Grab Holdings (NASDAQ:GRAB) was listed on the Nasdaq from December 2 this year through the Special Purpose Acquisition Company (SPAC) route, following its merger with Altimeter Growth Corp.
However, following the listing, shares of the company have tanked 11.6% in the past five days alone. While investors seem to have turned bearish on this penny stock, analysts have a contrary view.
Let us look at what does Grab does and whether it is, well, really worth the GRAB?
Grab is one of Southeast Asia’s “superapps,” whose services range from mobility and digital financial services, to food and grocery deliveries. The company operates in over 400 cities in eight countries in South East Asia.
Last month, the company announced its Q3 results that saw its Gross Merchandise Value (GMV) reaching a record $4 billion, up 32% year-over-year.
Peter Oey, CFO of Grab commented, “We achieved another record quarter in GMV & TPV [total payments volume], and saw the average spend per user on our platform increase by 43% year-over-year. This is testament to the resilience of the superapp business model, even in the face of what has been the most challenging quarter for us this year due to COVID-19.”
Evercore analyst Mark Mahaney pointed out that considering GRAB grew its GMV even in the face of COVID-19 restrictions in Q3, it “implies a more sustainable runway for growth and would echo the company’s very strong retention metrics.”
Moreover, the analyst added that with most of its monthly transacting users (MTUs) already using two or more of the company’s offerings, “MTU retention should continue improving from the already impressive retention metrics seen today.”
Another positive for the stock, as noted by analyst Mahaney, is under-penetration in the company’s core growth segments. By his estimates, mobility expenditures in Southeast Asia could command a $230 billion total addressable market (TAM) by 2025. In fact, current ridesharing penetration is only at 3%, which is very low when compared to China and the U.S. at 15% and 5%, each.
The analyst thinks that “given the underdeveloped mass transit systems and low car ownership rates, we think Grab is well positioned to capitalize on the evolving trend within on-demand mobility.”
Mahaney also believes that GRAB’s competitive moats – key advantages that set the company apart from its competitors – remain strong. This includes the company cornering a 50%, 72%, and 23% market share of the online food delivery market, ridesharing, and e-wallets, respectively, which are “2.5x, 4.8x, and 1.6x the size of its closest competition, respectively”.
Furthermore, GRAB’s new initiatives, including Grab Mart, GrabSupermarket, and Advertising, in addition to Payments, could “provide opportunities to increase consumer retention and ramp revenue growth,” according to the analyst.
Initiating coverage on the stock with a Buy rating, Mahaney has a price target of $10 (40.1% upside) on the stock.
Other analysts on the Street echo Mahaney with a consensus rating of Strong Buy, based on 4 Buys. The average Grab Holdings price target of $11.88 implies 66.4% upside potential to current levels.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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