2023-12-13 10:12:54 ET
Summary
- Grab achieved its first positive EBITDA quarter, revenue growth in all 4 segments, and 36 million monthly transacting users.
- Grab is close to becoming profitable by the end of 2024.
- Buying GRAB stock now could be the key to achieving gains if the company can turn a profit.
Grab Holdings ( GRAB ) is a Southeast Asian tech company based in Singapore that I covered in 2022 due to the company's growing MUAs and wide moat.
While the Nasdaq 100 has risen 49% YTD, GRAB shares are down 4% YTD and stuck in a deep accumulation range.
You would have greatly outperformed the market buying the QQQ, but now I'm looking for smaller cap growth stocks trading at reasonable valuations instead of overpriced big tech plays.
Grab Q3 2023 Business Update
If you travel to anywhere in Southeast Asia (Thailand, Singapore, or the Philippines for example) then you'll see an army of Grab motorcycle drivers wherever you go. Nearly 1 out of 20 Southeast Asian residents use the Grab app every month, and management foresees plenty of future revenue growth potential throughout the region's 600+ million population.
The Grab Superapp services over 500 cities in 8 Southeast Asian countries, yet GRAB stock hasn't budged much over the last 52 weeks.
The company operates 4 main business segments:
- Mobility
- Deliveries
- Financial Services
- Enterprise and New initiatives
In Q3 2023 , Grab hit several key milestones including the company's first positive EBITDA quarter and an all-time high in monthly transacting users reaching 36 million.
Grab Q3 2023 Quarterly Highlights (grab.com)
Revenue grew to $615 million (Up 61% YoY) while net losses reached $99 million for the quarter. Much of Grab's Q3 2023 losses were attributed to one-time non-cash share-based compensation expenses of $70 million.
Grab Q3 2023 Financial Results (grab.com)
Grab's revenue mix is a bit complicated, so I want to touch on how each of its 4 segments contributed to the company's robust YoY revenue growth:
- Deliveries : Revenue hit $306 million (Up 79% YoY) based on massive growth from users ordering food online and a boost in GrabUnlimited subscriptions. Grab Unlimited, a monthly subscription program costing between $1 to $5 depending on the country, offers unlimited free deliveries and a few other perks. Grab Unlimited Users spend 4.2x as much as regular Grab users.
- Mobility : Revenue hit $231 million (Up 31% YoY) as the company experienced more growth from its Grab Car and ride-sharing segment. More riders and drivers continue to join Grab as intercity travel expands through Southeast Asia.
- Financial Services : Revenue grew to $50 million (Up 156% YoY) from higher demand for Grab's payment services and lending business. While revenue is growing steadily, Grab is losing money from its financial services segment.
- Enterprise and New Initiatives : Revenue hit $28 million (Up 83% YoY) as more merchants used advertising on the Grab app to reach more customers.
Grab Q3 2023 Deliveries (grab.com) Grab Q3 2023 Mobility (grab.com) Grab Q3 2023 Financial Services (grab.com) Grab Q3 2023 Enterprise and New Initiatives (grab.com)
Grab finished the quarter with $5.9 billion in cash and posted full-year 2023 guidance of $2.31 to $2.33 billion in total revenue.
Grab is Extremely Close to Becoming Profitable
It's been a long wait for GRAB shareholders ever since the company went public via a SPAC IPO at a generous valuation of $40 billion. Like most SPACs, many of these companies were overvalued and took advantage of excess liquidity via COVID-10 stimulus checks and bailouts during the peak of the COVID-19 pandemic when interest rates were low.
Now, GRAB stock is still down 70% from its SPAC IPO, even though the business has made a drastic turnaround over the last 2 years.
The Grab app looks completely different now compared to just 2 years ago, when the company lost $3.5 billion in 2022. If growth continues, then Grab could achieve its first positive quarterly earnings ever by Q4 2023, which will cause many naysayers to take a closer look at the company.
For example, Uber (UBER) struggled to reach profitability for years but reached its first quarterly profit in Q2 2023. Uber is proof that ride-sharing and delivery companies can become profitable over time, despite naysayers.
Grab operates a very similar business model to Uber in Southeast Asia and could experience a similar surge in stock price if the bottom line turns black.
When compared to other similar companies, Grab trades at a premium but provides valuable exposure to the growing Southeast Asian economy:
P/S Ratios of Public Traded Ride Sharing/Delivery App Companies
Company | P/S Ratio |
Grab Holdings ( GRAB ) | 5.39 |
Uber ( UBER ) | 3.58 |
DoorDash ( DASH ) | 4.85 |
Maplebear (CART) | 2.26 |
Another popular Southeast Asian stock is Sea Limited ( SE ), which owns the popular Shopee app based in Singapore. SEA Holdings is currently profitable with a P/E ratio of 31 and P/S ratio of just 1.73.
Risk Factors
- Sluggish Future Revenue Growth : 61% YoY quarterly revenue growth may be unsustainable if the company's delivery business slows down, which accounts for nearly 50% of Grab's revenue.
- Interest Rate Hikes : Most investors are expecting the Fed to lower interest rates since inflation has cooled. However, Fed Chair Jerome Powell didn't rule out interest rate hikes if inflation doesn't slow down.
- Geopolitical Risk : Several countries including the United States and the Philippines are dealing with immediate conflict with China over the West Philippine Sea. This region is rich in shoal and tensions have been extremely high lately. Further escalations could put pressure on Grab's growth throughout Southeast Asia if things don't settle down.
My Game Plan for Grab Stock
I believe GRAB shares are fairly priced at around $3, but GRAB stock doesn't seem to budge much. A flat-traded stock shows signs of accumulation from both institutional and retail investors as the market waits to see if Grab can turn a profit.
GRAB looks attractive from a fundamental standpoint with a P/S ratio of 5.39 and ~$173 million in TTM free cash flow.
From a technical standpoint, GRAB currently sits at a monthly RSI of 34, which is close enough to my desired buy range of 30.
Grab Monthly RSI chart (tradingview.com)
I'm willing to enter a long position near $3 support and purchase some January 17, 2025 $3 LEAPS as a lottery ticket in case Grab does turn profitable by this time next year.
Don't expect any major gains unless management leads the company into profitability at an earlier time frame.
For further details see:
Grab Holdings: Buy Before Southeast Asian Superapp Turns Profitable