Grab (GRAB 2.02%), the creator of a "super app" that provides transportation, food delivery, and payment services across Southeast Asia, went public by merging with a special purpose acquisition company (SPAC) last December. Grab's stock opened at $13.06 on its first trading day, but it now trades at about $3 a share.
Grab's slowing growth and its lack of profits spooked investors, and they rushed for the exits as rising rates crushed the market's more speculative stocks. But did they prematurely dump a potential multibagger? Let's reevaluate Grab's business, its growth rates, and valuations to decide.
What does Grab do?
Grab was founded 10 years ago in Malaysia as a ride-hailing app called MyTaksi. It subsequently rebranded the app as GrabTaxi, relocated to Singapore in 2014, and finally renamed the app again as "Grab" in 2016.
Today Grab operates in Singapore, Malaysia, Cambodia, Indonesia, Myanmar, the Philippines, Thailand, and Vietnam. In addition to its ride-hailing services, it also provides personal car rentals, motorcycle taxis, carpool services, food deliveries, last-mile deliveries, and payment services. It significantly expanded its ride-hailing and food delivery services by buying Uber's (UBER -0.33%) Southeast Asian operations in 2018.
Grab now controls about three-quarters of Southeast Asia's ride-hailing market, according to Blackbox Research. Its closest competitor, Indonesia-based Gojek, holds a 13% share.
How fast is Grab growing?
Grab ended 2021 with 24.1 million average monthly transacting users (MTUs), which represented a 3% decline from 2020. It attributed that drop to new COVID-19 lockdowns in the third quarter of 2021, but it said its MTUs rebounded in the fourth quarter as those lockdowns were eased.
However, Grab's gross merchandise volume (GMV) still rose 29% to $16.1 billion as the growth of its deliveries and financial services offset the pandemic-induced drop in its mobility GMV. Its average spending per user also improved 31%, and its total revenue rose 44% to $675 million for the full year.
In the first quarter of 2022, Grab's average MTUs grew 10% year over year to 30.9 million. Its GMV rose 32% year over year to $4.8 billion, driven by the recovery of its mobility business and the expansion of its deliveries and financial services. Its average spending per user rose 19% year over year, while its total revenue increased 6% year over year to $228 million.
For the full year, Grab expects its GMV to grow 30%-35% and for its total revenue to increase 78%-93%. In its earnings report, it said the "worst of the pandemic restrictions are behind us" and that it was "optimistic that our mobility supply will stabilize" in the second half of the year. Analysts expect its revenue to rise 80% to $1.22 billion this year.
But will Grab ever turn a profit?
Grab's top-line growth is impressive, but it's still deeply unprofitable. Its net loss widened from $2.75 billion in 2020 to $3.56 billion in 2021, as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss widened from $780 million to $842 million.
In the first quarter of 2022, its net loss narrowed year over year from $666 million to $435 million, but its adjusted EBITDA loss widened from $111 million to $287 million. For the full year, analysts expect its adjusted EBITDA loss to widen to about $1 billion.
Grab's losses are widening because it's still offering a lot of loss-leading incentives to its partners and consumers as it expands its market share. It also plans to "look for ways" to support its drivers as they grapple with higher fuel costs this year.
That red ink is alarming because Grab's cash and equivalents declined by more than a third ($1.6 billion) sequentially to $3.2 billion in the first quarter. Grab's low debt-to-equity ratio of 0.4 gives it some room to raise fresh capital, but it could be difficult to secure attractive rates in this market.
Grab still can't be considered a value play
Grab still trades at 10 times this year's sales after its post-IPO decline. For reference, Uber and Lyft -- which are growing slower than Grab but gradually achieving adjusted EBITDA profitability -- both trade at less than two times this year's sales.
Grab's high price-to-sales ratio makes it a tough stock to recommend in this challenging market. Investors who are looking for a cheaper and more diversified play on the Southeast Asian market should consider investing in Singapore's top tech company Sea Limited, which trades at three times this year's sales, instead of Grab's speculative business.