Talabat Holding plc (TALABAT) Earnings Call Transcript & Summary

I think we have a quorum. Hello, everyone, and welcome to Talabat analyst call for the second quarter of 2026. My name is Shadi Salman, and I head Investor Relations at Talabat . I will also be hosting today's call. [Operator Instructions]. Please be aware that we are recording this webcast to offer a replay through our website afterwards at ir.telabat.com. -- where a copy of this presentation can also be found. Today, I'm pleased to be joined by Toon Gyssels, our CEO; and by Khaled Alfakesh, our CFO, and -- but before I hand over the usual housekeeping points, I'd like to draw your attention to our disclaimer, which is at the end of the slide deck. In particular, I would like to highlight the section on forward-looking statements, which cover such items as our financial guidance future investments, dividend policy and share buybacks. For today's agenda, Tun will kick off by presenting key highlights for the quarter, along with the business and investment update. He will then hand over to Hale to run us through the period's financial highlights and outlook for the rest of the year. So with that, let me hand it over to Toon.

Thank you, Sally. Welcome, everybody. Thanks for joining us. I quickly go to the highlights. We had a strong Q2, continuing the momentum of the start of the year. although the growth looks modest with the 12%, this is due to the Eat seasonality, which last year fell in Q2. Now in Q1, we talked about that with the previous earnings as well. But our top line is strong. We actually strengthened our leadership position in food in all the competitive markets since Q1, while the intensity remained the same. Profitability is also strong. EBITDA now at 5% versus 4.8% last quarter. And this is partly because we didn't have to spend as much on tactical measures to defend the food position. In Q2, we also started the buyback, and Khaled will share more on that later. Looking at the business pillars, strong performance across the line. Maybe a few things worth calling out. We're now serving almost 100,000 vendors, and we're working with 189,000 riders. NCR was very strong. We jumped 0.3 percentage points versus last year and of course, on a bigger base as well. The vendor funded deals are now at 7.2% for H1, a total of more than $400 million. And we also crossed 50% GMV from our subscription customers. And important to note that for Talabat, this number more than 90% of that is from cost of paying the full price on subscription. So that's very strong. If there are more questions on these pillars later, happy to answer them, but I want to spend a bit of time talking about the investment program. Beginning of the year, we announced $120 million gross OpEx and CapEx to be invested in the everyday value proposition. A good chunk of that was going to the grocery infrastructure. And I want to show some initial results and talk about the dynamics because as you remember, these investments, they were not just for capacity, rather, they were for experience and quality, in particular, focus on speed. And it's early, right? We we're 6 months in. And these investments, they take time to execute and the behavior change on customers takes even longer. But nevertheless, we have some exciting insights on exciting learnings I already want to share with you. Let's have a look. First, speed. Building out more stores, right? Obviously, you get more density and the objective of that shorter delivery, faster delivery. And what we see is that in the markets where we did these investments, we've reduced delivery time already 18%. In others, we reduced 5% because always we do further improvements, of course. Now I is speed so important? We see that for every minute, we get to deliver faster. We see an uplift of growth of up to 2 percentage points. So we see a growth acceleration from the better experience. But even more -- what we see in groceries now that we're hitting below 15 or even below 10 minutes, we see a change in the perception of the customers. They don't look at Talabat anymore as a way to replenish their cohort they look at Talabat as they covered. And this is great, this fantastic. It shows the big potential we have in groceries. And then the question is, of course, you have at what cost. Now -- of course, when we build out more stores, we increased the fixed cost, right? Because initially, we have more stores to deliver the same volume of orders. But our plan was not just that it gives an acceleration of growth. It's also to offset that increased fixed cost with the reduction of the delivery cost because you get shorter distances. If we look at the fixed cost, the dark store model operates with a relatively low fixed cost. It's about 5%. And this includes rent because it's actually below the line, but in the fixed cost is included. And what we see in the markets where we did these investments, we have indeed increased the fixed cost. It's up 0.8 percentage points due to that higher density. But on the other hand, if we look at the delivery cost, and you have to know that for Talabat, the delivery cost is about 15% of the GMV. We see that on the delivery cost for Talabat Mark, where we've done these investments versus where we didn't do these investments, we've been able to reduce the delivery cost 10% more. Now 10% on 15% is about 1.5% benefit. So it's largely offsetting already the extra fixed cost. Just to clarify, we're looking at the year-on-year impact on delivery costs for focus areas for investment versus not because the delivery cost is driven by a lot of elements, and we had quite some things going on in Q2 and in H1 in general. But to recap, these investments in groceries from our program, they have already significantly improved the customer experience, which has started to change the behavior and driving accelerated growth without hurting the economics. And that's what we already see only 6 months into the program. So that's very exciting. Now over to Harlee to talk about financials.

