On Wednesday, Mizuho initiated coverage on NASDAQ:GRAB, the Southeast Asian ride-hailing and delivery giant, with an optimistic outlook. The firm has given Grab Holdings Inc. an Outperform rating and set a price target of $5.00. The positive stance is attributed to the long-term growth prospects of on-demand mobility and delivery services in Southeast Asian markets, which present a substantial total addressable market (TAM) and currently exhibit low penetration rates.
According to Mizuho, Grab, as the market leader, is well-positioned to benefit from economies of scale and network effects. These factors are expected to enable the company to capture a larger market share while also improving its unit economics. The firm's outlook is further bolstered by an anticipated competition that is becoming more rational over time.
Mizuho's forecast includes an approximate 80% compound annual growth rate (CAGR) in EBITDA over the next three years for Grab. This projection underpins the firm's confidence in the stock's performance and its attractive valuation, which is currently pegged at 11 times the forecasted FY26 core EBITDA.
The analyst notes that Grab's stock is trading at a significant discount compared to its peers. This undervaluation is attributed to two main factors: selling pressures from major shareholders and concerns surrounding increased investments for FY24. However, Mizuho believes that these are not structural issues and thus do not detract from the long-term positive outlook for the company.
In other recent news, Grab Holdings Ltd. has been making notable strides in its financial performance. The company reported a 24% year-on-year revenue increase in the first quarter of 2024, reaching $653 million. This growth is attributed to enhancements across all business segments. Grab also announced a new record of 38 million monthly transacting users and a 21% year-on-year increase in the On-Demand Gross Merchandise Value (GMV), which expanded to $4.2 billion.
Analysts from firms such as Barclays Capital Inc., Evercore ISI, and Bernstein have weighed in on these recent developments, maintaining positive ratings for Grab. The company's consistent EBITDA growth, increased revenue guidance, and solid user base expansion have been highlighted. Barclays has given Grab an overweight rating, while Evercore ISI and Bernstein both maintain an outperform rating.
Grab's financial services segment displayed a 53% revenue increase and narrowed adjusted EBITDA losses by 34% year-on-year. Despite seasonal weaknesses, the delivery services are anticipated to scale margins in the medium term. The company also raised its full-year adjusted EBITDA guidance to $250 million to $270 million, attributing this optimism to strong demand in the mobility sector, cost optimizations, and improved operational efficiency.
InvestingPro Insights
InvestingPro data paints a detailed financial picture of Grab Holdings Inc. (NASDAQ:GRAB) with a Market Cap of approximately $13.91B USD. The company's aggressive growth strategy is reflected in its impressive Revenue Growth over the last twelve months as of Q1 2024, which stands at 43.76%. This aligns with Mizuho's positive outlook on the company's ability to scale and capitalize on the Southeast Asian market. Despite the company not being profitable over the last twelve months, evidenced by a negative P/E Ratio of -44.71, investors may find the high Revenue Growth rate indicative of potential future profitability.
Two InvestingPro Tips highlight key financial aspects of Grab: the company holds more cash than debt on its balance sheet, suggesting a strong liquidity position, and its liquid assets exceed short-term obligations, indicating the company's ability to cover immediate liabilities. While the absence of dividend payments to shareholders may deter income-focused investors, the robust growth prospects could appeal to those with a long-term investment horizon. For those interested in further analysis, InvestingPro offers additional tips on Grab, which you can explore using the promo code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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