Grab is expected to significantly reduce costs in the first quarter, further narrowing Ebitda's losses. Grab may report another ebitda beat versus consensus.
Singapore-based ride-hailing and food delivery giant Grab Holdings plans to announce its unaudited first quarter 2023 results before the U.S. market opens on May 18, 2023.
Grab's Q1 revenue is expected to be $491.25 million, with an adjusted net loss of $253.4 million and an adjusted EPS of $-0.054, according to Bloomberg's consensus expectation.
Grab listed on Nasdaq in December 2021. Its stock has plummeted 64% since then. This company has fallen by about 1% so far this year. The upcoming financial report may become a new catalyst for its stocks.
Previous quarter review
Grab posted strong Q4 revenue growth and narrowed losses in its earnings report.
The company reported that revenue for the whole of 2022 and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the second half of 2022 exceeded guidance.
Revenue for the fourth quarter of 2022 grew 310% to $502 million, up from $122 million a year ago. Full-year revenue came in at $1.43 billion, up 112% from $675 million in 2021 and exceeding guidance of $1.32 billion to $1.35 billion.
The company said that it is bringing forward its group adjusted EBITDA breakeven guidance to the fourth quarter of 2023, half a year earlier than its previous guidance.
Grab expects revenue for 2023 to range between $2.20 billion and $2.30 billion.
What to expect on Q1
A further scale-back of incentives, headcount freeze and reduced debt -- hence interest payment -- burden should enable Grab to narrow group adjusted Ebitda for a fifth consecutive quarter, sequentially in 1Q. Incentives as percentage of GMV improved five quarters in a row in 4Q, a trend that should continue as Grab optimizes promotional spending by targeting active spenders vs. broad-based marketing. A slowdown in hiring and better cloud and network infrastructure should trim regional overheads, while repayment of term loans cuts finance costs, which -- on a net basis -- drove about a quarter of 2022 revenue.
An intensified focus on profitability means Grab's GMV growth could be half the 41% yearly pace in 2018-21. Yet mobility's recovery and deliveries' rising profitability should fuel strong revenue growth.
Bloomberg consensus:
Consensus Expects 1Q GMV to Grow 9% vs. 1Q22, Revenue to Double, Ebitda Loss to Halve
Deliveries Drove 46% of 2022 Revenue (After All Incentives), Followed by Mobility's 45%
Mobility Ebitda Margin Might Stablize at 12-13%, Deliveries' Could Grow Above 2%
A $2 Billion Cash Balance Should Support Operations Without External Funding Well Beyond 4Q Breakeven Timeline
CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have kept “add” on Grab with an unchanged target price of US$4.50 ($5.96).
In their report, the analysts forecast a slight moderation in Grab’s gross merchandise value (GMV) to US$4.91 billion, 2% higher y-o-y, with its mobility growth offsetting declines in deliveries and financial services.
With easing competition, the analysts believe that Grab would be able to further scale back on its incentive levels and increase monetisation. They estimate a beat in net revenue and adjusted ebitda at US$527 million and -US$87 million respectively, versus Bloomberg consensus’ US$490 million and -US$124 million.
GAAP net loss, however, is estimated to be in line with Bloomberg consensus at US$282 million due to mark-to-market fair value loss of US$60 million on its equity interest in Indonesia’s Emtek.
Meanwhile, Ong and Tan’s read-through from Grab’s regional peers — namely GoTo and Foodpanda — suggests a slight weakness in delivery GMV despite significant improvements in margins.
They forecast Grab to report deliveries GMV of US$2.31 billion for its 1QFY2023, 10% lower y-o-y on post Covid-19 normalisation and the earlier Ramadan. The rationalisation of incentives, however, should help Grab’s deliveries segment to achieve an adjusted ebitda to GMV ratio of 2.6% in 1QFY2023, a 4.8 percentage points improvement y-o-y.
“We see upside to Grab’s steady-state margin guidance for its deliveries segment as it rapidly approaches its near-term target of 3% adjusted ebitda to GMV ratio, as we note most global peers generally target more than 5% over the longer-term,” the analysts add.
With tailwinds from the economic reopening and tourism recovery, CGS-CIMB forecasts Grab’s mobility segment ebitda to improve 88% y-o-y to US$154 million in 1QFY2023. The analysts note that they observe lower frequency of surge pricing in Singapore, likely driven by continued efforts to improve driver supply.
Grab is currently enhancing its capabilities to better tap the tourism recovery and reinvesting gains to drive growth in lower-tier cities, the analysts highlight. With this, they forecast its mobility segment to see 30% GMV growth y-o-y in FY2023 while maintaining an adjusted ebitda to GMV ratio of 12.8%, slightly above its steady-state margin guidance of 12%.
With key competitors aiming to achieve similar goals this year, Ong and Tan expect continued healthy competitive landscape, enabling Grab to drive rapid margin expansion without market share erosion.
CGS-CIMB’s current base case assumes Grab can achieve adjusted ebitda breakeven by 4QFY2023 — in line with the company guidance. However, the analysts believe Grab’s FY2023 adjusted ebitda loss guidance of US$275 million-US$325 million is too pessimistic.
With an estimated FY2023 adjusted ebitda loss of US$192 million, CGS-CIMB sees room for Grab to lower its adjusted ebitda loss guidance range if it successfully executes continued margin improvements in 1QFY2023.
Other Analyst opinions
Benchmark starts 'market consolidator' Grab Holdings with a Buy
As previously reported, Benchmark analyst Fawne Jiang initiated coverage of Grab Holdings with a Buy rating and $4 price target as part of the firm's industry launch of Southeast Asia e-commerce stocks. The firm believes that digital economy growth in Southeast Asia will outperform global markets in the next three to five years and anticipates market consolidation as subscale players struggle to survive and ultimately exit. In that context, it views Grab as a significant market consolidator in the region given its "dominant market share" in mobility of about 70% and in food delivery at about 50%.
Grab Holdings price target lowered to $4.80 from $5 at Citi
Citi analyst Alicia Yap lowered the firm's price target on Grab Holdings to $4.80 from $5 and keeps a Buy rating on the shares ahead of the Q1 results. The analyst expects relatively solid revenue and in-line EBITDA while gross merchandise volume is "likely mixed" due to seasonality in delivery and continued de-emphasizing effort of GrabFin, partially offset by strength in mobility.
Grab Holdings price target lowered to $4.00 from $5.00 at Loop Capital
Loop Capital analyst Rob Sanderson lowered the firm's price target on Grab Holdings to $4.00 from $5.00 but keeps a Buy rating on the shares. While the company is not yet profitable, it is very well capitalized with leadership position in secular growth markets, the analyst tells investors in a research note. Loop Capital adds that consensus estimates on Grab Holdings reflect an "unrealistically conservative ramp" in EBITDA margin unless macro conditions become materially worse in the company's regions across Southeast Asia.