Thank you, Toon. Hello, everyone. Let's look at the financial performance. So when it comes to performance when it comes to GMV, it's better to look at the first half of the year. GMV growth in H1 is at 15% on a constant currency basis, reaching to $5.6 billion. And revenue grew 19%, both of them ahead of the full year guidance we have set in February. Of course, as Toon highlighted, Q2 GMV looks lower at 12%, but this is entirely related to the calendar. Rate fell in days earlier this year, pulling demand into Q1. And if we normalize that this impact in Q2, Q2 growth actually at 15% on a year-over-year basis. When it comes to profitability, EBITDA at 5 percentage points margin, $147 million and net income at 3.4% margin at $100 million. Both are also ahead of where we would expect them. And the margin impact that we've seen is entirely related to the planned investments. But we've seen slightly better than plan is that we have managed to think our food leadership position while needing to spend less than budgeted. Free cash flow also $162 million with high conversion above 100%. And it's very important to highlight that the year-over-year decline is a prior year base effect with no bearing on the underlying business fundamentals. On the everyday app investments program, we are broadly on track during Q2, specifically on the OpEx side. We have invested 0.7% of GMV and that's in line with the program that we've communicated back at bay. Now moving on to the outlook and the guidance. So based on the strong H1 performance, and the continued positive structural trends we see in the business. We are revising the full year guidance across all the 5 key metrics. We now expect GMV to grow to a range between 13% to 15% at constant currency implying the full year GMV of approximately $11.4 billion to $11.6 billion. Revenue is growing faster and now guided to 16% to 18% growth at constant currency as well. When it comes to profitability, adjusted EBITDA is raised up to a range of $535 million to $565 million, net income to a range of $325 million to $355 million. And lastly, free cash flow guidance also moves up to a range between $400 million to $430 million. The upgrade reflects many dynamics moving at the same time. On the first hand is on the demand. We see customer acquisition and order volume have both come up ahead of the plans. Our multi-vertical model continues to prove resilient as we have seen during Ramadan and the regional conflict in March, where customers continue shifting to use our grocery vertical. This is a structural behavior. And this is what gave us confidence to raise the top line. We've also seen a good start during the month of July with the World Cup being an additional tailwind, specifically for the food vertical. On the margin side, we managed to achieve plans across the board, including our main competitive markets. We have further strengthened our food leadership position while needing to spend less on marketing and pricing than budgeted. On the everyday investments, we have spent 0.6% of GMV during the first half of the year, and we are now on track to fully deploy the full 0.7% of the upgraded guidance, which give us also more firepower till end of the year. Lastly, on the regulatory environment, we have seen some developments that have emerged across our key markets, and our guidance reflect each of them. Specifically in Kuwait, there is a new ministerial regulation that takes effect first of September. We have reflected the anticipated negative financial impact in our upgraded guidance and we are operationally ready to implement these new regulations on the effective date. At the same time, we continue engaging constructively with the regulator throughout this process. I want to close also with capital returns. Our dividend policy remain unchanged. 90% dividend payout ratio and our H1 interim dividends are due to be declared in September and paid in October. At the same time, we have also purchased 108 million shares of Talabat, approximately $35 million deployed as part of our approved buyback program that took place in May, and we are planning to continue starting next year. So with that, moving to Shadi.

Great. Thank you, Toon, and Shadi. [Operator Instructions] Let's start with Andrew Ross, Barclays. Over to you.

I've got 2 if that's okay. First 1 is just to come back on your opening remarks around gaining category share in Q2 and hope you can give us a bit more color in terms of what's opening category share in your largest markets? So I guess, UAE Qatar and a bit more color around competition would be great. It would also be helpful if you could help us with year-on-year growth in those 3 markets given the GCC division slowed in Q2. Obviously, understanding some of that is the phasing of Eats. Second question then is your view on the regulatory environment for consolidation of the UAE in the context both of the new antitrust guidelines sort of come in, I mean clearly and be potential change in control of Delivery Hero from Uber and Uber's position in Korean technologies and your kind of thought process around that.

Okay. I'll take the first one. So our competitive positioning in food in Kuwait, UAE, Qatar has all increased versus Q1 and up to even more than 3 percentage points where we increased the most. So it is strong. And when you look at the GCC growth, it is fully that eat effect which is pulled forward and why that growth might look a little bit less. But performance is very strong, and it's on the back of that because these are our core markets that we're able to revise that guidance upwards.

Okay. Maybe I'll take the second one, Andrew. So basically, Andrea, as you know, that the transaction or the over anticipated acquisition should potentially take place if all the regulatory approval actually managed to be obtained by H2 next year. During this period, we remain in full competitive mode across the board, including UAE, including all the platform, even the 1 that has owned by Uber. And I think also as part of the poplin disclosure, Uber came up with and delivery euro, there is potentially a merger control filing in UAE, but that's a matter subject to regulator to decide on.

