Grab’s earnings report for Q4 2021 and FY 2021 caused its share price to drop by 37.7% from US $5.23 to US $3.26 last week.
The major cause of concern for investors was the increase in incentives from Q4 2020 to Q4 2021. Their decrease in revenue was mainly due to this increased incentive spend.
Consumer incentives doubled from $161.6 million in Q4 2020 to $365.1 million in Q4 2021 while partner incentives also increased significantly.
Increasing partner incentives for mobility
The segment of Grab’s business that has been hit the most by the pandemic is ride-hailing.
As demand dwindled, presumably many drivers left to pursue other job opportunities – full time or gig. Hence, when the pandemic eased and demand recovered (people going back to offices, etc.) – there weren’t enough drivers on the road. Many people would have noticed that getting a ride in the final weeks of 2021 and the beginning of 2022 was not easy – with prices often surging.
Grab’s strategy was probably to bring drivers back on the road or to entice others into driving – a push in the form of monetary incentives was necessary.
And because there is so much scrutiny on ride-hailing prices (in Singapore, Grab would need to consult Public Transport for pricing issues), simply raising prices to regulate demand was probably not an option for them.
In many cities, people already felt that prices had eased towards the end of Feb and in March. Perhaps Grab intended for these incentives to be just transitory and we should find out for sure in their 2022 Q1 results.
Increasing customer incentives for deliveries
In Momentum Works’ Food Delivery Platforms in Southeast Asia report this January, we gave an in-depth analysis of the food delivery industry in Southeast Asia and the increased competition in 2021. While Grab occupies about half of the market, players like Foodpanda and ShopeeFood were definitely trying hard to increase their own market share.
An important logic Grab tried to showcase but many probably missed was that their incentive spend was more efficient compared to that of their competitors. This means, if everyone is forced to cut down their incentives which, judging from the current public market sentiment, is already happening, Grab will be in a better position to retain the leading market share.
Either way, the incentives should not be permanent. Otherwise, the whole business model will not hold.
Grab has a good net cash position ($6.7 billion) to allow them to sail through the current turbulence – but they will need to deliver and prove that the current levels of incentives are indeed just transitory.
If you found this interesting, Momentum Academy is hosting Off the Record: What’s Up With Grab? where they analyze the market logic behind Grab’s financial report, the organization, strategy and leadership. You can check out the event here.
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected]