When could Grab turn profitable?
Delivery wars are getting less intense in Indonesia. When ShopeeFood entered the food delivery space, it adopted aggressive promotional tactics to acquire customers, according to Momentum Works. By January 2022, ShopeeFood was able to achieve a market share of 8%. However, our industry checks indicate that the market share of ShopeeFood has been stable over the last three months, as ShopeeFood has become more rational lately.
In Singapore, the intensity of competition from Gojek has reduced, while in Indonesia, the competition from Gojek continues to be stable. Grab’s mobility take rate is one of the highest globally; however, it declined q-o-q to 23% in 1Q22, largely due to the increase in its base incentives. Upon achieving an adequate supply of drivers and when drivers start to generate significant income, we expect a reduction in the base incentives gradually.
According to BlackBox, Grab is the clear winner among ride-hailing apps in terms of brand popularity across all six markets, with 75% of users choosing Grab as their most often used app. Gojek is in second place, with 13% of the market. Grab has the most market share (94%) in Malaysia and the Philippines (91%). Grab has a six-fold or greater edge over the next competitor in three other markets. In Vietnam, for example, Grab significantly outperforms Gojek (73% to 10%).
We use normalised long-term EBITDA margins to derive our revised TP of US$2.85 for Grab, maintaining our HOLD call. With e-commerce peers trading at 14-30x 12-month forward EV/EBITDA, we use 12x EV to EBITDA in five years, discounted back by 10% each year. For Grab, we project a 12% EBITDA margin, leading to US$1.1bn EBITDA in FY27F. This is based on projected margins of 11%-12% for mature peers such as Uber and DoorDash in 2024, which do not have the cross-selling benefits of Grab. Grab has net cash of US$6bn currently, out of which we expect US$4bn to be burnt over the next four years before achieving EBITDA breakeven. So, we add US$2bn net cash to drive our equity value. Grab has guided for EBITDA breakeven for its delivery business by 2023, but there is no guidance on its fintech business, where it is facing intense heat from both GoPay and ShopeePay.