Hey guys! Thanks for all the wonderful writings (the open-RAN point on the Rakuten piece is especially nice touch)! Regarding the food-delivery-ish business (I know grab is not entirely that), curious how you guys think about the unit economics (from restaurants’ ,consumers’ , and couriers’ angles respectively) and if you guys think that the excessive profit for mobility business in the future might just attract potential entrants to strong-arm into the market with huge initial spending on incentives (a good example might be Meituan entering ride-hailing business in China). Also, from SOTP perspective, how shall investors think about assigning multiples to respective business segments. Appreciate if you could provide further insights!
On unit economics, if you look at the area of biggest cutbacks in terms of incentives, it’s been consumers. Partner incentives (couriers and restaurants) have also come down but not as much. So I’d be most concerned about consumers. GMV growth in delivery has slowed a lot - how much growth can this business can generate if consumers actually have to pay a “fair” price of delivery? Also worth mentioning that gig worker benefits are likely to rise due to new laws in the future (see Singapore). Grab argues that its workers are paid well enough, but maybe the government sees it differently. This is a risk.
Regarding new potential entrants into mobility, I’m not too concerned with this. First, this business is still far from having the kind of excess profit that will attract new entrants (esp. when we take into account HQ cost and SBC which are real expenses). If this is the economics for the #1 player then you can imagine how bad it would be for the smaller ones. Grab also provides financing for its driver partners through its financial services arm, also a barrier to entry. Second, Uber couldn’t beat Grab in SE Asia – I don’t know who else thinks they can succeed and wants to burn a ton of cash trying. Third, easy money is over (for now at least). In the far future, I think maybe robotaxis is a risk (see what Baidu is doing in China).
On SOTP, I’m not sure how appropriate this method is given the parts aren’t really independent standalone businesses. For example, my understanding of the financial services segment is it’s largely there to subsidize Grab’s other businesses. Not sure if it's even worth much as a standalone entity. Also, how to allocate the HQ cost and SBC in a SOTP? My approach would be to just try to come up with some scenarios for the consolidated profit/cash flows several years out, and see if those are within the vicinity of being reasonable relative to the enterprise value now.
This is wonderful and thank you a lot for the detailed reply! I didn’t realise how the financing arm intertwines with the other businesses, very interesting point and tactics to secure labour relationship.
Hey guys! Thanks for all the wonderful writings (the open-RAN point on the Rakuten piece is especially nice touch)! Regarding the food-delivery-ish business (I know grab is not entirely that), curious how you guys think about the unit economics (from restaurants’ ,consumers’ , and couriers’ angles respectively) and if you guys think that the excessive profit for mobility business in the future might just attract potential entrants to strong-arm into the market with huge initial spending on incentives (a good example might be Meituan entering ride-hailing business in China). Also, from SOTP perspective, how shall investors think about assigning multiples to respective business segments. Appreciate if you could provide further insights!
Hey Jiawei thanks for the great questions.
On unit economics, if you look at the area of biggest cutbacks in terms of incentives, it’s been consumers. Partner incentives (couriers and restaurants) have also come down but not as much. So I’d be most concerned about consumers. GMV growth in delivery has slowed a lot - how much growth can this business can generate if consumers actually have to pay a “fair” price of delivery? Also worth mentioning that gig worker benefits are likely to rise due to new laws in the future (see Singapore). Grab argues that its workers are paid well enough, but maybe the government sees it differently. This is a risk.
Regarding new potential entrants into mobility, I’m not too concerned with this. First, this business is still far from having the kind of excess profit that will attract new entrants (esp. when we take into account HQ cost and SBC which are real expenses). If this is the economics for the #1 player then you can imagine how bad it would be for the smaller ones. Grab also provides financing for its driver partners through its financial services arm, also a barrier to entry. Second, Uber couldn’t beat Grab in SE Asia – I don’t know who else thinks they can succeed and wants to burn a ton of cash trying. Third, easy money is over (for now at least). In the far future, I think maybe robotaxis is a risk (see what Baidu is doing in China).
On SOTP, I’m not sure how appropriate this method is given the parts aren’t really independent standalone businesses. For example, my understanding of the financial services segment is it’s largely there to subsidize Grab’s other businesses. Not sure if it's even worth much as a standalone entity. Also, how to allocate the HQ cost and SBC in a SOTP? My approach would be to just try to come up with some scenarios for the consolidated profit/cash flows several years out, and see if those are within the vicinity of being reasonable relative to the enterprise value now.
This is wonderful and thank you a lot for the detailed reply! I didn’t realise how the financing arm intertwines with the other businesses, very interesting point and tactics to secure labour relationship.