We often use our YouTube channel to probe prospective investments and then we’ll flush them out more in articles like this one for Premium subscribers. Earlier this year we looked at two on-demand companies – Grab (GRAB) and Uber (UBER) – and decided more follow up was needed. The appeal of each seems obvious on the tin. Uber has become a verb that’s part of everyday lexicon. Spend time in Asia and you’ll see that Grab has accomplished the same thing. Both companies are intertwined as Uber owns around 13% of Grab and they both compete in the same niche. Our initial research shows both companies look like promising investments, so that means it’s time to look for red flags. First, we’re going to dig into Grab.
Grab’s Many Metrics
Our initial look at Grab uncovered an interesting term, “incentives,” that points to a business model that needs to be better understood. In each jurisdiction Grab operates you’ll find competitors offering the same services because the only barrier to entry here is marketing dollars. Whoever offers the most incentives to customers will capture the most market share. To better understand the dynamics of this model, let’s define some terms:
- GMV (Gross Merchandise Value): The total amount of money flowing through Grab’s platform. This is a proxy for market share in each jurisdiction Grab operates in.
- Revenue: The “cut” Grab takes from the money flowing through their platform
- Take rate: The percentage cut Grab receives (revenue / GMV)
- Incentives: Revenue that Grab doesn’t retain but instead gives back to merchants
