Introduction:
GRAB is a super app that originated in Singapore, starting from humble beginnings as a ride-hailing app. GRAB has since then grown its operations in SEA, beating out UBER. Today, GRAB is the dominant player in a large number of SEA countries, offering multiple services such as Ride-hailing, Insurance, and Food Delivery. However, the main issue with GRAB is that the path to profitability is uncertain or even impossible. Management has been pushing “Adjusted EBITDA” as a metric for profitability but I’m skeptical as a huge chunk of the positive Adjusted EBITDA was contributed by adding back almost 300M of Stock-Based Compensation and 790M of Regional Corporate Cost.
Market:
Public Transport
Public transport is a public good, it is a commodity that is paid for by everyone. But, the amount that has to be subsidized can be calculated through the “Farebox Recovery Ratio”. Interestingly, Hong Kong’s Farebox Recovery Ratio is at 187% (SOURCE), this means that the Hong Kong MTR has leftover money after paying fares that can go into improving their infrastructure, increasing the appeal of public transport. Singapore’s Farebox Recovery Ratio is at ~101% (SOURCE), with both countries being ranked highly for having one of the top public transport systems (SOURCE). MTR also manages to add to its bottom line due to its Rail+Property strategy, MTR leases space to businesses near its stations.
Taking a look at (SOURCE), this indicates that the majority of the SEA region does not have the habit of taking public transport. The Philippines was ranked as one of the most congested cities in the world (SOURCE), this is due to the lack of effective public transport where a car is the most convenient mode of transport. Indonesia has a Farebox Ratio of ~54% (SOURCE), which indicates an ineffective system. A lack of suitable public transportation in SEA forces consumers to rely on private hire cars which greatly benefits GRAB.
Revenue:
GRAB has 4 revenue sources “Delivery”, “Mobility”, “Financial Services”, and “Enterprise and new initiatives”.
GRAB released GrabUnlimited, a subscription-based loyalty program that offers discounts and other perks. This program helps encourage spending, boosting GMV and on top of that provides a steady stream of predictable cash flows for GRAB. “the program continues to account for one-third of Deliveries GMV and subscribers exhibited healthier spend levels and retention rates relative to non-subscribers.” – 2023 Q4 Earnings Conference. I assumed that GrabUnlimited helped boost GMV/MTUs for 7 years into my forecast.
Delivery
When forecasting Take Rate, as a comparison to other Food-Delivery Services, UberEats has a take rate of 19% (SOURCE) and Delivery Hero has a take rate of 21% (SOURCE). This take rate is likely to be higher than what the norm in SEA would be, as UBER and Lyft serve the North American market which has a tipping culture (~15 % -20 %) so drivers are likely to make up their profits from Tips. So, I forecasted GRAB’s take rate at 19% roughly half of UBER’s and Delivery Hero’s due to the significantly lower COL in SEA. However, in my base case, this take rate is spread over 4 years due to the challenging macroenvironment and high-interest rates.
When forecasting MTUs, opting for less granularity I forecasted it as a % of historical averages. I believe that there will be a slight catalyst for growth as SEA recovers and more F&B businesses push expansion plans increasing the attractiveness of Delivery.
When forecasting GMV/MTU, “the traveler segment is a key focus for us. Compared to domestic users travelers are generally less price sensitive and on average spend nearly twice as much as domestic users.” – 2023 Q4 Earnings Conference. Opting for less granularity I forecasted it at slightly higher than % of historic averages before tapering back down to the historic inflation rate.
Mobility
When forecasting Take Rate, as a comparison to other Ride-Hailing Services, UBER has a take rate of 21% and Lyft has a take rate of 21% as well (SOURCE). This take rate is likely to be higher than what the norm in SEA would be, as UBER and Lyft serve the North American market which has a tipping culture (~15 % -20 %) so drivers are likely to make up their profits from Tips. So, I forecasted GRAB’s take rate at 19% roughly half of UBER’s and Lyft's due to the significantly lower COL in SEA. However, in my base case, this take rate is spread over 4 years due to the challenging macroenvironment and high-interest rates.
When forecasting Mobility MTUs, I believe that 3 factors contribute to growth rates in the SEA region. Factors such as higher smartphone penetration, increasing levels of wealth & Tourism, and the lack of highly effective public transport. Higher smartphone penetration allows more users to be introduced to GRAB’s ecosystem of services, building up brand familiarity and goodwill. As wealth levels rise across SEA, the proportion of disposable income grows, empowering consumers to indulge in luxury amenities, and as SEA becomes more developed and more popular amongst tourists it will increase the MTUs. With the re-emergence of travel, a lack of effective public transport means that travelers and locals alike will be forced to travel long distances by GRAB. Opting for less granularity I forecasted it as a % of historical averages.
When forecasting GMV/MTU, opting for less granularity I forecasted it as a % of historic averages before tapering back down to the historic inflation rate.
Financial Services
GRAB announced its plans to discontinue GrabPay (SOURCE), FinTech is a cash-burning business because the company has to incentivize through continuous rebates to remain competitive. GRAB used to offer rewards + 1.2% Cashback for payments made using GrabPay but that system was abused and eventually led to GRAB removing that benefit since then any benefits of using GrabPay have been reduced. This has led to a fall in the user of GrabPay and eventually, it didn’t make financial sense for GRAB to continue supporting GrabPay.
