GRAB Comprehensive Theses (Deep Dive)
COMPREHENSIVE BULL THESES, BEAR THESES DEBUNKED AND THE REAL RISKS
Some of you might have seen me share this on X. This is a similar post, but I have added pictures and extra content for context. This is the definitive comprehensive theses that I have for Grab as of today.
BULL THESES (5 POINTS):
1. Dominance in Mobility and Deliveries
Grab has an unassailable lead on the Mobility and Deliveries market. In the Mobility market, they are 4x larger than their closest competitor, Gojek, and are estimated to have ~50% market share. In the Deliveries market, Grab has slightly more competition in the form of ShopeeFood, FoodPanda and Deliveroo. Despite being a relatively late entrant to the market, Grab is estimated to have ~55% market share.
Mobility and Deliveries are platform businesses where the majority of value accrues to the winner. (See $AMZN with e-commerce, $GOOGL with search, $META with social, $UBER with ride-hailing.) GRAB 0.00%↑ is on a clear path towards that, and this was reiterated during the Q3 earnings call.
Competitors are aware of the dynamics, which leads to a situation where massive amounts of promotions/discounts are thrown at consumers to gain market share.
This results in HUGE competitive pressures as companies realise just how important it is to wrestle market share and to dominate the market. Domination = Profits.
The tough part for GRAB 0.00%↑ is done. They have defeated Uber, the remaining competitors have been relegated to niche market positions, and Grab is making healthy profits on both Mobility and Deliveries. EBITDA margins on Deliveries grew 60% YoY, Mobility margins grew 18% YoY, while revenue for both segments saw double-digit growth.
Grab is well-positioned to fight off potential competitors with its $4B cash pile and growing positive FCF ($138M in Q3 alone).
2. Burgeoning SEA population, Massive Mindshare
SEA has a population of 700M and a median age of just 32. Internet penetration rates soared through Covid, with 80M new internet users coming online in 2020/2021. Current internet penetration rates are hovering around 82%.
Yet 2/3 of SEA remains unbanked/underbanked. This is a huge opportunity for Grab and they are in prime position to capture it. (More on this later)
Grab is a verb in Southeast Asia. Similar to the west where “Uber” is used to replace ride-hailing, “Grab” in Southeast Asia is used for ride-hailing and food delivery. It is synonymous with Southeast Asians.
That might bring some to a conclusion that there is a ceiling on Grab’s growth. To the contrary, despite Grab having 42M monthly transacting users, it is merely ~5% of the SEA population.
Quick look at management’s Q3 comments:
“At the moment, our monthly transacting users is only about 5% of the Southeast Asia population. And then the annual transacting users is something like 15%. So, still lots and lots of upside to go for us with this affordability strategy that we have. And then, of course, plenty of opportunity to continue to drive good margin because of the ladder strategy where we have a growing premium customer base as well.”
What is the "ladder strategy" management is referring to?
This refers to increasing the frequency of platform usage. Currently, annual transacting users are a large multiple on monthly/daily users. Grab’s strategy is to onboard first-time users to the platform through incentives/promotions. Mobility and Deliveries tend to be sticky services. Once users are familiar with the various services, they naturally increase in frequency, with the "help" of management's targeted incentives that aim to alter consumer behaviour.
SEA has a large and growing middle class, who are technologically capable and are experiencing growing income levels and purchasing power. Yet, SEA’s car ownership rate remains low compared to western nations, pushing urbanites toward shared mobility options such as Grab. These demographics are also ideal for Grab’s GFin business as the population looks for ways to save and invest their money.
3. SuperApp Thesis