Grab is reporting its result on 16 Nov 2022, so Sir Bahamut will do a review and compilation of why he doesn’t like this company.
Competitive and difficult Delivery market
Two of Grab’s primary SEA market is Singapore and Indonesia. In Singapore, Grab has to compete with Food Panda and Deliveroo in the food delivery business. Based on Sir Bahamut’s personal experience in SG, Grab charges a lot higher compared to Deliveroo, and Grab don’t always have exclusive rights to certain food outlet. Additionally, ever since the merger of Tokopedia and Gojek, GoTo has dominated Indonesia market.
Moreover, with the post-Covid reopening, outdoor dining has resumed again and largely recovered to pre-Covid levels, which post another headwind to delivery business. With a high pressure to scale back incentive, it will be a difficult period for Grab to gain market share and focus on profitability with a big competitor around.
High Cash burn
Last quarter, adjusted EBITDA loss widens 9% to -233mil, even as revenue grew by 79%. I feel a lot of the GMV and revenue growth is still fuelled by incentives. At the same time, HQ costs have remained elevated – 2Q22 HQ costs of $214m.This EBITDA loss will only widen more next year in my opinion, even as Grab management claims to focus on profitability.
Moreover, Grab’s guidance for 3Q22 GMV for deliveries is relatively flat qoq, while slight sequential growth for mobility GMV.
With a net cash of only S$2.6bil, I wonder how many quarters can Grab sustain its cash burn before raising new equity and dilute shareholders.
The Great Grab incentive Nerf
From 14 October 2022 onwards, Grab rewards has been nerfed so badly it is not meaningful to stay on Grab’s platform. Before the nerf, using the Grab app to make a QR payment or paying with your GrabPay Card gives 1.2% in Grab points if you are a Platinum member. After the nerf, only rides & deliveries, PayLater & GrabPay online, as well as PayLater in-store will get 1.2% in Grab points when paid through your GrabPay Wallet.
Quite a number of consumers stayed on the Grab platform due to its loyalty reward system. But with this nerf, we may see a potential decline in MAU, especially the switching cost for Grab’s services is almost negligible.
Lack of urgency attitude
Along with the reopening headwinds on food delivery and high cash burns, Grab’s lack of urgent attitude to cut cost immediately (unlike what we see in Sea Ltd) really puts me off.
Grab COO Alexander Hungate says that they are not doing a “mass layoff” or hiring freeze like what Sea Ltd did. This is a sharp contrast to Sea Ltd’s attitude in having the urgency to be self-sufficient within 12-24 months. The “do-or-die” attitude is totally absent in Grab.
CPF/Driver’s benefit risk
Recently, US Department of Labor (DOL) released a new proposal laying out the framework for assessing employee & independent contractor status under the Fair Labor Standards Act (FLSA). Under this framework, DOL can enforce federal minimum wage on Uber, Lyft and Doordash for all their gig workers.
The outcome of this framework would pave the way for government around the world to impose similar regulatory requirements on Grab as well. Previously, there are already reports from the Government on potential mandatory CPF contributions from platform companies for gig workers in Singapore. Moreover, Indonesia is also mulling a potential commission cap in Indonesia to limit the take-rate from Grab and other ride-hailing companies. Grab remains in discussion with various regulators and the outcome on regulation is highly uncertain.
Unattractive Valuation
Compared to Uber and Meituan’s Price-to-Sales multiple of 2-4 times, Grab’s Price-to-Sales ratio of 13x is very high. I feel Uber is a much better choice than Grab at current valuation, especially Uber has proven its track record of its economics of scale in the developed markets. Uber is likely emerging out of the J-curve as the flywheel effects take off its multi-year growth. Currently, Grab is still at early stage of development with no signs of slower cash bleeding. Also, both Meituan and Uber operates in a less dense geographical market where you need to drive around to find food, compared to Grab who is operating in a densely-populated geography and where food is relatively cheap. In SG, the delivery fee and marked-up could easily be 50% of the original food price.
Sir Bahamut does not favor Grab until he can see a visible changes like what he sees in Sea Ltd.
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