However, a new area that GRAB has started breaking into is their BNPL arm, “PayLater” and BNPL is advantageous to be handled by GRAB as GRAB can maintain payment plans, collect interest repayments, and underwrite the loans on behalf of merchants.
GRAB also offers Insurance as part of its Financial Services. GRAB offers their mobility partners pay-per-use insurance (SOURCE) and consumers travel insurance for either rides or overseas travel insurance.
When forecasting MTUs, I believe that GRAB’s financial services are mainly appealing to the wealthier regions with larger spending power. So, over time I forecasted MTUs to have a slight increase as the ASEAN region grows in wealth, increasing the number of middle-class households.
Enterprise and new initiatives
Enterprise and New initiatives refer to GRAB’s digital marketing and advertising arm, where advertisers pay to advertise on the GRAB platform.
When forecasting Enterprise and new initiatives, given that the success of this arm is hinged on the success of the GRAB superapp. Opting for less granularity, I forecasted it as a % of historical averages.
Sanity Check:
I looked at ASEAN’s total population and MTUs as a % of the ASEAN population. Historically, MTUs as a % of the ASEAN population has been consistent so it is a strong enough anchor point to base a reality check.
When forecasting ASEAN’s total population, the historical growth rate in the ASEAN region has been constant so opting for less granularity I forecasted it as a % of historical averages.
In 2023, Delivery MTUs % ASEAN Population and Mobility % ASEAN Population was at 2.55% and 3.01% respectively. At the end of my forecast, I assumed that it was at 2.78% and 3.56% respectively. I believe that this number is realistic, given that strong public transport is not built overnight so over time as the number of middle-class households in the ASEAN region grows, there is a higher demand for faster transport, increasing demand for GRAB.
In 2023, Financial Services MTUs % ASEAN population was at 3.44%. At the end of my forecast, I assumed that it was at 4.30%. I believe that this number is realistic, given that ASEAN’s forecasted Y/Y CAGR is at 6.82% (SOURCE), whereas the global forecasted Y/Y CAGR is at ~3.00%. So, the increasing number of middle-income households would greatly boost GRAB’s Financial Services.
Cost:
COGS
When forecasting COGS, I forecasted it as a % GMV given that historically this ratio has been constant and it’s more accurate as opposed to as a % of revenue given that GRAB has to incur cost per merchant value provided on its platform.
Sales and Marketing
When forecasting Sales and Marketing, opting for less granularity I forecasted it as a % of historical averages. Assuming that the % will taper downwards as GRAB becomes more renowned and requires lesser advertising.
G&A
When forecasting the number of employees, GRAB has been cutting headcount due to overhiring in 2022. I assumed that headcount would grow at a slower rate for the next 3 years whilst the macro-environment and interest rates improve.
When forecasting Cost/Employee, I forecasted it as a % of the perpetual inflation rate.
R&D
When forecasting R&D, opting for less granularity I forecasted it as a % of historical averages. Assuming that the % will slightly taper downwards as GRAB operates in a monopoly there is less need to spend on R&D to maintain quality.
Others
When forecasting Others, opting for less granularity I forecasted it as a % of historical averages.
Taxes:
Given that GRAB is incorporated in the Cayman Islands, opting for less granularity I forecasted it as a % of historical averages.
WACC:
10Y T-Bond Yield (1M Avg) = 4.43%
Beta (SOURCE) = 0.91
Stable Market ERP (SOURCE) = 4.60%
COE = 8.62%
GRAB is rated “B+” (SOURCE)
B Bond Yield (1M Avg) = 7.50%
Marginal Tax Rate = 21.00%
COD = 5.93%
Stock Market Price (5D Avg) = $3.49
GRAB has 48.59M stock options, with an average exercise price of $2.17 per share. It is ITM as of May 2024.
Total Value = $105.44M
Shares Bought Back = 30.21M
Net Shares Added = 18.38M
Shares O/S = 3952.12M
Market Value of Equity = 13792.90M
FY23 Interest Expense = 99M
Weighted Average Maturity = 2 Years
Market Value of Debt = 744.01M
%Debt = 5.12%
%Equity = 94.88%
%WACC = 8.48%
Conclusion:
Ultimately, in my base case, I value GRAB at $2.69 per share. I believe that the market overvalued GRAB due to the GRAB operating in a monopolistic/oligopolistic manner in most of the SEA markets that it operates in. GRAB has also accrued a large war chest from its IPO, making it a formidable competitor with a unique product placing the barriers to entry very high. I believe that Investors are pricing in that no investor is willing to back GRAB's competitors in countries where these competitors are not as established as GRAB.
Base Case: [INSERT]
Worst Case: [INSERT]
Best Case: [INSERT]
Revenue Model: [INSERT]
Revenue Model Part 2: [INSERT]
Cost Model: [INSERT]
Change in NWC: [INSERT]
Debt Schedule: [INSERT]
Sanity Check: [INSERT]
