Not enough SaaS
D/G to SELL; recession risks mounting
With our macro team projecting a further +175bps hike in the Fed funds rate (FFR), we believe that capital market expectations have changed, rationalising a mark-to-market exercise. Our SOTP TP falls to USD2.29, slashing the multiple for Delivery to 0.9x FY23E EV/S, moving in line with regional competitors DeliveryHero and Deliveroo, and bringing Mobility to 1.1x FY23E EV/S, maintaining our anchor with Lyft (see Figs 4-8). We downgrade to SELL from BUY as recession and macro risks mount.
GrapMaps SaaS: pawning the family jewels
Grab’s mapping capability is one of its core competitive advantages behind the Delivery and Mobility segments (89% 1Q22 revenue), and we see the pivot to SaaS as a desperate wringing for cash flows where it can. We remain sceptical of Grab’s target 10% of the USD1bn mapping market by 2025, given the more challenging capex situation faced by other technology platforms, a key customer segment for GrabMaps. Exposing its APIs could make Grab vulnerable to IP risks, such as scraping and copying by other technology rivals, eroding its edge over time.
Weak moat without more SaaS or mini-apps
In comparison to Grab share price, which has fallen -78% since the start of 3Q21, notable SaaS and superapp names have fallen less in relative terms over the same period – Salesforce (SaaS): -28%, Tencent (superapp): -28%- demonstrating investor favour for mature SaaS and superapps with earnings and sustained positive cash flows thanks to their superior business models. We see Grab as still being in a transitionary phase, having neither a mini-apps ecosystem nor a meaningful recurring SaaS revenue stream, and therefore, increasingly disfavoured by investors.
Cash balance provides a price floor
The PIPE cash injection of USD4.3bn in 4Q21 was well timed, shoring up Grab’s finances, as was Amazon before the 2000 Dotcom Bubble crash, to weather the forecast period without further capital raises as it aims to improve its unit economics and restructure the business for profitability; We are forecasting FCF positive in FY24E. The cash balance and investments provide a price floor of USD1.35 to Grab’s share price.