Uber’s path to profit: a roadmap for Grab?

What can Uber, the trailblazing ride-hailing platform that achieved GAAP operating profit for the first time in its history last week, tell us about the road ahead for Grab?

If Uber’s path serves as a guide, Grab may only achieve a quarterly operating profit sometime in 2025 – or later.

GAAP profit is more difficult to achieve than positive EBITDA because the latter does not account for expenses such as stock-based compensation and depreciation and amortization, which are real costs to running a company.

While many of these items are non-cash expenses, they still matter to the valuation of a company, which boils down to the free cash flow per share. At some point, depreciating assets need to be replaced, which will increase cash outflows and reduce free cash flow.

Similarly, stock-based compensation may not have an immediate cash impact. However, by increasing the share count of a company, it reduces the amount of free cash flow that accrues to each share in the company.

Comparing the two tech players can give us an idea of how much longer it will take for Grab to achieve profitability. Uber announced that it hit the milestone in its second quarter results for 2023.

While it’s difficult to draw firm conclusions because of differences in both businesses, which include the geographies where they operate and how they report their financials, Uber’s path to profitability sheds light on what Grab’s might look like.

Grab – which purchased Uber’s Southeast Asia business in 2018 – is expected to report its numbers for Q2 2o23 in August.

Not apples to apples

Drawing contrasts between Uber and Grab on the basis of their reported numbers is not straightforward. Both companies determine everything from gross merchandise value (GMV) – or what Uber terms “gross bookings” – to revenue and EBITDA differently.

The differences in how incentives are calculated – whether they reduce revenues or are recorded as part of sales and marketing expenses – mean that of these three metrics, revenue is probably the most challenging to compare.

Also, while both Grab and Uber offer ride-hailing and food delivery services, they operate other business lines and do so in different geographies. For example, Grab offers financial services, including a digital bank, while Uber operates a freight business. The latter also has a global presence, in contrast with the former’s Southeast Asia focus.

That said, ride-hailing and food delivery dominate the top lines of both businesses, although the balance between the two differs.

Follow the leader

Notwithstanding the caveats above, tracing the development of the two firms’ earnings over the years suggests that Grab could achieve operating profit in around two years from now.

On an adjusted EBITDA basis, Uber achieved overall EBITDA breakeven in Q3 2021. It took seven quarters after that for it to generate an operating profit.

Meanwhile, Grab’s most recent guidance to the market is that it expects to achieve adjusted EBITDA breakeven in Q4 of this year.

Do the numbers add up?