Faster Breakeven, Not GMV Growth Should Be the Focus on Grab

We keep our Grab 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 with 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.

With almost 20% upside to our fair value estimate, as at the close of trading on Feb. 23, we think the market is overlooking Grab’s margin expansion opportunity. We view its increasing profitability as a more important driver of valuation than GMV growth, given that GMV growth can be artificially driven by subsidies. We have seen this with Sea’s e-commerce unit and Chinese food delivery platforms, where growth was driven by unmaintainable subsidies—incurring heavy cash burn—only to see growth sharply decelerate once subsidies were removed. Grab indicated in the past that it wants to focus on more “high-quality customers” as these cohorts are likely to generate recurring revenue, rather than providing subsidies to all users where some customers may only make limited transactions based on subsidies. As Grab plans to reduce subsidies, this coincides with the acceleration of its breakeven schedule, which should reflect the next step to further increase long-term EBITDA margins.