Summary

• Grab Holdings, the "Uber of Southeast Asia," has shown significant growth in key mobility, delivery, and financial services segments, and sports a solid competitive moat.

• Trading at a reasonable valuation, we think that shares are still attractive, despite the recent 40%+ run up.

• We're re-iterating our 'Strong Buy' rating on GRAB.

One of our favorite stocks on the market right now is Uber (UBER).

Why? Because it's one of the best 'marketplace' businesses around.

With a robust dual-sided platform of demand and supply for rides, meal delivery, and more, UBER is in a perfect position to grow revenues, market share, and profitability, all at the same time. With the ability to add on higher-margin businesses, like advertising, we think that UBER - and other scaled marketplace businesses at large - are in an incredible position to deliver incredible long-term returns to shareholders.

While the company's recent earnings report was a bit of a dud, the firm's long-term outlook, in our view, is excellent.

As much as we love UBER, we love Grab Holdings (NASDAQ:GRAB) even more.

We first covered the stock back in July of last year, when shares were trading at $3.55.

Since then, GRAB has appreciated roughly 42%, outpacing the S&P 500's return of by a considerable amount over that time:

GRAB

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Now, with GRAB's Q4 earnings report due out in a few days, we thought we'd revisit the company and see if anything had changed with our thesis.

Similar to UBER, we see GRAB as having an incredible growth opportunity in the southeast Asian mobility & delivery market, with the added call option of having a 'consumer finance' arm. But is the stock ahead of itself?

Today, we'll revisit GRAB, examine the company's recent results, and explain why we think the stock is one of the 'Strongest Buys' on the market today.

Sound good? Let's dive in.

Our GRAB Thesis

We'll begin by taking a quick look at our previous thesis on GRAB for some context.

In our original article that came out in July of last year, our thinking around the stock was as follows:

First - GRAB can most easily be thought of as the 'Uber of Southeast Asia'. With leading offerings across mobility, delivery, and financial services, we see the company as having a robust competitive moat and strong user 'capture'. If the company had a social media offering, we'd think of GRAB as being a 'SuperApp'.

Second - while the stock is down since its SPAC, the company has shown considerable top line growth, narrowing losses, and a dominant market position. TTM Revenues last July were up considerably YoY, and net income losses also came in considerably.

Third - we saw the stock as being an incredible value. With high YoY revenue growth, robust EBITDA, and excellent product-market fit, we saw shares, which were trading at 5.1x FWD sales, as a 'deal'.

Through today, the company has continued firing on all cylinders.

GRAB's Financials

Since our article, GRAB has reported two more quarters of results.

While the company's EPS and revenue beats didn't 'wow' analysts, GRAB did produce another quarter of positive EPS in Q3, which is notable:

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In addition, while top line growth rates did fall somewhat into the high-teens area over the last two quarters, quarterly revenue figures continued making all-time highs, breaching the $700 million milestone.

Here's the thing - these slowing growth numbers were heavily impacted by FX headwinds, as you can see from the chart below, which was produced by fellow Seeking Alpha Analyst Riyado Sofian in his article on Q2:

Grab Revenue Growth

This indicates that the growth opportunity is still 'going strong', and that growth could boomerang back higher in the event that the USD weakens.

On the profitability front, the company's continued progress has finally begun to bear real fruit. In Q2 and Q3, GRAB's TTM EBITDA continued edging closer and closer to breakeven:

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In addition to that, TTM free cash flow continued to move higher in Q2 & Q3, which is indicative of how much progress the company has made as of late, and how positive the unit economics really are after incentives and spending on growth are reduced:

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When looking at the company from a top-down perspective, the core mobility, delivery, and financial services segments are all growing well, with higher GMV, revenues, and EBITDA on a YoY basis:

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Plus, while the financial services segment is still producing negative EBITDA, loan growth of 81% YoY is both highly impressive, and should foreshadow a material move higher in EBITDA in coming years as those receipts and interest come back in.

Looking forward, GRAB is set to deliver Q4 / FY'24 results on Friday, Feb 21st. We're expecting revenues in the realm of $760 million, which is basically in line with analyst estimates:

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This assumes continued, robust growth in the FXN business, along with some continued USD headwinds. On the bottom line, we're anticipating continued progress on the net income front, with potentially a second quarter of positive EPS, which would mark another milestone for the company.

Finally, we're expecting the company to continue boosting MTU numbers, as we're seeing evidence that GRAB has similar monetization metrics to UBER - in that platform usage becomes a habit over time:

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All of this, in our mind, points to continued growth on the financial front, both in top line sales and in potential bottom-line red-to-black inflection.

GRAB's Valuation

But what is the stock worth? As we outlined, GRAB's underlying business and growing financials show that the company is firing on all cylinders - but how expensive are the shares?

After a blistering rally over the last 6 months, it's worth checking in on the valuation to see whether or not shares are still 'attractive'.

Fortunately for investors, we think the stock still looks well priced.

On the top line, GRAB is trading at roughly 5.65x 2025 sales:

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While this is slightly more expensive than the 5.1x FWD number we highlighted in our previous coverage, it's not evidence of considerable multiple expansion. Some of GRAB's appreciation is actually due to growing underlying financial results.

Similarly, on the bottom line, GRAB is sporting a FWD EV/EBITDA of 44x. Initially, this may sound expensive, but for a fast-growing company with solid unit economics coming into what could be the first real year of bottom-line profitability, this actually appears quite cheap. If you assume that GRAB will be around for the next 10+ years while continuing to grow revenues and margins, then paying 44x, now, appears quite attractive.

All in all, we still see GRAB as reasonably priced given the company's underlying growth and profitability dynamics.

Risks

There are two key risks we see for GRAB - one on the FX front, and one on the business front.

On the FX front, USD strength continues to be a headwind. This is a negative for the company and all US shareholders, as results are earned in IDR, MYR, and THB, but denominated in USD. The more these fractions shift, the less profitable and attractive GRAB looks. Also, in the future, it means the less money that GRAB management will be able to repatriate and pay out to shareholders in the form of dividends or buybacks.

As the new US administration has begun announcing tariffs on a wide variety of international goods and services, we expect that global demand for dollars will rise, which may put continued pressure on GRAB's bottom line, at least in the near term.

Additionally, on the business front, GRAB hasn't yet inked any major partnerships with autonomous driving companies, which we see as the only real existential threat to GRAB in the long run. UBER's progress with Waymo alleviates this risk somewhat, but for GRAB, we see the company as still largely being exposed to this risk.

De-risking in this area should be a priority for management moving forward.

Summary

All in all, however, we see GRAB as a highly attractive, high growth company on the verge of true bottom-line profitability. With an incredible competitive moat and a reasonable valuation to boot, we see shares as one of the most compelling opportunities on today's market, despite the FX and autonomous driving risks.

Thus, we're re-iterating our 'Strong Buy' rating.

Stay safe out there!