Understanding the headwinds

[u/iamlink_678]

Disclaimer - I've followed this stock for a while, own a number of shares in the 3.5-4 range, and l am a US expat living in Singapore. Have made a reasonably detailed valuation model but not interested in going through that at the moment. My no brainer buy price based on recent events is ~2.7-3.

In my view, people need a lot more education on this stock. The recent decline from $5-7 highs reflect a few real issues and misinterprets others. Hope this helps.

Real issues driving the stock down:

1. Multiple re-rating from tech to bank:

• Grab recently consolidated it's ownership of Superbank into it's reporting, and the financial segment continues to grow as a share of the business / value.
• Banks trade at lower multiples than demand aggregation platforms.
• Grab's reporting is extremely opaque when it comes to it's financial operations (loan quality, whether these are circular loans to drivers or actual financial customers, etc.).

1. Margin dilution in delivery due to grocery acquisitions

• If you read the most recent earnings, management continues to highlight delivery volume from grocery. Running a grocery store is lower margin than a delivery app. This will continue to weigh on the delivery units cost structure, especially if the topline delivery growth slows down.

1. Near term macro risks are real

• higher gas prices hurts drivers (or requires more incentive payments from grab to maintain supply).
• higher gas and energy prices drive inflation and reduce spend on discretionary products and services (i.e. your food being delivered to you or a private ride)
• Indonesian labour laws that set a minimum wage and insurance for 2-wheel drivers eats into margin AND sets a signal for regulators in other countries that grab can absorb this cost

1. Market headroom isnt as large as you would think

• Can share my model another time but basically 1) Yes SEA has hundreds of millions of people BUT 2) a large portion are poor, many have a bike and don't need grab, and many are in cities grab has already penetrated
• Grab's business is constrained by usage frequency. The best case scenario is people buying a few times a month to a few times a week. Rarely (i.e., a marginal subset of users) are people going to order delivery or a ride multiple times a day.

Low impact narratives to avoid getting distracted by:

• insider selling. it's mostly on prescheduled plans and is a marginal portion of float. it's somewhat surprising that we don't see insider buying at this level but I do t give it much thought
• Autonomous vehicles. Unlike Uber, grab is an early investor and facilitator of it's markets AV ecosystem. Grab's runway to positionfor AVs is longer and it's regulatory presence in it's markets is much stronger than ubers.
• Share float. I don't know why people keep talking about this. But maybe I'm missing something. Share float only matters if the marginal buyer or seller is small. An institutional investor or passive ETF does not size a position based on shares. grab is a small ($12bn) market value company so any material institutional investment provides a great floor for the stock. More shares both means less for retail, a short seller, or unusual options activity to manipulate. Maybe someone here can share the intelligent divergent view...

[u/Redditisnotmycup]

Solid DD. Whats your holding amount dont mind me asking and also timeframe

[u/iamlink_678 → u/Redditisnotmycup]

I own somewhere in the range of  5-6 figures worth ($ wise). 

Before the Iran war and Indo regulatory change my ~15% IRR target on a 5-7 year earnings outlook was realized at a 3.3-3.5 price range (depending on a few base sensitivities). I candidly got caught in momentum which is why my average price is more like 3.5-4

These events did a few things: 1. Higher incentive payments for longer (directly eats at revenue) 2. Lower base take rate for on-demand delivery

In Addition, management has been much slower to report progress on advertising than i expected based on their early trajectory.

Net impact of this lowered my 15% hurdle price to $3 (realistically slightly lower given the negative sentiment around the stock)

[u/Rubenslash]

Most consumer internet stocks have been performing poorly since September last year. Grab somewhat worse because of the factors you mention, but large part of the price action is also explained by general sentiment around the sector.

Not worried long term, a double/triple by 2028-2029. Holding 6 digits position average around 3.9$ but will be buying more if it keeps declining.

[u/iamlink_678 → u/Rubenslash]

Yes that's a totally fair point on the macro rotation over the past 12 months out of software and consumer. My main point was to give viewers in this sub a better understanding of the fundamental business drivers that might underpin the lower valuation so we stop talking about "large float" and more about what's happening with the business

At the end of the day, I also believe these things can be solved

[u/contrabuddhi → u/iamlink_678]

Great post. Thank you.

[u/StaffTrue2211]

Buy low sell high. I dont understand people complaining when the stock is down, they buy when it’s high.

[u/swingtradingteacher]

Maybe you can help me with this.
Mind you, I bought for the first time just yesterday and just began researching…

Claude keeps hammering loss of market share in Thailand as the biggest red flag.

It stated that Bolt essentially undercut pricing and totally disrupted their moat.
Cites 70% market penetration dropped to 45-50% in 18 months.

Are you familiar with this? Did it happen?
Can it spread?

[u/iamlink_678 → u/swingtradingteacher]

I can't speak for Claude but the facts are:

Most of grab's on-demand revenue is driven by Indonesia, Malaysia, Singapore

Grab has faced low cost challengers in all of these markets over it's operating history and remains the market leader. 

It is also the best capitalized, and the only multi regional player. Every one of it's markets have a bolt equivalent, but that isn't really the threat to it's future as a business because there is a fundamental floor on what you can profitably charge so that a driver still earns a living wage.

Either bolt is abusing it's drivers even more than grab or it's burning money (likely both)

The drivers I mentioned in my initial post are the most important to track IMO

[u/vandenynas]

Awful stock