Video summary
The video examines Grab as a potential value investment opportunity, highlighting the stark contrast between its current low market valuation of 11 billion and its initial SPAC offering value of 40 billion. Although the stock has underperformed since going public, similar to many other bubble-like SPACs, the underlying business continues to grow rapidly in Southeast Asia. The company is actively transforming its financial profile by repurchasing shares, aiming to buy nearly 10% of itself over the next year, and acquiring Atome Financial to integrate loans and buy-now-pay-later services. These strategic moves are designed to create a powerful flywheel effect that combines their massive user base with new revenue streams, ultimately targeting an adjusted EBITDA of 1.7 billion by 2028.
Grab's growth strategy relies heavily on expanding its footprint across key markets like Singapore, Thailand, Malaysia, the Philippines, and Taiwan, where it recently acquired Foodpanda Delivery. The company has successfully transitioned from significant accumulated losses to profitability, with free cash flow reaching 450 million in recent months despite ongoing operational challenges such as fuel costs. Management plans to double their adjusted EBITDA over the next two years by leveraging this new profitability and scale, while also investing in electric vehicles and other technologies to future-proof their marketplace. The acquisition of Atome was paid for largely in cash, demonstrating a commitment to strengthening their balance sheet and reducing reliance on preferred convertible notes that previously impacted equity value.
Despite the positive operational trends, the investment carries notable risks, including insider selling under a pre-planned trading plan and potential regulatory probes regarding competitive pricing in Vietnam. The speaker acknowledges that while the business faces standard industry issues like competition from Delivery Hero and global economic headwinds such as interest rates and recessions, the current low price offers a compelling risk-reward profile for patient investors. If Grab successfully integrates its financial services and achieves its EBITDA targets, the stock could see significant appreciation, potentially doubling in value if profits reach the projected levels. However, the speaker cautions that achieving a tenfold increase in profit over a decade is ambitious and requires careful management of timing and market conditions.
Ultimately, the video concludes that Grab represents an interesting opportunity for investors seeking high-risk, high-reward scenarios rather than stable, low-volatility assets. The potential for a 5x return over ten years depends on the successful execution of their growth plans and the ability to navigate geopolitical and economic uncertainties in Asia. While there is inherent downside risk due to global slowdowns and competition, the speaker suggests that buying now allows investors to accumulate shares at a depressed valuation before any potential re-rating occurs once profitability targets are met. This investment thesis rests on the belief that Grab's unique position as a super-app with integrated financial services can eventually dominate the region, making it a viable candidate for those willing to do the necessary research and manage their positions actively.
Read the full video transcript
Good day, fellow investors. We continue
with our global search for value, and
one of the stocks you required over time
is to look at Grab. The business is
there, the business is growing, but the
stock, since the SPAC going public a few
years ago, like many other bubble-icious
SPACs, hasn't really delivered. Is it
now at a fraction of what it was a value
investing buy? When it comes to SPACs,
they went public to a SPAC valued at 40
billion. Now we are at 11 billion. They
also raised 4.5 billion in cash.
Practically, you are now paying double
what they just raised in cash, not what
the valuation was back then. If we look
at the business, delivery, Southeast
Asia, interesting countries, then
repurchasing shares, buying almost 10%
of the company in the next 12 months.
They are acquiring Atome Financial, the
financial app, loans, buy now, pay
later, but also much more in the
segment, combining that with their user
base and trying to create a fly wheel.
They are still growing, everything is
growing. Southeast Asia is still
developing fast. They are paying
everything in cash, paying 60% now and
40% later, depending on EBITDA
developments. But all in all, they are
looking for a benefit there, increasing
adjusted targeted EBITDA to 1.7 billion.
So, if that is hit in 2028, we are
talking about a growth company trading
at five times EBITDA. Interesting
countries, Singapore, Thailand,
Malaysia, now even Taiwan after the
Delivery Hero GoPanda delivery there
acquisition, Philippines. The target is
for growth. This is the financial target
growth. They were not profitable until
now, but they are turning that and with
the acquisition of a profitable company,
they should be doing better. That should
then improve also their story. Here are
the targeted buybacks. If we look a
little bit the data, last quarter
growing 20-22%
even growing better than Q1. The free
cash flow 450 million over the last
months. Investing, there are of course
fuel issues if you are a delivery
company, but they are transitioning
dealing. There will always be business
issues when you own a business. That's
standard. Target 20-20% growth going
forward. Adjusted EBITDA 700 million.
