba’s overall revenue.
Alibaba does not report its advertising revenue separately, but in 2017, its chief financial officer said that the division, called Alimama, accounted for 60% of its revenue. Alimama is a marketing technology platform that employs intelligent algorithms.
Alibaba’s ad revenue was projected to account for 35.9% of China’s digital ad market in 2020, according to eMarketer.
Meituan’s latest financial results showed that online marketing revenue, at 2.76 billion yuan ($428 million), was 11.9% of the food delivery segment’s second-quarter revenue. In 2020, online marketing revenue, at 7.21 billion yuan ($1.12 billion), made up 16.5% of the company’s overall revenue.
Closer to home, Sea Ltd’s chief executive Forrest Li attributed Shopee’s “deepening monetisation” — revenue as a percentage of gross merchandise value, which rose to 7.7% in Q2 from 7.3% in Q1 — to merchants’ marketing and advertising spend.
To develop its advertising business, Grab will have to ensure it has “continuous retention and growth of its own organic consumer and partner traffic,” Yee said.
Online security in demand
Grab’s other enterprise business, GrabDefence, was launched in 2020. It offers fraud detection and prevention technologies to third-party businesses such as financial institutions, e-commerce players, online delivery, and mobility players from outside Southeast Asia.
It also works with third-party vendors to jointly provide services. One of them is financial risk technology startup Jewel Paymentech, which Grab partners to offer financial institutions fraud solutions.
“Digital literacy in Southeast Asia is low yet many people are coming online, particularly since the start of COVID-19,” said Wui Ngiap Foo, Grab’s head of technology, increasing the risk of fraudulent transactions.
The company uses machine learning and artificial intelligence to analyse user behaviour and stop anomalous behaviour. An “intelligence” team of 10-15 people within the larger 300-employee GrabDefence team looks for suspicious behaviour — for example, people who sell other users’ account details on networks like WhatsApp and Telegram group.
However, Grab itself has been at the receiving end of multiple fraud attacks.
Last year, in Singapore, a teenager was caught cheating Grab of S$26,000 after discovering a loophole on its payment system. In 2019, three men were charged with making more than 2,000 fraudulent transactions involving Grabhitch, amounting to more than S$41,800 in losses.
Last November, it was reported that several police reports were lodged over unauthorised transactions made via Grab’s e-wallet.
Foo said that in this case, the system was not vulnerable. The fraudsters did “social reverse engineering to get users to impersonate friends… so that users willingly shared OTPs (one-time passwords)”.
Foo claimed that Grab’s current fraud rate is 0.2%, adding that aiming for 0% is impossible. “When you try to hit zero, you start reaching this point where you’re sacrificing a lot, customer experience to get that, we add a lot of friction [to the customer experience].”
He added that the company’s wide-ranging verticals give it an edge when it comes to protecting various types of businesses. It is also building up its biometrics technology including facial recognition.
“Many SMEs and small businesses in Southeast Asia have yet to dedicate sufficient resources to fraud detection. And it is still a fragmented market, hence there is untapped potential,” said Wee Leong Gan, China Renaissance’s head of ASEAN equities, adding that Grab will need to differentiate itself from other pure-play fraud and risk detection platforms.
Foo likened GrabDefence’s revenue model to Amazon Web Services (AWS), where it offers a generic suite of software but also tailors specific services to each company that subscribes to them.
The significance of enterprise business
The similarity with AWS doesn’t just stop at the revenue model.
Industry players have also compared Grab’s enterprise segment to AWS in terms of the latter’s importance to Amazon’s financial performance. In 2020, Amazon made $386.1 billion in revenue and AWS $45.4 billion, or 11.7% of the total. However, in terms of profits, Amazon made $22.9 billion and AWS raked in $13.5 million, or 58.9% of the total.
“Even if the [revenue] numbers are smaller, the margins are higher and more recurring, because your platform is built, your cost will be manageable,” said Oi Yee Choo, the chief commercial officer of digital exchange ADDX, on how AWS shows the monetisation possibilities of an enterprise arm.
“If you look at a lot of the large technology companies that have been embedded in everyone’s lives, the natural transition is to create an enterprise business,” Choo said. “You build a platform and…data becomes a springboard into enterprise.”
She pointed to how companies like Google and Facebook, which started as consumer-facing firms, now have significant enterprise businesses, which they can build on from the data they collect. For example, Google has maps and cloud services, among others, while Facebook has a huge advertising arm and Workplace, a Slack-like platform.
Though Grab’s enterprise segment remains segment adjusted EBITDA positive, the falling profitability of the segment may be an indication of competition or heavy product development costs. The second-quarter segment adjusted EBITDA of $1 million was only half of the previous quarter’s, despite higher adjusted net sales in the second quarter of $33 million compared to $25 million in the previous quarter.
While Grab’s competitors like GoTo and Sea have not launched any enterprise businesses, these companies also have huge swaths of data at hand. “Definitely GoTo and Sea will try to monetise their capabilities for further growth sooner or later,” said Yee. In January, Gojek launched GoScreen in Jakarta. The service is for clients to advertise on digital screens attached to drivers’ bikes and allow advertisers to track its performance in real-time.