Grab's share price jumps as losses narrow. Is a turnaround in sight?

What happened?

Grab’s share price bounced by 14% in the past week, after it reported earnings that were better than what investors were expecting. 

This is in sharp contrast to Sea Limited, which saw a 27% plunge in its share price after its recent results. 

The turnaround in fortunes may be a surprise to some investors, who have seen Grab’s share price plunge after its listing via the world’s largest SPAC merger in 2021. 

Let us dive deeper to understand what is driving the improved financial performance of Grab, and if it might be time to add the stock to your watchlist. 

What are the positives from Grab’s latest results?

Grab reported losses of $148 million for the second quarter of 2023, 74% lower than the previous year. 

Its adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) also improved to -$20 million, 92% lower than the previous year.  

The smaller losses came at the back of Group revenue growing 77% compared to a year ago.

Source: Grab 2Q 2023 Financial Release Press Release

#1 Deliveries GMV reached all time high post COVID, while profitability improved

Deliveries Gross Merchandise Value (“GMV”) has reached at all time high of $2,573 million, after 4 consecutive quarters of sequential decline. 

Grab saw a robust demand for Deliveries, with higher user engagement. 

Higher GMV did not come at the expense of bigger losses, as Deliveries Revenue grew 118%, while EBITDA as percentage of GMV improved 2.7% in 2Q 2023, compared to -1.4% a year ago. 

The strong revenue growth came as a result of management’s initiative to reduce incentives and change of business model of certain Deliveries offerings. 

It should be noted that Deliveries segment has reported positive EBITDA of $69m, compared to a negative EBITDA of $34m a year ago

#2 Mobility business recovery from both strong domestic demand and tourism related demand

Like the Deliveries business, Mobility GMV also grew strongly by 28% compared to the previous year. This led to a 29% increase in revenue compared to the previous year. 

This was driven by Grab’s effort to increase active driver supply to cater to strong domestic demand, as well as a rise in tourism ride-hailing demand. 

#3 - GXS Bank JV starts to contribute to Financial Services

Financial services, a relatively new business for Grab, has also reported better results.

The Financial services business consists of Grab’s payment business, its buy-now-pay-later business, as well as GXS Bank, a digital bank joint venture (JV) with Singtel, 

Financial Services segment revenue saw a 223% increase during 2Q 2023, due to higher contributions from services such as lending and better monetization of payment business. 

Lending business has seen loan disbursement growing by 47% from a year ago. 

GXS' EBITDA rose to $15m in the second quarter of 2023 from $5m in the previous year.

We has previously shared that GXS Bank has lowered its interest rate for deposits less than 1 month after launch. 

While this is bad news for GXS depositors, it shows GXS Bank is managing its business in a sustainable manner and putting profitability as key priority 

#4 EBITDA Breakeven Target Brought Forward to 3Q 2023

As a sign of improved operations, Grab has brought forward its EBITDA breakeven target by a quarter to the third quarter of 2023 from the fourth quarter previously.

What would Beansprout do?

Based on its share price of $3.70 as of 25^th Aug 2023, Grab’s share price is up 6.9% year to date but still down substantially from its peak of $16.37 in 2022.

As shown in the latest results, Grab has shown signs of its operations turning around. The company’s GMV and revenue are starting to accelerate once again in key businesses. 

At the same time, Grab is increasingly focused on profitability, and has brought forward its target of achieving adjusted EBITDA breakeven.

One of the areas that could help with profitability is Grab’s subscription programme - Grab Unlimited.

The subscription service already accounts for one-third of Grab’s Deliveries GMV, and subscribers spend 3.8x more on Food Deliveries services compared to non-subscribers.

Following the improvement in performance in the second quarter, the key risk to look out for would be the performance of GXS Bank. Currently, management expects losses at GXS Bank will peak in 2023, before breaking even by 2026. 

Widening losses at the GXS Bank could derail Grab’s plans to achieve profitability for the group.

For now, the worst seems to be over for Grab, and we’ll be looking out for the stock’s continued turnaround in the coming quarters. 

In contrast to Grab, Sea Limited's share price fell sharply after the company said that it will be investing more into its e-commerce business Shopee that could lead to potential losses in future. Find out what we think of Sea Limited after its share price decline.

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