A Short Recap on Grab's Q2 Performance

Subhash Mishra joined discussion · Dec 2, 2021 17:12

$Altimeter Growth Corp (AGC.US)$ $Grab Holdings (GRAB.US)$ Grab's earnings report puts a lot of emphasis on Adjusted Net Sales where Adjusted Net Sales = Revenue + consumer incentives and excess driver/merchant incentives. This will mislead investors and exaggerate the company's actual performance. Firstly, incentives-fueled growth is not sustainable due to cash burns and reliance on subsidies from external parties. Secondly, according to Grab:

Grab presents Adjusted Net Sales as a metric to compare, and to enable investors to compare, its aggregate operating results in the absence of excess incentives, which are intended to be temporary drivers of growth, and which Grab plans to reduce in the future. Grab’s management believes Adjusted Net Sales captures significant trends in its business over time.

Therefore, incentives should be removed from any form of Grab's performance analysis. Unfortunately, Grab's performance after removing incentives doesn't look optimistic. Grab's revenue decreased by 16% quarter over quarter, despite an increase in adjusted net sales of 8%. This suggests that incentives fueled the bulk of its expansion. According to the numbers, Grab upped its incentives by 27% quarter over quarter. However, the 27 percent increase in incentives resulted in just a 3.78 percent rise in monthly transacting users (MTU) and a 2.6 percent increase in GMV per MTU. This has several consequences. To begin, the considerable increase of incentives but just a modest increase in growth indicates an aging market.

On the other hand, with Uber as comps, Grab's valuation of $60bn implies a (revised) CAGR of 35% + a full recovery of its ride-hailing business to pre-pandemic levels. This causes a discrepancy between its valuation and growth expectations. A bear-case scenario will see Grab's share price mirror $Zoom Communications (ZM.US)$ decline after reporting slowing growth.

Let's examine whether Q3 performance can turn things around for Grab.

Figure 1: Grab's 2021Q1 Quarterly Performance