Company Reports

We maintain our fair value estimate of $4.40 for Grab after the company reported fourth-quarter revenue of $653 million that was in line with our estimate. The company provided upper-range revenue guidance of $2.75 billion for 2024, which represents a 17% year-on-year growth but a deceleration from 65% in the year before. The company also guided to $180 million-$200 million adjusted EBITDA in 2024, which will be an improvement from a $22 million loss in 2023. Profitability will be driven by EBITDA margin expansion of 100-200 basis points in the delivery business in the medium term due to operating leverage and lower incentives. We believe Grab’s 2024 guidance represents a milestone where it can both increase revenue and see greater visibility for profitability at the same time, a benchmark that has eluded other Southeast Asia internet giants such as Sea and GoTo.

Grab is still in its growth phase as it continues to acquire more users in Southeast Asia of its mobility and delivery services, its core businesses. We expect Grab’s overall gross merchandise value, or GMV, to grow 41% year on year in 2023, and anticipate robust growth for 3-5 years as its core businesses have a dominant market position and a broad network of drivers and customers. However, profitability is a concern as we expect mobility to be the only profitable segment in 2023. The delivery service generates negative margins and Grab is incurring heavy losses from developing its financial services business that includes fintech payments and loans. Grab has also seen its advertising business grow into another revenue stream, which we believe will be a long-term catalyst.

Grab is still in its growth phase as it continues to acquire more users in Southeast Asia of its mobility and delivery services, its core businesses. We expect Grab’s overall gross merchandise value, or GMV, to grow 41% year on year in 2023, and anticipate robust growth for 3-5 years as its core businesses have a dominant market position and a broad network of drivers and customers. However, profitability is a concern as we expect mobility to be the only profitable segment in 2023. The delivery service generates negative margins and Grab is incurring heavy losses from developing its financial services business that includes fintech payments and loans. Grab has also seen its advertising business grow into another revenue stream, which we believe will be a long-term catalyst.

We maintain our fair value estimate of $4.40 for Grab after it posted strong third-quarter revenue of $615 million that was better than our estimate of $570 million and Refinitiv consensus’ $591 million. Furthermore, its operating loss margin narrowed to 10.7%, which was also 200 basis points better than our forecasts. The company raised its full-year revenue midpoint guidance to $2.32 billion from $2.25 billion, given the strong results. With two consecutive quarters of strong results and guidance raises, we believe the current entry point as of Nov. 10 represents an attractive 34% upside to our fair value estimate. This is given Grab’s dominant position of its mobility unit in Southeast Asia and also the two long-term revenue growth catalysts in its new advertising business and reacceleration of delivery business. We estimate its gross transactional value, or GTV, to grow by double digits in 2024.

We raise our fair value estimate for no-moat Grab to $4.40 from $3.80 after it reported second-quarter 2023 revenue of $567 million, which was 4% better than our estimates, but more importantly, we expect two new catalysts that are likely to provide incremental long-term revenue to our estimates. The first catalyst is the emergence of its advertising business, which could incrementally add 1.5%-2% of the delivery gross transactional value, or GTV, to its revenue and contributes to the bulk—about 10%—of our valuation increase. The other is the revenue reacceleration of its delivery unit, which was stagnant during the pandemic. We view that Grab has a valuation floor based on the dominant position of its mobility unit in Southeast Asia. Coupled with its incremental catalysts, we think that Grab should see upward revisions to its long-term estimates and revenue trajectory.

Grab is still in its growth phase as it continues to acquire more users in Southeast Asia of its mobility and delivery services, its core businesses. We expect Grab’s overall gross merchandise value, or GMV, to grow 41% year on year in 2023, and anticipate robust growth for 3-5 years as its core businesses have a dominant market position and a broad network of drivers and customers. However, profitability is a concern as we expect mobility to be the only profitable segment in 2023. The delivery service generates negative margins and Grab is incurring heavy losses from developing its financial services business that includes fintech payments and loans. As this segment is still ramping, we expect adjusted EBITDA losses to total USD 1.5 billion for 2022-25.

