To The Moon

Regular readers will know that I am bearish on Grab for the longest time. Well, this 4Q22 result has not change my mind.

Grab released its 4Q22 result last week, which is better than market’s expectation. The greatest highlight is that Grab was brought forward its adjusted EBITDA breakeven guidance earlier to 4Q23 from its previous guidance of 2H24 by “prioritizing high-quality GMV” and cost-cutting.

However, this came at the expense of GMV growth, as the improved delivery margin was accompanied by a contraction in GMV. Furthermore, although there was full economic opening, mobility GMV only increased by 5% quarter-on-quarter, which was disappointing.

4Q22 Result Review

Grab's GMV increased by 11% year-on-year to reach US$5 billion in 4Q22. This growth was primarily driven by the recovery in mobility, which increased by 50% YoY to US$1.2 billion, as well as financial services, which grew by 16% YoY to US$1.4 billion.

However, delivery GMV was lackluster, decreasing by 4% YoY to US$2.4 billion. Despite this, Grab's revenue grew significantly, by 311% to US$502 million, due to a higher take rate of 10% (compared to 7.5% in 3Q22 and 3.9% in 3Q21), as the Company reduced incentives and focused on profitability. As a result, adjusted EBITDA improved by 64% YoY (31% QoQ), with a loss of US$111 million. However, Grab still reported a net loss of US$391 million, although it has US$5.1 billion in net cash.

Lackluster Delivery GMV growth

Grab's delivery GMV fell short of expectations as it reduced its focus on dark stores, cloud kitchens, and other low-quality GMV customers. These efforts contributed to a higher take rate of 11%, compared to 7% in 3Q22. Consequently, its adjusted EBITDA increased to US$47 million, compared to a loss of US$84 million in 4Q21 and US$9 million in 3Q22. The adjusted EBITDA margin as a percentage of GMV also improved, reaching 2%, compared to 0.4% in 3Q22.

Rising Competition

Although GRAB continues to be the leading on-demand platform in ASEAN, a survey of approximately 2,000 consumers revealed that most are using at least two platforms. JPM research shows that consumers in Singapore are adopting alternative options such as ComfortDelGro and TADA, while those in Vietnam are using Be, and Joyride is gaining popularity in the Philippines. Additionally, Maxim is becoming a popular alternative option in Indonesia and Malaysia. This trend of consumers adopting alternative options may cause Grab's robust GMV growth to fall short of the high expectations of investors.

Corporate Cost continue to rise uncontrollably

Some investors expected that Grab would reduce corporate costs by a low-to-mid single digit previously, but based on past quarters trends, I anticipated that these costs will most likely rise due to the absence of large headcount optimization initiatives. Just refer to Grab's 8% QoQ increase in corporate costs in 4Q22.

More downside to Grab’s guidance

GRAB has guided for FY2023 revenues to be $2.2-2.3 billion, adjusted EBITDA loss of $275-325 million, and adjusted EBITDA breakeven in the fourth quarter of 2023, compared to the previously anticipated second half of 2024. While the guidance looks optimistic, Grab assumes deliveries growth will pick up in the second half of 2023, which may be over-optimistic. Grab’s deliveries GMV growth could remain subdued due to higher menu prices, delivery fees, and lower incentives, making deliveries more expensive for consumers. It is hard for me to believe Grab can continue to grow its delivery GMV at the current take-rate.

Conclusion: I’m not convinced

While Grab's focus on high-quality GMV has helped to reduce losses, the question remains how much the profit recovery can continue in 2024 given the industry slowdown and continued emphasis on high-quality GMV. From an investor’s perspective, I remained very cautious as Grab’s GMV growth may have already reached maturity.

Although Grab has strong execution capabilities and intends to expand its total addressable market by offering mobility services in the Philippines, incremental gains may not be significant due to the possibility that overall industry growth in Southeast Asia has reached a plateau.

@Daily_Discussion @TigerStars