Our thoughts on Grab’s 2023 Q4 and Full Year results

On Thursday (22 Feb), Grab released financial results for the fourth quarter and the full year of 2023,  recording a first quarterly profit – of US$11 million – benefiting from an “accounting accrual reversal”.

With ample cash on hand, Grab announced it would repay term loans and initiate a share buyback programme – the first time for Grab or any listed Southeast Asian tech major. 

Grab’s management also confirmed during the earnings call that it would not acquire Southeast Asian businesses of Delivery Hero’s subsidiary Foodpanda. While Alex Hungate, Grab COO, did not comment much aside from a confirmation, he added that Grab was confident about its scale and “category leadership” in all markets that it would set a “very high hurdle rate when assessing inorganic opportunities”. 

The market, however, seems to be worried about the future growth of Grab – the stock price fell 8.41% on the first trading day after the earnings announcement. Grab has a history of giving conservative guidance, although its management mentioned that they expected “revenue growth acceleration” in 2025 and 2026. 

Some thoughts:

1. Grab’s total annual GMV for deliveries segment in 2023 was announced to be US$10.17 billion. Momentum Works estimated Grab’s total food delivery GMV in 2023 to be US$9.4 billion in 2023, in ourFood Delivery Platforms in Southeast Asia report. If our estimates were accurate (they were historically), non-food segments would account for about 7-8% of Grab’s deliveries GMV;

2. Grab also revealed improvements in operations (batching and basket size increase), as well as preliminary results of user segmentation in the deliveries business – 23% of orders were “saver” (longer delivery time, lower delivery fee), while 6% were “priority delivery” (faster delivery time, higher fee). During the earnings call, Grab management also mentioned tourists as a major contributor for its mobility services. Overall, there is still much room for operational optimisation and more refined user segmentation;
3. Grab announced a US$500 million buyback programme, as well as full repayment of close to US$500 million worth of loans (Term Loan B). Repaying loans will save interest expenses, and help improve net profit in subsequent quarters. As of 31 December 2023, Grab had cash liquidity of $6 billion. After share buyback and loan repayment, Grab will still have over $4.5 billion in net cash liquidity;
4. That raises a concern of whether Grab can find productive use of that cash after profitability. The day before Grab’s earnings, Delivery Hero announced negotiations to sell Foodpanda in Southeast Asia had failed. During Grab’s earnings call, COO Alex Hungate confirmed  that Grab would not pursue the acquisition. The collapse of negotiations was probably due to price, with regulatory issues potentially being a secondary concern. Hungate also said that Grab would set “a very high bar” for inorganic growth (i.e., mergers and acquisitions). Interestingly, Grab CFO Peter Oey introduced a new “capital allocation framework” to give some clarity of the strategy:
5. How does this impact Delivery Hero and the competitive landscape in Southeast Asia? Not much in the short term – Grab’s market share is far ahead of that of Foodpanda in all markets. Delivery Hero now has two main options: (1) shut down Foodpanda and exit Southeast Asia,  or (2) try to make Foodpanda self-sustainable. Delivery Hero revealed near positive free cash flow in its latest earnings, so it could afford more time and resources for Foodpanda. For Delivery Hero, potential entry of Meituan in the Middle East and competition in South Korea/Hong Kong could be bigger worries;
   
   
6. Grab also revealed growth in its lending business – total loans disbursed rose by about US$500 million annually for two years, reaching around US$1.5 billion in 2023. Grab’s lending business mainly includes loans to drivers and merchants, Buy Now Pay Later (BNPL) for consumers, and personal loans by the digital bank subsidiaries. Also, worth noting that total loans disbursed is a different metric from Sea Group’s gross loans receivable (US$2.4 billion at end of Q3 2023);
   
7. In fact, with profitability and cash at hand, Grab can pursue its strategies without worrying about short term market sentiments. That said, the prospects of tech unicorns as well as venture capital funds will see significant improvement only when Grab and Sea Group’s share prices see significant gains. For more detailed analysis, check out the recent joint report by Momentum Works and Cento Ventures.