What Grab's $15M profit, 17% Revenue Growth in Q3 2024 mean?

Grab Holdings has evolved significantly since its SPAC merger announcement in 2021, positioning itself as a key player in Southeast Asia’s rapidly growing tech ecosystem. The company, which operates in diverse sectors such as food delivery, ride-hailing, and digital wallet payments, has weathered challenges and now stands at an impressive juncture in its financial trajectory. In the third quarter of 2024, Grab achieved a $15 million profit, marking a key milestone in its long-term growth strategy. This marked a substantial improvement from previous years when profitability seemed elusive. Grab’s remarkable performance in Q3 2024 offers a compelling case for why the company, once deemed a risky investment, is now poised to be a bargain.

Back in 2021, Grab was generating a lot of buzz as it prepared to list on the Nasdaq following a merger with Altimeter Growth Corp. The Southeast Asian giant projected its Total Addressable Market (TAM) to grow from $52 billion in 2020 to a whopping $180 billion by 2025, fueled by the region’s rapidly expanding digital economy. Despite this optimistic growth forecast, there were concerns about Grab’s ability to maintain profitability in highly competitive markets.

• Pricing power: Grab struggled to raise prices in its highly competitive markets for food delivery and ride-hailing. Any price increases were met with customer pushback, as users were extremely sensitive to price hikes.

• Profitability challenges: The company, despite growing its revenue, had not yet achieved positive cash flows, making investors question how Grab could ever become profitable.

In the third quarter of 2024, Grab reported a 17% YoY revenue growth, reaching $716 million. On a constant currency basis, revenue growth was even more robust at 20%. This strong performance was driven by growth across all of Grab’s business segments, including On-Demand services. Grab’s On-Demand GMV (Gross Merchandise Value) grew by 15% YoY, or 18% YoY on a constant currency basis. This was primarily underpinned by a 19% YoY increase in On-Demand Monthly Transacting Users (MTUs) and a 22% increase in On-Demand transactions. These figures demonstrate the company’s growing market presence and its ability to attract more users, which is crucial for scaling its business.

Grab’s ability to optimize incentive spending is another key factor in its recent success. Total incentives for Q3 2024 amounted to $462 million, with the On-Demand incentives proportion of GMV declining to 9.8% compared to 10.1% in Q2 2024. The decline in incentives as a percentage of GMV signals Grab’s ability to more efficiently allocate resources while still maintaining growth in user numbers and transactions. This improvement in incentive management is reflective of Grab’s broader focus on reducing operating costs and driving greater efficiency across its operations.

Grab’s cash position also improved significantly, with cash liquidity increasing to $6.1 billion at the end of Q3 2024, compared to $5.6 billion at the end of Q2 2024. A large portion of this increase was driven by strong growth in customer deposits in Grab’s banking business, which rose to over $1 billion from $730 million in the prior quarter. This growth is a clear indication of Grab’s increasing foothold in the Southeast Asian digital banking space, an area that continues to offer significant growth potential.

Grab’s operational cash flow is also showing healthy signs of improvement. Net cash from operating activities was $338 million in Q3 2024, up by $17 million YoY. This increase was driven by higher customer deposits and an improvement in profit before income tax. More importantly, adjusted free cash flow for Q3 2024 was $138 million, an increase of $144 million YoY. On a trailing 12-month basis, adjusted free cash flow stood at $76 million, marking a $348 million YoY improvement. These figures reflect Grab’s improved ability to generate cash, which is a critical indicator of financial health and operational efficiency.

From its early days in 2021, when concerns about pricing power and profitability loomed large, Grab has come a long way in establishing itself as a more financially robust business. The company’s Q3 2024 performance showcases solid growth across all key metrics, including revenue, On-Demand GMV, and adjusted EBITDA, along with improved cash flow generation and cost management. These improvements are a clear indication that Grab has successfully navigated the challenges it faced in 2021, positioning itself for long-term success.