This "Superapp" Trades At 28% Cash In An Emerging Market
Is GRAB the next big investment?
Hi fellow investors 👋
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This deep dive is on GRAB ( GRAB 0.00%↑ ), a company that just over the last week has become part of Ray Dalio’s, and Toyota’s portfolios and is also a big part of UBER’s portfolio since 2018.
This deep dive will be split into two parts. This is part 1 and part 2 will be released after earnings tomorrow with a good look into opportunities, financials, and valuation. Part 2 will be paid which is only $18 a month so I do kindly ask that if you can spare this cost it would massively help me in turning this into a full time profession which is the ultimate goal.
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GRAB has been a position in my portfolio since December 2024
Company: Grab Holdings
Ticker: GRAB
Stock Price Today: $5.30
Stock Price High: $13.90
Market Cap: $21.34B
Headquarters: Singapore
Outline
Introduction (Part 1)
Southeast Asia (Part 1)
Business Overview (Part 1)
Competitive Advantage (Part 1)
Risks (Part 1)
Financials (Part 2)
Opportunities (Part 2)
Valuation (Part 2)
Introduction
If you’re active on X, and specifically FinX, you’ve likely seen GRAB being discussed over the last few days which puts this deep dive at a good time. FWIW, I’m not jumping on the GRAB bandwagon and I first discussed GRAB back at the start of December 2024 with a brief investment thesis that you can see here:
See here for my X Thread on GRAB
GRAB is a super-app based in Southeast Asia. I like to describe it as UBER, DoorDash, SOFI, and PayPal all combined into one. If you’re from the US or Europe you’re probably less familiar with the idea of “super-apps” just because they aren’t as common for one reason or another. This is likely due to stricter regulations, more technical expertise meaning “super-apps” struggle to take any market share away from companies that specialize in those industries, and also just consumer preferences in the West.
But worldwide there’s tons of “super-apps”:
WeChat (China)
Alipay (China)
Gojek (Indonesia)
Paytm (India)
Rappi (Colombia)
Careem (Middle East)
Many people discuss GRAB as the “UBER of Southeast Asia”…in fact I used to as well. But it’s far from true and they have a lot more to offer than ride-hailing, mobility, and ads. GRAB aim to be a core piece of everybody’s daily life in Southeast Asia whether that be their journey to work, the food they eat everyday, how they pay for products, how they gain wealth, how they insure themselves and much more.
Let’s get into Part 1 of this deep dive:
Southeast Asia
GRAB operates in Southeast Asia - a region that has tons of tailwinds and is one of the biggest reasons I’m so bullish on GRAB. Geography plays a huge part in the sentiment around a company’s valuation as we’ve seen with BABA over the years and NU for example in LatAm. Too many people think SEA (Southeast Asia) is very similar to China (which FWIW I’m also bullish on with my BABA investment) but they’re very different regions with completely different tailwinds and risk factors.
SEA is currently projected to be the 4th largest economy by 2040 behind the US, China, and India, meaning they’re forecast to take over from Japan and stay ahead of leading European countries like the UK, France, and Germany. They’re growing GDP at 5% per annum which puts them as the fastest growing region in the world aside from India.
A very brief overview of my bull case for GRAB before I dive into this article would go like this:
Southeast Asia is a region with 700m young, affluent, people that are all increasing incomes, embracing technologies, and disrupting the traditional industries.
Despite being a very difficult region to tackle since it’s not homogenous like the US, those companies who can develop a leading position in the market, whilst also becoming a key part of the fastest growing industries like financial services, e-commerce, and transportation, will be the ones that win long term.
GRAB is that company.
This section will outline why I’m so bullish on Southeast Asia in the long term:
Demographics
SEA is home to:
Lots of people
Lots of young people
Lots of young people with growing wealth
There’s been many countries in the past who have benefited from this so called “demographic dividend”. This happened in Japan in the 1950s, South Korea in the 1960s, China in the 1980s, and India (present). During these periods, there were huge stock market returns with the Nikkei 225 increasing +15,000% in 40 years. Obviously GRAB’s stock is listed on the NASDAQ, but the sentiment around these countries macro performances are a huge driver of valuations.
Southeast Asia is currently home to ~710 million people with a median range of 30. When you compare this to Japan which had an median age of 24 in the 1950s, SEA aren’t at those levels but they’re in a much more favorable position than the US (39 years old), the UK (41 years old), and China (39 years old). An older population not only means a slower growth labor force, but it also means less productivity, less willingness to change (digitalize in most cases), and less economic growth.
