Overview of Grab
GRAB Investor Day Presentation
Grab$Grab Holdings(GRAB)$ prides itself on being Southeast Asia's leading super-app. It provides everyday services like food and grocery deliveries, mobility, financial services, and more. In ashort 10 years, the company has grown its footprint from one city to across most of Southeast Asia, covering eight countries and more than 480 cities and counting. Despite having roots in Kuala Lumpur in Malaysia, Singapore has today become the largest revenue contributor to Grab.
GRAB Investor Day Presentation
GRAB Investor Day Presentation
Even after this tremendous growth over the past 10 years, Grab is still in the early stages. Primary markets where Grab competes in continue to have tremendous development potential. Furthermore, Southeast Asia has a long way to go before it catches up to its more advanced peers in terms of online penetration.
When hunting for long-term winners, I look for businesses that still have a long growth runway. This increases the likelihood of higher returns.
Business Model
Grab is primarily functioning as a middleman. It connects passengers and drivers for its mobility segment and consumers and merchants for its delivery segment, earning a commission in the process. It is a two-sided marketplace that requires a large volume of users to be effective. Both demand and supply should be present, and you can't have one without the other.
Grab used aggressive marketing, promotions, and incentives to attract users to this platform. This came in the form of discounts to consumers, and bonuses to merchants and drivers for fulfilling demand.
GRAB Annual Report
Grab has done very well with its customer acquisition and market penetration. This is evident in how it has increased its mindshare with consumers, with the word "Grab" becoming part of users' vocabulary. For example, "Hey, let's order Grab!" means to order food, and "No car, just Grab!" means to call for transportation.
Risks
Grab has been a game changer and will continue to make inroads into a rapidly digitalizing SEA. Nevertheless, its segments are highly competitive, and consumers are price sensitive. Grab mobility fares for consumers can soar high, especially with surge pricing during rainy days or peak hours. Commuters have encountered frustration over these "crazy" fare hikes, as a Singapore news outlet reports.
The performance of Grab thus far has some parallels to U.S. company Groupon (GRPN), which in 2011 was thelargest IPO by a web companysince Google (GOOG) (GOOGL). Groupon was a game changer then in introducing group coupon deals to consumers. However, consumers had little loyalty or reason to stick with the brand and were also free to use any of the other hundreds of coupon sites in existence at that time. Groupon failed to establish its competitive moat and its stock never recovered.
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For Grab, consumers across Southeast Asia also have a variety of choices when it comes to fulfilling their delivery and mobility needs. It will require strategic innovations for it to ensure continuous market growth, keeping in mind the technology disruptions looming with autonomous driving and drone deliveries possibly becoming a reality in the not-too-distant future. This can potentially have a serious impact on Grab's business as a going concern.
In addition, the Grab app adoption rate grew massively because of the introduction of Grab Pay, Grab Wallet, and Grab Rewards, where users could use the app to make a variety of payments for both Grab services and to other merchants, accruing Grab Rewards in the process. For some time, users could double dip on these rewards, earning credit card bonuses when they top up and earning Grab Rewards when they pay using Grab. Unfortunately, Grab has been progressively adjusting these rewards, in the process reducing its appeal. Unlike Tencent Holdings' (OTCPK:TCEHY) WeChat, the Grab app lacks the social aspect that keeps users glued to it.
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