Grab investors had another dramatic trading week.
Despite their better-than-expected results last Thursday, Grab immediately sold off and closed 13% lower than the week prior.
I’ve narrow the cause of this sell-off to 1 key problem from Grab’s Group First Quarter 2023 Key Operational and Financial Highlights.
Here’s why Grab experienced a sell-off. (Read till the end for a surprise as well!)
GRAB 1Q23 Earnings in a nutshell
| Operating metrics | Q1 2023 (unaudited) | Q1 2022 (unaudited) | YoY % Change | YoY % Change (constant currency) |
| GMV | 4,958 | 4,805 | 3% | 7% |
| MTUs (millions of users) | 33.3 | 30.9 | 8% | |
| GMV per MTU ($) | 149 | 155 | -4% | 0% |
| Partner incentives | 169 | 216 | -22% | |
| Consumer incentives | 222 | 344 | -36% |
Without going too in-depth into their balance sheet, here are some key points that investors should note from Grab’s 1Q23 earnings:
- Revenue beat expectations coming in at $525 million with consensus at $490 million.
- Revenue grew 130% year-over-year to $525 million. ($228 million previously)
- Loss for the period improved by 43% year-over-year to $250 million ($425 million previously)
- GMV grew 3% to reach $4.96 billion
- Delivery GMV declined by 9%
- Mobility GMV grew 46%
- Financial Services GMV was flat
- Enterprise and New Initiatives GMV fell by 21%
My thoughts on Grab’s 1Q23 Earnings
As a shareholder of Grab, I do think that the fundamentals of the company are indeed improving. We see revenue growth, contraction in losses and overall improvement of EBITDA. What else would you want to see in an earnings report?
Furthermore, I have an inclination that companies have pivoted from the concept of “Growth at any cost” to “Growth at what cost?“. To this end, I am encouraged to see revenue has not fallen proportionately to partner & consumer incentives.
My initial fear was that consumers were only sticking to Grab due to their incentives, hence if they reduce incentives by 10%, sales would fall proportionately as users would seek out other competitors.
Good news, this has not happened as even though partner & consumer incentives fell (By 22% and 36% respectively). We still see revenue continuing to rise which is an indication of:
- Increased stickiness amongst their users. Meaning to say that there are now more users who continue to use Grab even without incentives. This could be influenced by many factors such as habit (caused by the massive incentives in the past), membership (Grab Unlimited etc.), wait time (Grab has a larger fleet hence the timeliness of on-demand services is better than competitors), etc.
- Competition are Failing. I speculate that competitors are not doing enough to compete with Grab in terms of both advertising as well as fleet growth. In terms of advertising, we don’t see other ride-hailing platforms continue to give out free promocodes unlike what Grab did in the past to penetrate the market. (Goes back to my point about Growth at what cost). On this note, I reiterate my point of view that it is a matter of time that Grab achieves somewhat of an unspoken monopoly in Singapore.
That said, of Grab’s 4 key business segments (Mobility, Delivery, Financial Services & Enterprise), it would seem that the financial services segment is indeed falling behind.
Bearing in mind the digital bank hype that happened about 1-2 years ago, I speculate that Grab is struggling to “make sense” of this segment. While we see revenue for this segment rise by 2x, payment volume remains flat which is an indication that while they have had success in increasing margins, customer acquisition remains muted.
At present, Financial Services revenue accounts for less than 10% of their Business hence I think that this is the segment that has more room to grow as compared to the others.
On a side note, just wanted to end this segment by saying that Stock-based compensation is also decreasing quarter on quarter!
Very subtly, if you scroll mid-way through their earnings, you can see under their Total Segment Adjusted EBITDA that Share-based compensation expenses were reduced by about 20%. (From $121 Million to current $103 Million)
That’s always good to see!
What Investors didn’t like – 1 Red Flag
Earlier on in this article, we looked at the group’s operational and financial highlights. Investors were probably turned off by a red flag detected from these numbers:
| Operating metrics | Q1 2023 (unaudited) | Q1 2022 (unaudited) | YoY % Change | YoY % Change (constant currency) |
| GMV | 4,958 | 4,805 | 3% | 7% |
| MTUs (millions of users) | 33.3 | 30.9 | 8% | |
| GMV per MTU ($) | 149 | 155 | -4% | 0% |
While GMV and users increased, spending per user decreased.
Simply put, the platform is getting more users but the increase in users is not proportionate to an increase in the user’s average spend. It’s almost similar to a scenario of MacDonalds serving more guests but a large portion of guests are buying just a soft-serve instead of a burger.
In “Wall Street terminology”, investors see this as an indication that Grab may not be able to sustain its growth in the years ahead, due to current contraction in consumer spending.
This begs the question, which business is not experiencing a contraction in consumer spending?
Almost every sector is seeing this contraction hence the problem that Grab is facing is not unique to them but rather something that is more attributed to the macroeconomy as a whole.
As such, it is my personal opinion that this sell-off is unwarranted and I loaded up during the dip on Friday. Does this mean I’m smarter than wall-street? Who know, let’s revisit this 5 years from now.
Technicals – Support Range Forms
Nothing too tricky in terms of technicals. Since the initial sell-off following the SPAC listing, we are seeing somewhat of a support range form. I took the liberty to zoom out in the diagram to give you a better perspective of the charts.
We can see that this support range is indeed strong in the $2-$3 levels hence in my opinion, I do think that this stock is trading close to its area of value. Near-term resistance is strong at $4 with the stock failing to break out despite hitting this point 3 times in recent time.
That said, support is strong at $2.30 hence we have the price action ranging from these 2 points. Interim support forming somewhat of a middle ground in this range sits at $2.75 which is where we closed at the end of the recent trading week.
Needless to say, any move out of this range of $2-$4 will definitely be one that in my opinion has a high chance of deciding the fate of this company.
Is profitability in sight?
Management continued to reiterate that they will achieve their first profitable quarter by end of year.
With five sequential quarters of Adjusted EBITDA improvements, we remain on track on our path to profitability, and to achieve Group Adjusted EBITDA breakeven in the fourth quarter of this year. We are confident that we can drive growth for Mobility and Deliveries, and create more income opportunities for our partners to meet the growing demand from both travelers and domestic consumers.”
Anthony Tan, Group Chief Executive Officer and Co-Founder of Grab
In my opinion, I do think they will achieve profitability. And that would most certainly usher in a new era for the company.
I remain long on Grab:
Thank you for reading to the end! Fun fact while I was reaching their earnings report on my phone (gathering research for this article), I bumped into Anthony Tan. I was quite starstruck as indeed what are the odds of doing so. Like a lost fanboy I asked for a photo with him and he graciously agreed. Thank you very much Mr Tan you most certainly made my day!
