Grab Holdings - Investors Are Better Suited Investing In Uber or DoorDash

For the commandments, “You shall not commit adultery,” “You shall not murder,” “You shall not steal,” “You shall not bear false witness,” “You shall not covet,” and if there is any other commandment, are all summed up in this saying, namely, “You shall love your neighbor as yourself.” Love does no harm to a neighbor; therefore love is the fulfillment of the law.

Romans 13:9-10

It is fascinating to read through the first five books of the Bible, known as the Pentateuch (Greek word for five) or Torah (Hebrew for instruction or law). These laws mentioned above are from the Ten Commandments given by God to Moses and Israel. During this time, there were even stricter laws and rules that Israelites had to follow. Jesus changed all this by establishing a new covenant with Israel predicated on both loving God and others as yourself. Jesus challenged the law by stating lusting after a woman as a married man was the same as committing adultery, or hating someone was the same as murder, knowing full well that Israel had constantly failed keeping the law and that Jesus himself would need to sacrifice His life to appease the law’s requirements.

For investing can one saying sum up all that needs to be known? Not from our societal sense as there are far too many sayings, ‘be greedy when others are fearful’, ‘be fearful when others are greedy’, ‘don’t put all of your eggs in one basket’, ‘failure to prepare is preparing to fail’, the list can go on forever. From the Biblical sense, there are important aspects to recognize that can be helpful like I am a steward of my finances that God has given me, the love of money is the root of all evil, not money itself, patience through wisdom, knowledge, and discernment are core virtues versus the desire to act with disregard to God’s word. As an investor, I am responsible for my actions, and I can be prone to many mistakes. Just like Israel I need to acknowledge my need for God in whatever I do.  

Grab Holdings Limited (GRAB) is a great example of the need to consider some aspects before investing in the company. One important thing that investors need to recognize right off the bat, is that GRAB trades at a low stock price. While it may be tempting to dream about the gigantic investment returns waiting in the future the reality is that GRAB has nearly four billion shares outstanding which serves as a massive amount of immediate dilution. This number of shares is 10 times higher than DoorDash, Inc. (DASH), and almost twice as much as Uber Technologies, Inc. (UBER).  

This is why companies like GRAB and Palantir Technologies, Inc (PLTR) for that matter can witness higher enterprise values despite having lower stock prices. With so much immediate dilution, it makes it more challenging for GRAB to simply take off and march higher. It’s tempting to look at PLTR and suggest otherwise, but it’s a dangerous game to look towards significant overvaluation as a catalyst for investment returns.

The other key issue for GRAB is that the company is already trading at a premium to both DASH and UBER, and yet GRAB’s cash flow margins are far lower and over time, the company will inevitably witness cash flow margin contraction. It is to this latter point that retail investors must really dig into the information to discern whether owning GRAB makes the most sense, or if there is an interest in this industry, perhaps owning DASH or UBER could pan out better.

Today, GRAB trades 4.8 times EV/Sales and 69 times Adjusted OCF per share. During 2024, GRAB’s revenue grew 18.5 percent to $2.8 billion and the company, on an adjusted basis, generated $285 million in operating cash flow representing a 10 percent margin. This cash flow performance also serves as an inflection point as GRAB formerly has never been cash flow positive. But the need to adjust GRAB’s operating cash flow should catch one’s eye.

Many already know that GRAB’s business differs from both DASH and UBER in that the company provides financial services in addition to its mobility and delivery segments. DASH provides delivery services and UBER provides mobility, delivery, and freight services. Retail investors also must think about the fact that GRAB operates predominantly in Southeast Asia, and accountability is murky to say the least when it comes to DASH’s financials. This is important because the company may be at risk of having to re-report its prior performance, and upon review of its operating cash flow activities, there are line items included that deserve scrutiny.

Since GRAB operates a financial services business, the company has deposits for its banking business customers and loans as well. These are two areas that should not be included in operating cash flow activities as they are not associated directly with GRAB’s operations as cash flow generators. As an example, if the number of deposits increases or decreases, it does not transfer to GRAB’s cash or investments as these deposits belong to the company’s customers. Similarly, while GRAB may make money off loans, the changes in loan receivables are an investing activity. In either case, these line items should be excluded from operating cash flow activities. When excluding these line items to get an adjusted operating cash flow, $567 and $180 million respectively are removed from GRAB’s unadjusted operating cash flow.

GRAB’s take rates are yet to be published as the 20-F hasn’t been filed. Nonetheless, delivery and mobility most current take rates have been around 16 and 12 percent. This compares with 18.5 and 13.5 percent delivery take rates for UBER and DASH respectively, and a 30 percent mobility take rate for UBER. This is interesting as UBER and DASH have stronger competition in their western markets and is an indication that stronger monetization and margin results may not be as achievable in the Southeast Asia region.

At the same time, I am modeling GRAB to generate $6.1 billion in revenue by 2029 assuming a nearly 17 percent annualized growth rate. I’m also modeling further cash flow inflection towards 15 percent. The issue is GRAB’s valuation multiple. Currently, UBER and DASH trade 24- and 39-times operating cash flow. Over the mid-term, I’m modeling both to trade 24- and 30-times cash flow respectively. GRAB is at risk of slowing growth and lower take rate margins and a cash flow margin possibly lower than both UBER and DASH. The biggest question for retail investors is what valuation multiple GRAB should reasonably trade at.

I would exercise some caution as GRAB should be discounted against these peers. Even at 25 times cash flow and based on GRAB’s mid-term potential, GRAB’s stock price would equate to $5.60 per share reflecting only a 2.6 percent annualized return over the mid-term. GRAB’s cash flow multiple could be justified at an even lower level towards 20 times or even lower so retail investors need to think about these issues versus the company's perceived prospects.

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