Grab To Focus on Profitability Instead of Growth but Upside Remains; Maintain USD 3.80 FVE

We are maintaining our USD 3.80 fair value estimate of Grab, despite the company reporting better-than-expected revenue and profitability, because progress was offset by implied expectations of lowered gross merchandise value, or GMV, growth from its delivery business in 2023. The company is starting to focus on profitability rather than growth and is reducing incentives given to both consumers and its drivers. Grab remains committed to 45%-55% revenue growth for 2023, but we expect higher net commissions to play a bigger role behind the revenue increase, rather then GMV growth. Profitability upside was driven by the delivery business, which achieved breakeven this quarter, faster than the company’s anticipated 2024 target, using fewer incentives. Despite our forecast of slower GMV growth in the segment next year, the company acknowledged that there could be upside to its long-term EBITDA margin forecasts of 3%-4% due to its expectation of an accelerated breakeven. Adjusted segment EBITDA margin was 0.4% this quarter in the delivery business, and should margins surpass our long-term forecast of 4%, we could see upside to our valuation in our model. The potential upside from delivery’s margin expansion adds another catalyst, including the build out of virtual banking and advertising, as opportunities that could provide future value creation.