Grab shares tumbled 16% after the Singaporean ride hailing startup reported a wider loss than analysts had estimated. Its net loss for 2Q was about US$547 million causing cumulative losses to reach $14 billion. These losses were also more than the $335 million loss analysts had projected. Grab shares are now down more than 55% this year.
Grab’s revenue rose a better-than-expected 79% to US$321 million as lockdowns ended and people returned to work. But on an annualized basis ($1.28), those revenues were still less than 1/10 its cumulative losses, suggesting even if Grab ever becomes profitable, a big if, it will be years before it can completely erase those cumulative losses.
To combat the downturn in #ridehailing, Grab had pivoted to expand into groceries and made a significant investment. But the company said yesterday it decided to shut its dark-store operations in Singapore, Vietnam and Philippines to cut costs and streamline its deliveries operations, retreating from earlier strategy. This means that revenue growth will likely be limited to the impact from the end of the lockdowns, an end that began a year ago.
Ironically, stock markets have been focused on losses, battering loss makers in 2022. Mr. Powell’s remarks on Friday will strengthen this trend. Grab is particularly at risk because its cumulative losses are so large particularly in relation to revenues and the impact from those cumulative losses will rise as interest rates increase, thus requiring Grab to pay more to borrow money to cover those losses.
This is why the article mentions that Grab’s cash and cash equivalents fell to US$2.8 billion at the end of June from about US$3.4 billion at the end of March. If that cash continues to drop at same rate, it has about five quarters before it runs out of cash. Then it must borrow money or try to raise it by selling stock, a difficult strategy when its share price continues to fall.
My interpretation is of course much more pessimistic than those of this article and even more so of other articles. Other articles had titles that included words such as revival and falling losses from year before because the revenues were bigger than expected, a sign that much of the media is still obsessed with growth despite the stock market’s unhappiness with big money losing startups. Other articles don’t mention the cumulative losses, the rising interest rates, or the number of quarters till it runs out of cash.
One reason for the still relatively high expectations for Grab is #Uber had a positive EBITDA second quarter. Why not Grab? Key difference between U.S. and Singapore is that public transport is still at one half pre-pandemic levels in U.S. while it did not decline much in Singapore and other SE Asian countries. Thus, Uber has been able to raise prices while Grab has not.
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