Grab Earnings: Concerns Overblown on Delivery GMV Decline; Grab the Shares

We think the market has overreacted to Grab’s GRAB 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.

The 46% increase in mobility GMV reflects increased ride-hailing demand. Grab also saw progress toward profitability as it narrowed its adjusted operating margin loss to 36% from 46% sequentially. Delivery GMV, however, declined 9% year on year, which Grab attributes to Ramadan occurring in the first quarter this year rather than second quarter of last year, and it appeared to be more optimistic than peers on GMV growth for the rest of 2023. It indicated that demand is already rebounding, and we expect a return to high-single-digit GMV growth in the second quarter.

Grab maintained its 2023 revenue guidance of $2.2 billion-$2.3 billion and for its breakeven timeline to remain at fourth-quarter 2023. Furthermore, it improved its 2023 adjusted EBITDA loss guidance midpoint to $215 million from $300 million. We believe that investors may conflate Sea’s headwinds for Grab, where Sea’s e-commerce has greater uncertainties over its long-term growth trajectory, whereas Grab has already indicated that it can achieve growth while increasing monetization.