Okay. Thank you, Andrew. Next question from Caesar at Bank of America.

Thanks for the opportunity to ask questions and congrats on the numbers. I just had a question, I wanted to go back. I have 3 actually, but I wanted to start with the PTC GMV growth in Q2. I know you said it's all it Eid related, but is it 100% all it Eid related? I mean there's almost 700 basis points of sequential slowdown. What would be the impact of competition on that number? Second question relates to Second question relates to your investments. Just wanted to check if there were -- obviously, there seem to be very successful and thanks for all the detailed slides highlighting the use cases and the positive impact on unit economics, et cetera. Just wanted to try, if they're so successful, is there a chance that in the future, they could be repeated or even upside -- that would be the second question. And I think the third question, I just wanted to circle back on the regulation. Any update from any of the local regulators on enforcing some of these anti, I would say, call them abusive competition behavior?

So I'll take the first 2. So looking at the growth Q1 versus Q2, there is a 7 percentage point slowdown and the impact of it is we've disclosed is around 3% of that. So really, the food growth, if you compare it, H1 is 9%, and that's actually the same as you would to correct Q2 for. So we really see strong momentum continued in food. And look, I just disclosed how much we're gaining category position. I think that's quite clear that we've got good performance and the drop is really seasonality. On the investment program, so the results look very promising. We're 6 months in. So today, we're still focused on executing all the rest of it, which is quite a number of stores. And if these results get confirmed and if we really start to see we can offset the fixed cost rather quickly with the logistics reduction then continuation will be kind of a no-brainer and it will also not be a significant investment required. But now we have to build on that initial traction to see we can scale it up and deliver the same results everywhere.

Maybe just to add on the investment part because I think also it's worth mentioning that we remain disciplined on the investment program that we have announced. And as I mentioned earlier, we are fully on plan to deploy a 0.7% on the newly upgraded JV. And that implies also some more investments in that in terms of dollar value. I think when -- for the regulatory environment, what matters the most for us is the guidance. I think on the guidance, we have taken these regulatory environments on the conservative side. So we don't assume any upside on the guidance due to the regulatory enforcement, specifically when it comes to predatory pricing. Of course, in Qatar, there's already a code of conduct out there and we expect tidal regulation and hopefully, enforcements as well. But we don't bake this in our guidance. And we have, I think, in the Q&A section also a more detailed information around the regulatory environments in general.

But just to check, is there any -- is there any update on positive regulatory development that could happen in the next couple of quarters. I think you seem to indicate in prior calls that you were expecting something to potentially happen. And there's not been any update. So I just wanted to check if you do still expect something to come up, especially in the UAE?

Yes. We continue to be hopeful on the that this enforcement take space as well is.

I think -- maybe Yes. Thanks, Cesar. I'll just maybe add. I think we still expect a kind of a federal sector specific guidelines in the UAE to be issued, although the timing is not very clear yet for us. But I think Clearly, the Dubai sector guidelines would be a template of sorts for the federal guidelines. But we'll keep you updated as soon as those come out.

Next question from Joseph Barnet-Lamb at UBS.

Excellent. A couple from me. So firstly, I just want to ask on the building block your GMV guidance specifically. We have GMV comps that get about 8 percentage points easier in H2. Unchanged reinvestment guidance for the full year, which implies around about a 50% uplift in food reinvestment, H2 versus H1. And yet you're forecasting GMV guidance, which at the midpoint is slowing by about 1 percentage point. Can you give a little bit more color on why? And I guess 1 of the explanations is probably the regulation as you referred to in the sort of helpful Q&A in the back of your deck and the impact of Kuwait. Can you quantify in your guidance, what impact do you think the evolution of QA regulation will have an H2 GMV growth? And then my second/third question, depending on if that was 1 or 2. You say you've had a good start to July. Can you quantify GMV growth in July? That would be very helpful just to give us a steer on how Q3 has started?

Yes, let me -- let me take the first one. On the GMV, yes, you are absolutely right. We are baking in, of course, the potential implication of Kuwait into the guidance when it comes to both growth and profitability. But it's -- I think it's soon to quantify. We have multiple scenarios. The regulations have been out maybe 3 weeks now but we are confident with the revised guidance that we just upgraded today. At the same time, also, we want to see what would be the hopefully, the implication or the positive momentum with back-to-school in September and specific when people come. But this is also a factor that we keep watching, and we hopefully have a positive results on that. On July, I can tell you maybe it's -- I don't want to share the exact number, but I can tell you it's of course, it's better than H1 what we've seen in July. What we believe is mainly driven by the strong momentum as well as the World Cup implication. I'm not sure if Toon, if you want to add.

Yes. And what we've seen in July is that people seem to have traveled later this year. So we had very strong momentum beginning of the month. And that's why what Carla mentioned, in September, we want to see how back-to-school happens because now it's summertime. But if in September, we see the same momentum in July, that would also be very positive.

