6 Question Marks Over Grab's Breakeven

Grab Holdings (NASDAQ: GRAB). IPO in Dec 2021.

It's only fair. To give credit. Where credit is due.

Grab's gross margin, operating margin, free cash flow margin and EBITDA margin have all improved steadily. Over the last seven quarters. Clearly to a well-executed plan! Out of these, gross margin and free cash flow margin have actually turned positive. In 23Q3.

What's more ...

Grab retired $756 mill of long-term debt. In 22Q4. And another $580 mill. In 23Q1. Very judiciously. After all, hasn't the cost of capital been increasing? For all businesses?

And, yet, Grab's nowhere near turning the corner.

What are the six things missing in this rosy picture?

1. Year-on-Year Revenue Growth

• Slowed down. Over last three quarters. Despite South East Asia being one of the world's fastest growing digital economies. In the eyes of most analysts. After all, aren't consumers busy hailing cab rides? Ordering dinner online? Sending parcels from point to point? Buying now and paying later? In Singapore, Malaysia, Thailand, Indonesia, Vietnam, Philippines, Cambodia and Myanmar? More so after the pandemic ended?

• Despite having diversified from a taxi-hailing app to an "Everyday Everything Superapp". Grab's Enterprise and New Initiatives segment has barely been able to move the needle. Contributing only 4.6% to overall 23Q3 revenue. Even though it had launched its GrabAds platform way back in 2018.

• Grab's even called off its GrabInvest experiment recently. Together with its instrument AutoInvest (launched in 2020). And short-lived Earn+ (barely launched in 2022). Grab's famous "monthly active user" base obviously did not consider it a credible micro-investment platform. We can't all be good at everything, can we?

Now on to money matters ...

2. Cash Flows

• Operating cash flow has turned positive only for the first time. In 23Q3. Reportedly driven by consumer deposits in Grab-led GXS Digibank. Rather than by its core delivery and mobility segments.

• Investing cash flow remains the major contributor to Grab's total cash flow. But it saw two very wild swings in 21Q4 and 23Q2.

• Financing cash flow has been all over the chart. Quite volatile. Quarter to quarter.

In other words, Grab's net cash flow has not settled down. To a reliable and predictable pattern.

And you just can't help noticing ...

3. Accounts Payable

On average, 2.5 times its quarterly cost of revenue. Consistently high. Surely these can't all be trade payables? Because that would mean Grab owes its suppliers for more than seven months! On average.

And this is despite the jaw-dropping USD 3 bill cash and equivalents on Grab's balance sheet.

What else has the company been up to?

4. Short-Term Investments

Grab's been selling off short-term investments. For the last four quarters. Yet another extra-curricular activity.

Oh, and ...

5. Asset Turnover Ratio

Improving steadily. For the last seven quarters. But, at 0.07, still far too low. For any investor's appetite.

What's stopping Grab from turning its total asset base (an eye-popping USD 8.6 bill in 23Q3) into revenue faster?

Which brings us to ... 

6. Goodwill and Intangibles

USD 917 mill. Last revalued in 22Q1. Sitting at a whopping 29% of Grab's total long-term assets in 23Q3. Second only to long-term investments.

Here's what it adds up to ...

Food tastes best when it's delivered piping hot. Doesn't it?

For Grab, though, the path to profitability will be a long ride. Yet.

In fact, the real question may be whether. Not when.

Would love to have your thoughts on this. In the comments below.

Until next time. :)