Run for profitability with slower revenue growth
EBITDA breakeven to be achieved by 2H24F
GRAB expects EBITDA breakeven by 2H24F amidst slower revenue growth. According to Bloomberg, GRAB expects a slower revenue growth of 45%-55% in FY23F as the tech giant focuses more on achieving EBITDA breakeven instead of achieving GMV growth. GRAB also expects to achieve EBITDA breakeven by 2H24F vs our earlier expectations of FY25F.
According to the guidance outlined in 2Q22 results, GRAB expects US$1.25bn to US$1.30bn revenue for FY22F, implying an average growth of 89% vs. 106% in our earlier estimate. Our earlier FY23F projections imply a 77% revenue growth. Hence, even the higher end of the guidance is much lower than our expectations.
Fintech could experience revenue slowdown due to the continued rise in EBITDA losses. For GRAB, mobility EBITDA has been improving along with rising GMV and revenue and GRAB is also able to narrow the EBITDA losses in the deliveries segment. We expect that there could be some slowdown in the financial services (fintech) segment as EBITDA losses have increased.
GRAB expects to launch DigiBank operations in Malaysia and Indonesia in FY23F. Significant EBITDA losses are expected in FY23F. However, lending services are expected to enhance the profitability profile. GRAB targets to achieve EBITDA breakeven for DigiBank operations in FY26F. Therefore, we have revised our projections accordingly.
We use normalised long-term EBITDA margins to derive our revised TP of US$2.58 for GRAB. With e-commerce peers trading at 10-20x 12-month forward EV/EBITDA, we use a 12x EV to EBITDA in five years, discounted back by 12% 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 currently has a net cash of US$5.6bn, out of which we expect US$4bn to be burnt over the next four years before achieving EBITDA breakeven. Thus, we add US$1.6bn net cash to derive our equity value.