Grab Earnings: Raising Fair Value by 5% On Better Profitability, Guidance Raise; Shares Undervalued

We are raising our fair value estimate for no-moat Grab to $4.60 per share from $4.40 after it posted revenue of $653 million, a 24% increase year on year, which was 7% better than our estimate. More importantly, the company raised guidance for its 2024 adjusted EBITDA upper range to $270 million from $200 million, driven by a reduction in operating costs. Grab elected to keep its revenue guidance the same at $2.70 billion-$2.75 billion, or 14%-17% growth year on year, as it believes that it can improve profitability without materially increasing monetization rates—which, in our view, is an impetus for long-term organic growth. In the first quarter of 2024, recurring operating margin improved to negative 8% from negative 37% a year ago, while sales and marketing expenses were flat year on year and represented only 11% of sales, down from 13%. Coupled with strong on-demand gross transaction volume, or GTV, growth of 18% year on year, we believe this reflects a long-term path for margin expansion without heavy incentives, and our fair value change reflects the incremental 40-50 basis points of EBITDA margin each year from 30-40 basis points previously.