Grab reports strong Q2 results, but shares plunge anyway

After the intense reaction to Sea’s Q2 results, investors in Southeast Asian super app Grab may have felt nervous as the company reported its Q2 results last Thursday evening.

Alas, those nerves were justified. Despite what many analysts called a “strong set of results” – revenue was up 79% compared to a year ago, and net loss narrowed by 29% – investors sent Grab’s shares down by 12%.

While the firm’s revenue beat estimates by 18%, it missed its earnings target by 3%. However, a significant portion of this loss (US$173 million of US$572 million) was due to a revaluation of Grab’s equity investments, which are marked to market every quarter.

This goes to show how sensitive markets are to any trace of weakness, even if they (to be fair to Grab) were few compared to the positive news in its results.

Does guidance matter?

Unlike Sea, Grab did not scrap its guidance for the year. Instead, it forecast revenues at the high end of its previously announced guidance of US$1.2 billion to US$1.3 billion, while lowering estimates for gross merchandise volume growth to 21% to 25% year on year, down from 30% to 35% previously.

Grab’s management team attributed the slower GMV growth to three things.

Times Square, New York – Grab officially lists on Nasdaq / Photo credit: Grab

First, as consumers dined out more, growth in its deliveries business was sure to become more sluggish. In the second quarter, deliveries actually saw a 3% quarter-on-quarter decline in GMV to US$2.5 billion.

Second, currency fluctuations also affected its figures. Grab earns money in Thai baht, Malaysian ringgit, and Indonesian rupiah – currencies that have all depreciated against the US dollar, which is the currency used in reports. Accounting for this, GMV should be expected to grow by 25% to 29% instead.

Third, Grab shifted its focus to higher-quality customers, who are more likely to use multiple services and have higher lifetime values. This illustrates the trade-off between growth and quality.

So how does this affect the company’s numbers?

Grab’s accounting revenues are reported net of partner and consumer incentives, meaning that a reduction in incentives has a direct positive impact on the company’s top line. According to Grab, higher-quality customers tend to be less sensitive to incentives, which is one of the reasons Grab expects increased revenue despite lower GMV.

Indeed, incentives have come down both in absolute figures and as a percentage of GMV from the previous quarter. During the earnings call, management said it expects these to continue going down in the second half of the year.

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