Grab announced in an internal memo yesterday that it was laying off about 1,000 employees, which equates to about 11% of its total workforce. While the layoffs should provide some short-term reduction in operating expenses, we are not changing our fair value estimate yet given the lack of details including which divisions it may affect or how it could alter long-term growth. However, Grab indicated that layoffs were across the entire business. Two key points management emphasized were: 1. The layoffs are not related to instant short-term profitability and are instead to drive maintainable long-term growth. 2. The headcount reduction was not driven by its previous goal to reach companywide breakeven by the end of 2023, and that the company would have reached the target regardless. In addition, the decision was not influenced by any external pressure as management re-emphasized that it is to achieve long-term economic viability.

We think the market has overreacted to Grab’s first-quarter performance, where delivery segment gross merchandise value fell 9% year on year, while ignoring a 46% year-on-year increase in mobility GMV. We view the 15% share price fall as an opportunity to buy the shares, and retain our $3.80 fair value estimate. We regard first-quarter revenue of $525 million, up 130% year on year, as being in line with our forecast, making up 21.5% of our original full-year estimate. It is generally a softer period due to seasonal factors. We believe Grab’s share price may have been dragged lower after slower growth in peer Sea as well as Alibaba, again raising concerns over a consumption slowdown and intensifying competition. We tweak our assumptions, mainly to reflect better cost containment, leading to reduced net losses. But we see limited improvement in working capital and free cash flow, resulting in our unchanged intrinsic valuation.

We keep our Grab fair value estimate of USD 3.80 despite the company reporting better-than-expected revenue and profitability in its fourth-quarter results. Grab reported revenue of USD 503 million, which was 25% better than PitchBook consensus and also provided 2023 revenue guidance of USD 2.2 billion-USD 2.3 billion—better than our USD 2.08 billion estimate. The company accelerated its breakeven timeline to fourth-quarter 2023, revised from second-half 2024. However, its share price declined 8% likely due to a lower implied gross merchandise value growth forecast in 2023—where we estimate delivery and mobility GMV to grow 5% and 25% year on year in 2023 (compared to Bloomberg consensus of low-teens and 30% growth), respectively. We believe the pullback provides an attractive opportunity, given that Grab is already at its long-term EBITDA margin targets and should surpass them beyond 2023, as management has implied that it can further pull back subsidies to reach margins closer to peer levels.

We are maintaining our USD 3.80 fair value estimate of Grab, despite the company reporting better-than-expected revenue and profitability, because progress was offset by implied expectations of lowered gross merchandise value, or GMV, growth from its delivery business in 2023. The company is starting to focus on profitability rather than growth and is reducing incentives given to both consumers and its drivers. Grab remains committed to 45%-55% revenue growth for 2023, but we expect higher net commissions to play a bigger role behind the revenue increase, rather then GMV growth. Profitability upside was driven by the delivery business, which achieved breakeven this quarter, faster than the company’s anticipated 2024 target, using fewer incentives. Despite our forecast of slower GMV growth in the segment next year, the company acknowledged that there could be upside to its long-term EBITDA margin forecasts of 3%-4% due to its expectation of an accelerated breakeven. Adjusted segment EBITDA margin was 0.4% this quarter in the delivery business, and should margins surpass our long-term forecast of 4%, we could see upside to our valuation in our model. The potential upside from delivery’s margin expansion adds another catalyst, including the build out of virtual banking and advertising, as opportunities that could provide future value creation.

We initiate coverage of Grab, the leader in ride-sharing and delivery businesses in Southeast Asia, with a fair value estimate of USD 3.80 and no-moat rating. Our valuation implies over 60% upside from the current market value and assumes a continued push into emerging markets and forecast robust gross merchandise value growth of 41% year on year in 2023. We think its core businesses—ride-sharing and food delivery—both have established driver and consumer networks and large market shares at this stage, which form the foundation for long-term revenue growth and our valuation. We believe Grab can continue its GMV growth in the short to mid term, but profitability remains an issue outside of its mobility business.

Grab is still in its growth phase as it continues to acquire more users in Southeast Asia of its mobility and delivery services, its core businesses. We expect Grab’s overall gross merchandise value, or GMV, to grow 41% year on year in 2023, and anticipate robust growth for 3-5 years as its core businesses have a dominant market position and a broad network of drivers and customers. However, profitability is a concern as we expect mobility to be the only profitable segment in 2023. The delivery service generates negative margins and Grab is incurring heavy losses from developing its financial services business that includes fintech payments and loans. As this segment is still ramping, we expect adjusted EBITDA losses to total USD 1.5 billion for 2022-25.