To The Moon

Grab Holdings ( $Grab Holdings(GRAB)$ ) plunged 15% on Thursday's session after reporting their Q1 2023 results. Consumers on its super-app who use it for ride hailing and food delivery are spending less on Grab's mobile app.

Gross merchandise value of $4.96B in Q1 increased 3% Y/Y, slowing from the 11% Y/Y pace in Q4 and trailing the $5.22B Bloomberg consensus estimate. To illustrate the deceleration, Grab's GMV increased 24% for the full-year 2022.

The quarter's increase in GMV was driven by continued growth in its Mobility business, which was offset by softer Deliveries demand, with both Chinese New Year and Ramadan falling in Q1. Incentives declined to 7.9% of GMV in Q1 2023 compared with 8.25% in the preceding quarter and 11.6% in the same period a year ago.

For the full-year 2023, the super-app company revised its adjusted EBITDA guidance to between -$195M and -$235M compared with its previous outlook of -$275M to -$325M.

Guidance for 2023 revenue of $2.20B-$2.30B (vs. $2.21B consensus) remains unchanged as does its expectation to break even on an adjusted EBITDA basis in Q4 2023.

Q1 revenue of $525M, exceeding the average analyst estimate of $505.0M, more than doubled from $228M a year ago.

Q1 general and administrative expenses fell to $147M from $169M in the year-ago quarter, while research and development expenses increased to $129M from $119M.

Q1 adjusted EBITDA of -$66M narrowed from -$287M in Q1 2022.

Limited upside potential

As mentioned before, there is limited upside potential for Grab's future growth as its business is concentrated in South East Asia, which has lower income levels compared to developed markets like the US & Europe. 

Fewer drivers own their cars in South East Asia compared to US & Europe. This presents some challenges and hurdles to becoming a ride-share driver, as drivers need to lease the car from Grab or it's rental partner. It has also been difficult to recruit drivers to join as a full time ride-share driver post pandemic as lockdowns have eased. In order to increase their driver pool, Grab needs to incentivise drivers to join as a ride-share driver or jobs need to disappear and people losing their jobs due to slower macroeconomic conditions before they switch to becoming a ride-share driver.

Food delivery is considered a premium as a convenience of having food sent to the doorstep, and in a lower income level environment, consumers probability of spending for this convenience is lower. 

No doubt that Grab has taken steps to cut down on partner and customer incentives as the company looks to become profitable on an adjusted EBITDA basis by Q4 of 2023. However, this will present new challenges as partners and customers will always have alternatives in Grab's competitors, as there is almost no switching cost to use other platforms like Foodpanda or Deliveroo or Gojek. In fact reducing incentives will only allow the competition with lure users over to their platforms. 

Grab currently has an F score on most profitability metrics on SeekingAlpha, and an overall D- on their Profitability Grade. 

Grab's quant rating is a hold on SeekingAlpha and it's Valuation, Growth and Profitability have been downgraded compared to 3 months and 6 months ago.

@TigerStars 

@CaptainTiger