Good demographics aren’t everything because the younger population and government still need to execute on the advantage they have, but it’s far easier to grow massively with a growing, young, wealthy population than it is with an aging population.
Urbanization
Many developed countries have seen peak urbanization, and are even seeing declining urbanization rates, but SEA is rapidly urbanizing with projections for 60% of the population to be living in cities by 2030 compared to just below 50% today.
Urbanization is key for GDP growth:
More productivity, higher wages, and better education.
Higher spending, higher demand for goods, and more exchange of goods and services.
More digitalization (better internet access). The population outside of urban area face a worrying digital divide. For GRAB specifically this limits the TAM quite significantly so investment into increasing the attractiveness of urban areas or increasing the digital infrastructure of rural areas is key.
Governments rarely invest in rural areas. They need to invest in hubs which are almost always urbanized areas.
Technological Advances
The biggest opportunity for SEA (and GRAB) lies in digitization. Currently ~75% of the population has access to internet, but the digital economy contribution to GDP is far lower than the likes of the US and China. The positive here is that the opportunity is huge, so much so that mega caps like Google have committed huge capital and time into the regions to research and track the state of the digital economy.
Technology as we know it today (AI, big data, early stage quantum etc) is not too present in SEA, but the key industries that are going through a digital revolution are e-commerce, transport, food, media, and fintech - most of which is bullish for GRAB. In fact, amongst these industries the total GMV (Gross Merchandise Volume) is expected to exceed $1 trillion in 2030. Data suggests that firms take ~35% of GMV so if GRAB can take just 3% of the market share of the digital economy in SEA (considering they have 60% in ride hailing, 50% in delivery, 30% in payments, and 15% in fintech), there’s a $10.5 billion opportunity.
One of the key challenges ahead for SEA’s digital economy is inclusion. Currently ~70% of the digital economy is made up of the top 30% of SEA’s digital spenders. This shows the value generation for those wealthiest and those with full access to the digital economy, but also shows how wide the digital inclusion gap is.
This wide digital gap can be seen as a current negative, but most GRAB bulls see it as a huge opportunity. SEA is still a cash economy with ~50% of the population having no bank account, and even fewer having access to credit cards, insurance, or investment products. This is primarily due to:
Distrust in banks
Value add of having a bank
Credit card fraud
But SEA’s population are quickly getting around this with GRAB as they can top up their GRAB account with cash meaning they can essentially bypass the whole distrust of banks, credit card fraud, and cash theft issues in SEA. GRAB are therefore single handedly playing a significant role in SEA becoming less of a cash society.
Business
GRAB was founded by Anthony Tan and Tan Ling who originally founded the company so that people were able to get taxis late at night…a similar idea to how UBER started.
Fast forward today and you’ve got a company with 3 huge segments:
Delivery: 13% revenue growth and 53% of total revenue.
Mobility: 17% revenue growth and 38% of total revenue.
Financial services: 34% revenue growth and 9% of total revenue.
The mobility and delivery sectors are as you’d expect really so I want delve into these too much. They aren’t necessarily completely innovative business models. GRAB does have a “GrabUnlimited” subscription model for $4 a month just like UBER One which gives users deals on all mobility and delivery orders.
The financial services segment is the exciting part of the business that ties it all together into a “super-app”. The financial services segment constitutes:
Digital Payments (“GrabPay”)
Insurance Products (“GrabInsure”)
Lending Services for SME’s and consumers
Wealth Management (“GrabInvest”)
All the data received from delivery, mobility, digital payments, and other segments feeds into GRAB’s AI models which enables precise lending decisions and insurance underwriting to be done all at a low cost because they already have:
The consumer from delivery/mobility (fairly low acquisition costs)
The data on the consumer (location, age, income levels etc)
Essentially this creates a “super app” where customers start using GRAB due to their delivery and mobility services and then eventually turn into customers with high LTV as they become financial services users which is generally a much “stickier” app than delivery and mobility where consumers can simply use another app if prices or wait times are more preferable.
Competitive Advantage
SEA is an incredibly difficult place to operate. It’s not a homogenous region like the US, or UK meaning successful companies have to tackle the difficulties of language barriers, cultural differences, socio-economic challenges, regulations, and much more. These differences could be island to island for GRAB meaning there is no one-size fits all model. This is a huge part of the competitive advantage that GRAB has that many people seem to forget and it’s one key reason why UBER failed in SEA.