Maybe just as a follow-up. I mean, is it fair to assume though that there's quite -- you're being pretty conservative on that back-to-school season, you're being pretty conservative on the impact of Kuwait. Just because, as I say, from an underlying perspective, 8 percentage point easier comp 50% more reinvestment, but slower growth. If it's not those 2 factors, then the underlying market must be slowing a lot or you're expecting competition to pick up a lot. Are your underlying assumptions quite conservative in the.

Look with the revised guidance, we want to be very confident we can hit that, and that's how we've revised it up relatively little versus a very optimistic scenario.

Yes. I always like to use the word responsible. I think it's very important for us to come up with the guidance that we feel very comfortable in achieving it. And that's why we are responsible with the revision, I would say.

Next question from Ankur Agrawal at HVC.

So 2 questions from my end. My first question is, would you be able to quantify the impact of the World Cup promotion in terms of the uptake of the sort of Talabat Pro and the benefits that accrued in the second quarter. And I think the impact on margins as well. So that's my first question. My second question is if you can talk a bit about the strength in the ad tech revenue? And how should we think about the evolution of that in given your investments and the plans ahead, those 2?

Okay. So talking about the World Cup. I think the impact what we have seen in Q2 especially the tepro impact will have been limited there because there was upside, but there were also investments to that campaign, of course. I think this is something rather we expect to see some benefits from later in the year. when these customers remain Pro customers. Yes, I don't know if you want to add something to that, Khaled.

That sounds good.

Okay. Can you remind us with the second question, Anke sorry.

So that is on the contribution of ad tech revenue.

So on tech, we're doing a lot of things. I think first of all, what's important to understand is that food business and the grocery business is quite different in terms of the type of I think we do because on groceries. We can also sell not just to the vendors that are listing but to the CPGs -- the -- but the bulk of the business is still food today. And so when we increase year-on-year, it is driven by better performance in food. We have a couple of new products that we had introduced. And these are products that allow vendors to target their promotions or to target their ads right, which is very interesting for them because then they can focus on lapsed customers, on people that are now customers yet, so it can be focused. These are new products that we've introduced in Q2 that has given some uplift on food. But for the long run, the big upside in ad tech, it is more on the grocery side, where we're building the right products for CPGs, but this is -- this requires a lot of tech investment and data investment because they also want to do full loop measurement to see the impact on their campaigns. This is explaining a little bit the performance of Q2 and giving a perspective on where do we see the further growth potential in the ad tech.

Next question from Sharat now as at First Abu Dhabi Bank.

Am I audible?

Yes. Yes, you are now, yes.

I have a couple of questions. First is, we can see that there is a rise in the G&A expenses in this quarter. So can you highlight the reasons for it? And can you just add the color like how can we look at this in the third quarter and the fourth quarter. And also, we can see that for the foreign exchange gain, how should we look at this element for the remainder of 2026. The second question is you revised your guidance in terms of revenue growth and net income. I believe it's with the existing market or you're planning to enter some new market? And are there any planned acquisitions and pipeline. And the third question is about -- you mentioned in the GMV growth, like there was increased incentives to support customer acquisition and retention. Can you just highlight more -- can you just add more color to it?

Yes. Let me try to address your 3 questions. I think on nbn, in fact, if you see this is just a regular trend quarter-over-quarter and month-over-month on the SG&A, and we continue enjoying operating leverage. In fact, if you look at Q2, EBITDA margins came up even higher than the full year at as well a 5% EBITDA margin to while the top end of the previous guidance was at 4.8%. The second 1 is the guidance is fully organic. We are not baking in the guidance or the upgrade on both on the revenue and GMV side or on the profitability, anything related to geographical expansion outside of the markets we are operating in or any M&A. This is just purely organic growth due to the stronger demand that we've seen. And I think lastly, on FX, our exposure to FX is quite limited because it's primarily from the Egyptian market, and that's already baked in our guidance.

Yes. And what about the increased incentives which you have done to support the customer acquisition and attention?

So originally, we had planned at the beginning of the year to have 0.5% extra incentives ex marketing efforts to retain our leadership position. But what we've seen now is we don't need to spend all of that. So we're actually spending less than what we had planned in the beginning of the year.

Okay. But don't you think going ahead, it will just add any pressure on the margins? It's fine?

So the way we spend it smart, right? It's not blanket discounts, we cannot do that. So where are we spending? We're spending on customers that we see are at risk of reducing frequency or have reduced frequency, and we're reactivating them. So these are targeted incentives that have a life cycle effect on these customers so that they come back and keep their frequency high. So it's more of a one-off shot to make sure they remain loyal, high-frequency customers. So no, we don't expect there to be long-term margin erosion from that.