To The Moon

$Grab Holdings(GRAB)$

If you're not active on X (formerly Twitter), you might have missed the stock that dominated investment discussions over the weekend: Grab Holdings. In simple terms, Grab is the Uber of Southeast Asia. Uber initially tried to compete in the region but eventually opted to invest in Grab instead.

Grab released its earnings report after the market closed today, and the reaction was negative—shares dropped about 10%. So, what happened, and what does this mean moving forward? By tomorrow’s market open, Grab’s market cap will likely be around $18 billion.

At first glance, the earnings report wasn’t bad. Revenue surged 177%, surpassing analyst expectations, and management’s guidance landed in line with forecasts. While earnings per share (EPS) isn’t a key focus at this stage, it still met expectations.

Margins were a mixed bag. On the plus side, gross margins expanded by over a percentage point, and operating margins improved significantly. However, net margins remain thin and somewhat volatile due to currency fluctuations. Free cash flow grew strongly, net income was near breakeven, and the balance sheet remains solid.

Diving Deeper into the Numbers

Revenue soared 177%, while the cost of revenue only increased by 15%—a positive sign, as it means gross profit is expanding.

Grab operates across ride-hailing, food delivery, and financial services (similar to Sea Limited and Mercado Pago). Unlike Uber, it does not have a freight division. Another positive takeaway: operating expenses only increased by 2%, helping Grab turn an operating loss into a profit. However, one factor affecting profitability was foreign currency exchange rates—largely a one-off issue.

Even the number of outstanding shares decreased slightly by 0.3%.

The Concerns

One of the biggest concerns is the delivery segment. While delivery revenue jumped 133%, gross merchandise volume (GMV) only grew by 19%. That’s a red flag because it suggests Grab is taking a smaller percentage of each transaction—a worrying sign for a platform that should ideally be increasing its share.

Profitability in deliveries also struggled. The segment’s adjusted EBITDA grew by just 1%, and its contribution to total GMV dropped from 2.1% to 1.8%—a move in the wrong direction.

Similarly, in the ride-hailing business, revenue grew 19%, while GMV rose 23%. This again suggests that Grab is keeping a smaller share of each ride, possibly due to rising competition. Adjusted EBITDA for mobility increased by 19%, but its share of GMV dipped slightly from 88.7% to 88.4%.

Management noted on the earnings call that they expect long-term take rates to exceed 9% for mobility and 4% for deliveries, but they haven’t reached those targets yet.

The Incentive Problem

A major reason Grab is capturing a smaller share of GMV is its heavy spending on incentives. Incentives include discounts and promotions, such as offering riders 20% off their next trip to encourage app usage. While these can drive growth, they also eat into revenue per transaction.

Here’s the breakdown:

• Partner incentives (agreements with businesses) rose 15% to $129 million. This isn't a major concern.

• Consumer incentives (discounts and promotions for users) are more alarming. In the delivery segment, they jumped 36%, and overall delivery-related incentives increased 27%.

• Mobility incentives (for ride-hailing) were even more concerning. Partner incentives rose 25%, but consumer incentives surged 44%. Overall, incentives for mobility increased by 33%.

This is a significant issue. On the earnings call, management claimed they have full control over incentives and sometimes use them to promote new products. While that makes sense, this isn't the first time they’ve made that argument. At some point, they must prove the business can grow profitably. Right now, Grab doesn’t have a clear competitive moat.

Can Grab Build a Moat?

It’s possible. Uber followed a similar strategy—spending heavily on incentives until it dominated the market, then raising prices to become a cash-generating machine. But Grab isn’t at that stage yet. Whether it gets there remains uncertain. If it does, today’s stock drop could be a great buying opportunity. However, that competitive edge is far from guaranteed.

The Key Metrics to Watch

1. Incentives – The biggest concern.

2. Margins – Need to improve.

3. GMV Growth – Important, but only if it leads to profitability.

4. Revenue Growth – Still relevant, but secondary to margins.

Grab remains a relatively small position in my portfolio—about 3%. I believe its competitive moat is still in question. The company must prove it can raise prices without losing customers, which is crucial for its long-term success.

Valuation Analysis

Now, let’s talk valuation. Grab’s forward price-to-sales ratio stands at 6.7x, above its historical range. The forward price-to-earnings ratio is around 200x, but that metric isn’t as relevant at this stage. Price-to-free cash flow is roughly 33x, which appears reasonable compared to its past valuation levels.

A reverse discounted cash flow analysis provides further insight. Given Grab’s financial services expansion, its free cash flow margin is around 27%, generating about $751 million in free cash flow over the last year.

For Grab’s current stock price of $4.80 to be justified, free cash flow would need to grow at approximately 12% per year. Analyst estimates suggest similar growth, though the financial services division makes free cash flow projections more complex.

The Bottom Line

Is Grab fairly valued? It seems so—for now.

However, the real question is whether it can establish a sustainable competitive advantage. While revenue and GMV growth are encouraging, none of that matters if Grab can’t scale profitably while reducing incentives. That’s the critical factor moving forward.

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Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.