Grab: Profitability In Sight

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Grab: Profitability In Sight

Seeking Alpha08-14

Not much has changed for Grab on its path to profitability.Both its core businesses continue to gain top and bottom-line momentum.Don’t forget the massive net cash that is slowly but surely being ...

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continue to gain top and bottom-line momentum.Don’t forget the massive net cash that is slowly but surely being ...</p>\n\n<a href=\"https://seekingalpha.com/article/4714009-grab-profitability-in-sight\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4122","symbol_name":"互联网与直销零售","start_time":0,"source_url":"https://seekingalpha.com/article/4714009-grab-profitability-in-sight","article_id":"2459900866","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2459900866","pubTimestamp":1723615200,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Not much has changed for Grab on its path to profitability.Both its core businesses continue to gain top and bottom-line momentum.Don’t forget the massive net cash that is slowly but surely being 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This is a platform that has only further expanded its ecosystem of services, with operations moving beyond delivery (food and groceries) and mobility (taxi, ride-hailing, etc.) into digital financial services (payments, lending, and insurance). For investors, the key is that Grab is no longer a ‘growth at all costs’ model. Instead, the transition to profitable growth is now in full swing - as evidenced by its Q1 adjusted EBITDA margin expansion and subsequent guidance hike.Grab HoldingsHeading into Q2 this week, expect more of the same, as a combination of top-line growth, stabilizing competitive dynamics, and adjacent higher-margin income streams (advertising) add to the bottom line. Beyond sustained adjusted EBITDA profitability for the year, also keep a close eye on the path to positive free cash flow (targeted by 2025). In any case, Grab’s forward (ex-cash) revenue and EBITDA multiples suggests the stock isn’t priced for a particularly aggressive bottom-line inflection, so there remains plenty of upside still on the table, in my view.Data by YChartsLook to Momentum in MobilityFor the all-important Mobility segment, currently Grab’s highest margin business line, expect the company to build on its Q1 momentum. Recall from last quarter that both monthly transacting users (or 'MTUs'), which accelerated for the tenth consecutive quarter (+3% QoQ), and gross merchandise value (+30% YoY constant-currency) have been on a roll.Grab HoldingsFrom here, management sees ample room to organically expand the user base and drive up spending; given Southeast Asia (ex-Singapore) is a region where mid to high-single-digit % nominal GDP growth is the norm and with penetration coming off a very low ~3%, you’d be hard pressed not to agree. As for the near term, what could move the Q2 needle further in the right direction is the pick-up we’ve seen in tourism - a relatively inelastic demand source for ride-hailing.Balanced against the region’s attractive growth runway is the emergence of new competition, particularly on the low-cost side. Take, for instance, Tada in Singapore, a disruptive new ride hailing entrant that has already gained share at the expense of incumbents like ComfortDelgro. What is noticeable, though, is that Grab’s market share appears to have weathered the storm (per the Q1 call, “we increased our competitive position in every single market year-on-year”). Regardless of whether this stickiness is down to scale or ‘super-app’ network effects, what seems clear is that a two-tiered market structure appears to be forming - with Grab at the forefront.In any case, ride-hailing is all about scale and network effects, so with venture capital-funded-incentive sprees now a lot harder to come by, Grab's competitive threat is likely to ease, rather than intensify, from here. In line with management's guidance for industry-leading >9% segment EBITDA margins, expect Grab’s mobility business to lead the march toward profitability.Grab HoldingsThe Deliveries Pivot is at HandSimilarly, since we moved into a ‘higher for longer’ interest rate environment, competition has become a lot more rational in the food delivery space. A case in point is Delivery Hero’s (OTCPK:DLVHF) proposed exit from the region (via its Asian food delivery business, foodpanda). Despite ultimately falling through, the subsequent $1.25bn sale of foodpanda’s Taiwan operations, incidentally to key Grab shareholder, Uber (UBER), was perhaps indicative of the longer-term consolidation path Southeast Asia’s delivery industry is headed for.Further cementing the case for a more benign competitive backdrop is that Indonesia-based Gojek has also been relatively disciplined on incentives – despite benefiting from a significant cash injection post $1.5bn Tokopedia divestment. To be sure, nothing is certain long-term; but for now, a consolidating industry bodes well for the all-important path to profitability.Beyond updates on the competitive backdrop, also keep an eye on Grab’s internal initiatives in Q2. For one, the introduction of tiered delivery pricing via ‘Savers’ orders and the extent to which it has driven order frequency. And if we do see higher volume come through from ‘Savers’, whether management can tap into resulting efficiency gains (think order batching, etc.) – a key driver of the >4% segment adjusted EBITDA margin target.The rest of the margin bridge (see below) comprises operating leverage, which should be less of an issue, given that the top line is running at +24% YoY against a rightsized cost base. Advertising income, on the other hand, will be worth scrutinizing closely in Q2. After all, this is guided to be among the biggest margin drivers - despite coming off a very low base.Grab HoldingsCash Utilization Key Amid Industry ConsolidationBacked by a very significant >$5bn net cash position (see liquidity breakdown below), Grab has recently shown a willingness to put it to work on acquisitions. There was an (unsuccessful) attempt at acquiring key food delivery rival foodpanda, but the one that’s gained more traction is its proposed acquisition of taxi operator Trans-cab - an effort to consolidate the mobility market in Singapore. Success here would be a clear positive for unit economics, but the regulatory hurdle is also material and looks likely to scupper the deal for now. Still, the silver lining for investors is that the market hasn’t priced in any synergy benefits from this transaction, nor does Grab’s forward guidance factor in any potential M&A upside.Grab HoldingsAcquisitions would be the most obviously accretive use of cash due to Grab’s unique ‘super app’ flywheel, but given the regulatory roadblocks, I would instead keep an eye on share repurchases for Q2. For context, Grab hasn’t been all that aggressive here, though its current $500m authorization (<$100m deployed through Q1) is a good start. Coupled with tailwinds from declining share-based compensation (down low double-digits % last year per annual filing) and interest expenses, expect a boost to per-share numbers going forward.Grab HoldingsMind the RisksLast, but not least, it’s worth being mindful of the risks at hand. Top of mind into this week's earnings is that any headline numbers Grab reports will be affected by adverse currency fluctuations. The Indonesian Rupiah and Philippines Peso, in particular, will be sources of weakness, given their relative weakness to the US Dollar (Grab’s reporting currency) through June. Hence, for a better reflection of the underlying businesses, which, as I outline above, have been pacing very well, look to the constant currency figures instead.Other risks to watch out for in the mid to longer-term include heightened regulatory scrutiny in reaction to Grab's increasingly dominant market share. Competition from disruptive new entrants, especially if we see the cost of money decline anywhere near pandemic-era levels, also poses a threat to Grab's path to profitability. For now, though, these risks appear well-contained.Profitability in SightGrab stock may have been penalized harshly in recent weeks, but fundamentally, the company remains in a great place. Heading into the Q2 print later this week, expect more progress on the path to profitability; given the way industry dynamics have been shaping up, another guidance raise could well be on the cards. Even if Grab falls short in the near future, investors have plenty to fall back on, including a highly attractive Southeast Asian growth runway and optionality from the cash deployment. Balanced against the risks and a backdrop of dialed-down investor expectations post-selloff, the setup remains as compelling as it’s ever been here.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":18,"commentSize":0,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}