Investing in understanding the country is expensive, time-consuming, and extremely difficult, but those companies that succeed will likely take a fair chunk of the market. It’s what makes the barriers to entry extremely high and therefore means that the risk of large companies coming into SEA to disrupt GRAB is almost non-existent.
Therefore, GRAB’s competitors are those smaller companies within the SEA region already that GRAB is currently dominating in mobility and delivery.
As you can see above, GRAB have a significant market share in food delivery with a GMV of $10.4B vs FoodPanda (2nd largest delivery company) with a GMV of $2.7B, 3.85x smaller.
People question why GRAB are the leaders in delivery and mobility (in mobility they have even more dominance) and to be honest it doesn’t really matter. They may have better UX, a better brand, better marketing but the key thing to understand here is that they’re in a position of dominance that is very difficult to disrupt now even if competitors invest huge amounts of money.
GRAB can simply price them out and keep them unprofitable until they can’t operate sustainably anymore. With $5.14B in cash and just $544M in debt, they’re in a very healthy position to withstand long-term macro or micro turbulence. Smaller competitors aren’t.
If GRAB sees competitors lower prices significantly and reduce take rate for example so that more drivers flock to another platform then:
GRAB know this is not sustainable long term. They’re in the industry and understand the capital intensive business model.
GRAB can very easily reduce their prices and offer more incentives to keep drivers because they’re in a much more financially strong position than all competitors.
This is why GRAB will remain dominant in SEA.
The next segment of the competitive advantage outline is the super app which is arguably the core of the bull thesis for GRAB.
Delivery and mobility users have a 4.9x higher order frequency than just delivery users.
Delivery and mobility users have a 2.1x retention rate than just if they were single segment users.
And this does not include the financial services segment which successfully monetizes a lot of the data collected throughout the last 7 years of delivery and mobility to optimize lending, insurance, and other financial services products. This is essentially where GRAB will end up making a good portion of their net income because variable costs are lower in financial services meaning margin expansion has a lot more potential than ride-hailing which is far more variable cost in nature. Customer acquisition costs are of course much lower too (for GRAB specifically, but not for competitors) because GRAB invested into getting customers onto their delivery and mobility apps which is just one click away from the sticky nature of financial services.
Despite the competition in financial services in SEA, GRAB have a huge opportunity in data which they are leveraging. Competitors have nowhere near the amount of data that GRAB has and over the long term if done well, data will win.
Risks
Investors can become very focused on the upside potential that it somewhat blurs their vision for the future. In larger cap stocks that have been around for a while I see far more balanced approaches to investments, but for smaller cap stocks I only see investment cases based on the opportunities ahead which aren’t a balanced thesis.
With that being said, here’s the key risks for GRAB 👇
Is The TAM Capped?
The opportunities ahead for GRAB are significant but there’s a huge limitation on the TAM being based in SEA. GRAB are not a disruptor, nor a company that has the potential to continuously compound for years to come. Looking at UBER for example, they’ve managed to grow revenues at 25% CAGR since 2019. That’s extremely good but this is a company that has had huge international expansion opportunities, as well as a wide range of avenues for growth to go down. I do sense that GRAB will be in a position where they struggle to grow revenue above 20% CAGR quite soon meaning the company will quickly turn into a stock with a narrative on margin expansion and EPS growth rather than a “hyper growth” stock. Typically, these margin expansion narratives will lead to strong long term returns but not huge moves like we’ve seen with PLTR for example.
Of course this is a completely fine, but I sense from what I’m reading online that many bullish cases on GRAB hinge on the “completely untapped” region with “incredible growth” all leading to GRAB deserving much higher multiples. That likely won’t be the case.
Margin Expansion Constraints
Another key thing to understand is that the ride-hailing and delivery industries are very capital-intensive and operationally difficult business models. We can see this with UBER who have a EBITDA margin of 7.5% in mobility. GRAB currently have a -14% EBITDA margin so there’s clearly a lot of room for improvement, but this is no typical tech company that can achieve margins above 50% (like NVDA for example).
You’ve also got to realize that UBER operates in very high income locations like the US, UK, and various other European countries. If UBER can’t achieve gross margins above 35% consistently, it’s quite naive to believe that GRAB has huge margin expansion opportunities ahead. Of course, I do see a lot of potential because of the flywheel effect that will naturally lower CAC and increase LTV, but we have to set our expectations.
