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Grab released their 2Q22 earnings on 25 Aug 2022, 8am EST, and the stock fell another 12% right after despite narrowing their losses and posting record high revenue.
Grab had lowered their full-year outlook and the main question looming overhead is “Can Grab achieve profitability?”
In this article, I’ll be focusing more on Grab’s possibility of breaking even.
In particular, I will be focusing on what I think is the most over looked management remark; CEO Anthony Tan mentioned that “we will be pulling forward our core food deliveries and our overall delivery segment breakeven timelines by one quarter and two quarters respectively.”
While the market remains in an overall bearish state, I’m compelled to take a more bullish stance. There are indicators that I’ve picked up in this earnings call transcript that investors should be aware of. Here are my findings.
1. Growth story continues despite lowering guidance.
For FY 2022, we are lowering our GMV estimates to 21% – 25% growth YoY (25% – 29% on a constant currency basis) from the previous guidance of 30% – 35%, while anticipating our revenue to come in between $1.25 billion – $1.3 billion, at the higher end of our previously announced guidance range of $1.2 billion – $1.3 billion.
Grab Reports Second Quarter 2022 Results
Despite all the good news in this earnings call, the ultimate deal breaker was that Grab lowered their full-year outlook. Without a doubt, this suggests the overall growth story is over for Grab and investors reacted negatively to this given the 12% sell-off on the day of their earnings release.
Any reports of lowered GMV is often exaggerated by mainstream media to generate readership. If we look deeper into the earnings report, we can see that their mobility segment (which accounts for almost 70% of their Revenue, based on 2021 financials) is far from slowing given how “GMV grew 51% YoY and revenue rose 37% YoY”.
The growth story for Grab’s Mobility segment is far from over given how we haven’t quite hit pre-pandemic levels in terms of Mobility GMV.
2. High-quality GMV
We will focus on increasing high quality GMV transactions. This will come with a trade-off of slower GMV growth. Thus, we’re lowering our GMV growth forecast for the year.
Grab Holdings Limited (GRAB) Q2 2022 Earnings Call Transcript
Management seems to have overused the term “high quality GMV” during the earnings call and I’m glad that they defined what they meant by this in the Q&A. CFO Peter Oey coins this term as “Targeting the right user base into our top of the funnel…users who are less sensitive to incentives”.
I interpret this as how management has decided that they have casted the net wide enough to the point where they are willing to lose some users at the extent of giving out less “freebies”. This ties in with their customer retention cost. There’s a possibility that customers have grown so reliant on the Grab Superapp that it becomes habitual in nature to utilize the app, even without being incentivized via vouchers and promo codes.
3. Narrowing losses
In the quarter, we took action to streamline our organizational cost structure. We optimized our fixed costs, shut unprofitable lines of business and continued to taper incentives as a percentage of GMV.
Grab Holdings Limited (GRAB) Q2 2022 Earnings Call Transcript
Apart from revenue, the next step to breakeven would be to reduce the operating cost of the business further. Grab illustrates their cost cutting measures with various examples as follows,
- Reducing Incentives – Both consumer and partner.
- Shutting down unprofitable “dark stores”.
- Regional Cost – Slowing down hiring, reducing overhead expenditure.
- Focusing on product innovation to reduce cost.
Such initiatives have ultimately paid off for Grab with “Q2 Loss for the period of $572 million, a 29% improvement year-over-year.”
The above points do give investors some confidence that management is indeed working on their pain-points. Unfortunately, such actions will take time and hence while I am bullish on Grab on a longer-term horizon, it is likely that we may see the price action of their stock retest the $2 support levels.
Momentum is weak with $4 as a key resistance level for the stock. Furthermore open short positions have also increased by almost 5x since November last year.
Is GXS Bank enough to sway near-term sentiment?
The question remains as to how strong of a catalystGXS Bank (Grab-Singtel consortium, jointly launched Digital Bank) would be on the near-term price action of Grab?
In my opinion (disclaimer : my opinion only), any price action movements in relation to any digital bank news by Grab has been FULLY PRICED-IN to the stock. I deduce this based on how sometime back, the initial news had already caused pre-market spikes which to date have yet to cause any significant reversal in their technicals. This is further supported by how this news came out today and yet Grab seems to have fallen the most when compared to the other stocks on my watchlist.
While the addressable market of 3 million customers under the Grab & Singtel ecosystem gives GXS a clear headstart, it may very well be the start of yet another “growth” company in the making. In which case, I believe that most of us here are more than familiar with the narrative behind loss-making companies operating in a high-interest environment.
Moving forward, mark your calendars for the next catalyst which would be the Grab Investor Day held on the 27th of September 2022.
