Our thoughts on Grab Q2 2022 results

Last Thursday (24 August), Grab announced its Q2 2022 results. Overall, revenue growth of 79% beat estimates. The company also seems to have made good progress in narrowing losses/improving margins in both mobility and deliveries segments. It also brought forward the expected breakeven timeline for deliveries.

Analysts generally viewed this as a positive set of results, however the share price dropped more than 12% in the first trading day after the release. 

You can actually find a lot of interesting information from the transcript of the earnings call. Here we would like to just share some of our thoughts: 

1. It is quite clear that Grab has chosen to focus on improving profitability under the current macro landscape. The management kept stressing the need for sustainable growth but also category leadership. This is not exactly a “sexy” objective, but it is something investors are looking at right now.;
2. In deliveries, Grab has shut down the dark stores in Singapore, Vietnam and the Philippines. This a right decision – the model has not been proven anywhere in the world, and will be especially hard in the current macro environment. Grab’s competitors seem to be scaling down their dark stores as well;
3. Overall, after years of development, we can see the logic of mobility, deliveries and payment pretty clearly. Grab does not need to do anything drastic or magical, but continuously optimise its operations and reduce incentive percentages. It will achieve segment breakeven points and eventually overall profitability of the company. As the management has pointed out in the call, it also needs to balance growth during this process. This is the pathway Meituan took over the years; 
4. The strengthening of USD has a quite obvious impact on Grab’s final reports numbers for the quarter: GMV and revenue growth numbers are now at 30% and 79% respectively,  whilst their ‘constant currency’ equivalents would be  34% and 85% respectively. If USD continues to strengthen, which is likely, the next quarters’ results will be further impacted;  
5. The management expressed their caution for the macro uncertainties. Unlike Sea Group, which refused to give guidance in their earnings, Grab continues to specify annual guidance for GMV and revenue. Though GMV target was lowered, citing a greater focus on high quality GMV transactions and foreign currency effects, revenue target was narrowed to the upper half of the previous guidance. During the call, the management also mentioned the word “sustainable” 12 times; 
6. Overall the monthly transacting user number increased to 32.6 million, or roughly the Q4 2019 (the last quarter before the pandemic) levels. The management has emphasised that the company has been focusing on ‘high quality users’ and ‘high quality GMV’ since the beginning of this year. These users are defined as those who are not sensitive to incentives, and use multiple services on the Grab platform;
7. Mobility segment seems to have yet to recover fully from the pandemic. Although we are seeing traffic jams building up in many capital cities across Southeast Asia, Grab’s mobility GMV is only at ⅔ of its pre-pandemic level. We have done some study on the ground and confirmed that the recovery is yet to complete. Also, what we have found out on the ground is that more affluent markets, such as Singapore, Malaysia and Thailand, contribute significantly to the GMV, more so than larger-population markets such as Indonesia;
8. The acquisition of offline grocery chain Jaya Grocer in Malaysia seems to have started contributing to Grab – it remains to be seen whether such a model can be replicated beyond Malaysia. Overall, Grab management seems to be cautious about expanding in the grocery sector – the quarterly report also indicates that the breakeven point of deliveries has been brought forward to Q1 2023;
9. Grab management mentioned that the potential for lending is big. The key focus is on drivers and merchants on the platform, which increases platform stickiness but also has limited NPL ratio to low single digit. We thought Grab can be a bit more aggressive in consumer credit – more than the BuyNowPayLater product it is currently offering. At the end of the day, it has a large user base, and should be able to quickly iterate credit models;
10. Grab has about US$7.7 billion of cash and other liquidity – and it needs to invest a lot in product, tech to achieve the growth and profitability requirements in the next three years. In addition, it also needs to invest in digital banks, for which it has acquired licences in a few countries. In all these areas, Grab’s management seems to have been quite prudent. 

It is worth calling out that some reports are comparing market caps and share price movements of Grab and its Indonesian rival GoTo. We feel this comparison is pointless and actually quite misleading – GoTo is listed in Jakarta, where market rules, compliance requirements and liquidity are very different from the US equity market, where Grab and Sea are listed. Just one point to illustrate the differences: GoTo’s float (percentage of shares available for trading) is only 3% compared to Grab’s 95%. 

So why the drop? 

While this is speculative – there could be some profit-taking activity. Stock behaved in a highly volatile manner – up 7% pre-market and then dropping very sharply in the early hours to -12% by noon. 

Uber’s results in early August had given Grab a significant boost in share price – which rallied more than 30% in the month prior to last week’s announcement. 

Some early investors may have seen this as their window to sell. There could also be some concerns around softening deliveries demand and lowered GMV guidance. Though this should have been balanced out by a quicker path towards deliveries profitability and healthy recovery in mobility.