For GRAB to maximize their mobility and delivery segment margins, they need to do these 2 things:
Become more operationally efficient. I don’t see this being an issue and this will naturally come with growth, cross-selling, and network effects.
They need to reduce payments to drivers, and merchants. This is known as increasing the “take rate”. Although it sounds easy, there’s some big issues with this which makes profitability in these industries extremely challenging.
Partners will easily switch to another platform if they get paid more there. There is no loyalty to GRAB.
Partners will easily switch jobs if they can get paid more elsewhere. The beauty of a young, wealthy population is that they’re very proactive but the downside for GRAB is that more and more individuals are becoming highly skilled and “overqualified” for delivery and ride-hailing jobs. This isn’t the case just yet though as the vast majority of individuals can make 3x their normal salary by being a GRAB driver.
As UBER have said consistently, demand grows with supply. More drivers means less waiting time and subsequently a better product that more people will use. If that supply starts to decrease because GRAB increase the take rate, the number of drivers reduces, and the product becomes far less attractive meaning they may switch to alternative apps.
Ultimately, if you look at the net income margins for the likes of UBER, DASH, and LYFT, it’s only UBER that has become a very profitable company with a 57.6% net income margin compared to the rest that are struggling to get above 5%. The benefit here for GRAB is there’s a lot of room for margin expansion and that has yet to be baked into the stock price, but margin expansion is difficult in the most developed countries in the world, let alone SEA where competition is still rife and incomes are fairly low.
Financials Services Segment Risks
The financial services segment is a big opportunity, but it doesn’t come without it’s risks:
The difficult part of GRAB is that even though SEA is considered one region, the regulations in each country differ massively and are constantly evolving as the countries develop. This puts a huge compliance and regulatory burden on GRAB which inherently slows down the possibility of fast disruption, and makes it more of a slowly growing incremental business.
There’s many competitors in the financial services SEA industry and currently GRAB are not a leading player. You have Gojek, TrueMoney, Alipay, Ovo, DBS Bank, ShopeePay, Tokpedia, Revolut, and other traditional banks and fintech startups. The worry here is that GRAB’s financial services segment becomes just a way for consumers pay for the low margin and lower growth mobility and delivery businesses, rather than a fully fledged fintech business.
FSD Risks
I don’t think this is a huge risk so won’t spend too much time but if UBER’s biggest risk is FSD then we must touch on it here. I do think GRAB have much less risk here (in the short term) because FSD will struggle a lot with SEA’s roads that have poor signage.
I’m not saying FSD won’t make it to SEA, but I’d be surprised if this was in the next 5-7 years.
Valuation Risks
I’ll be diving into the valuation a lot in Part 2, but it’s important to understand this:
The “re-rating” that most stocks need to 2x, 3x, 5x, or even 10x require both/either of:
Huge margin expansion opportunities
Huge revenue growth opportunities
The core industries of mobility, food delivery, and financial services all are inherently face margin pressures meaning a slow grind towards good profitability and free cash flow is often required. That alone is good for stock prices and this is why I’m bullish on GRAB, but to think that GRAB has an opportunity to massively expand margins over the next 3-4 years is naive. This will be a slow, but likely successful process over a 5+ year period.
Secondly, GRAB is not in a position to completely redefine an industry. Instead, they’re fighting (and succeeding) to become the dominant force in an industry that has been around for a long time. They’re just navigating the difficulties of doing it in a new region. The TAM is large for GRAB because only ~5% of the SEA population use their products, but we can’t expect that figure to jump considerably YoY. Revenue growth will decline YoY from the current 60% range. GRAB isn’t some new phenomenon in SEA. It’s been around for a few years and people are fully aware of it, yet still only 5% of the population use it. This means that revenue growth and winning the market will be another slow process that likely won’t deserve huge increases in the multiples. This will not be explosive growth that warrants a huge multiple.
For my deep dive into the GRAB valuation, make sure you’re subscribed so you don’t miss Part 2 coming soon.
That’s all for today
I do hope you enjoyed this GRAB deep dive. If there’s any feedback or additional information that you think would be necessary, please do reach out to me and let me know or leave a comment below.
Make sure you subscribe for Part 2 out in 2 days.
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Thanks for sharing this! $GRAB looks really interesting. Cool to see they still have a big TAM and definitely room for margin expansion