So, the plan is to grow this adjusted
EBITDA over the next two years to
actually double it. That is possible as
they have reached profitability and
scale. If I look at the cash flows, the
cash flows are down by a billion. They
have spent I think 400 million on
buybacks, 600 million on the
acquisition. So, there we are on the
cash flows. If you look at the long-term
accumulated losses, there is 17 billion,
but you have to compare that to the
standard financing before the SPAC of
these Asian companies which were
preferred convertible notes. And as the
stock price went up, that did hit the
balance sheet as an equity loss, but on
those convertibles as they had to give
more value in the convertibles, but
that's not a true net income loss.
Still, they have been losing money hand
over fist in the first year, less less,
and now they have inverted that going
towards profitability. Equity has been
stable since the SPAC, first down, but
now again growing. And you see here the
cash position, which is almost 30% 25%
of the market cap. They will spend these
2 billion on the acquisition, on the
buybacks. So, they are planning that
their business going forward now will be
significantly cash flow positive, and
they can then expand, integrate, create
their flywheel to make this grow faster.
Also, they have acquired Foodpanda
delivery in Taiwan. And you can see here
how they started, acquired Uber's
Southeast Asia delivery operations, then
launched GrabMart, GrabExpress,
acquired Ya Ya Grocery in Malaysia,
acquired Niham, Everise, things like
that. And now we have Taiwan, Foodpanda,
and the financial app there. This was
also paid in cash, 600 million. So, now
they are really betting with the
acquisition that that's it. Okay,
insiders are selling. This has been
negatively discussed across the board,
but that is on a pre not planned but
pre-planned
10b trading plan. So, they are just
selling. It's not much, 145,000
shares, 150,000 here. So, half a million
a million here and there given the stock
price here is 400k. So, maybe buying a
new house that costs a lot in Singapore.
I looked a little bit at the transcript,
what they said recently. There was a
board member going away. Uber is still
the largest shareholder. However, the
CEO has B shares, so still controls the
company with 60% of the votes. Anyway,
they still keep on building to
future-proof their marketplace. Electric
vehicles, this and that, trying to
scale, trying to win the delivery game,
and now also adding the financial
system. The next leg, this is one of the
issue with these businesses, they need
to constantly invest, build. However,
with the financial services, they have
reached, I hope, the profitability
inflection. If there are no financial
shocks, no disasters in Asia that lead
to delinquencies and interest rates
issues, it might be well. The flywheel,
if you can create that flywheel, create
something profitable with mobility
deliveries, adds financial services, 50
million customers, integrate that, then
it might look good, and they might reach
that doubling in EBITDA. If they reach a
doubling EBITDA, likely the stock will
double, too. But, Delivery Hero on the
delivery side didn't look good, and now
they were taken over. Comparing the
delivery, it is a highly competitive
market. You have the app, they have now
more of a super app, including
financing, less margins. So, this is an
opportunity to buy something that, at
the moment, nobody likes. And exposed to
the growing Southeast Asia, turning
profitable, which there risks things a
little bit, but there are always issues.
There is a probe in Vietnam on
competitive on pricing, on payment,
things like that. If that spans to the
other parts of Asia, it might be an
issue, but that is business. See, that's
the nature of every business. Deal with
that things one must. Now it's cheap.
Can it go cheaper? Yes. Can it go up?
Absolutely. If they really reach that
EBITDA, they start to doing buybacks
with more constants, that will be
repriced then. And then you have these
apps that simply are there, remain
there. Kaspi is one that I have to still
analyze. The question is, what can be
the return? Can I make a 5x in 10 years?
That would imply 17.5% per year in
growth. That would imply that it
reaches, I don't know, 4 billion in
profit times 15, we reach 60 billion
market capitalization for a 5x.
That would be a 10x in the profit for
the company.
And that might be a little bit
stretched. It can happen, but for me is
hard but possible.
Which means not for me because there is
still downside, global recession,
financial risks, interest rates working
counter, slowdown, competition. So, yes,
it is possible, but there is always the
but. I will add Grab here to the list of
many other companies that I looked over
the last few weeks.
There is a lot of interesting risk and
reward situations, of which Grab is one,
too.
However, I think it comes down to what
kind of businesses are you looking for?
If you're looking for good risk and
reward opportunities where you can make
50% quickly, this is interesting. If all
the bad is just delayed in a year and
the acquisition works, it's integrated,
the profits are there,
then you make money. If you can manage
also perhaps timing-wise, if you can buy
now, then if it goes lower, buy a little
bit more, manage that. It requires work.
So, interesting risk and reward. I'll
put it here, research base, and then you
never know when we might come back to
it. Thanks for watching. I'll see you in
the next video.