Grab Holdings Limited (NASDAQ:GRAB) saw its shares tick up 0.9% to $3.49 in Wednesday trading, with the company's $750 million share repurchase program moving forward amid lingering pressure from its recent earnings report. The stock, however, remains 6.2% below its closing level on August 4, when the company released its second-quarter results.
The buyback, which represents approximately 5.3% of Grab's $14.28 billion market capitalization, is being closely watched by investors as a signal of management confidence. Yet, the company's trailing adjusted free cash flow of $73 million for the quarter implies a yield of just 3.2% on the repurchase program, raising questions about the sustainability of such capital returns.
Strong Operational Performance
Despite the stock's sluggish reaction, Grab's underlying business metrics paint a more robust picture. Second-quarter revenue climbed 22% year-over-year to $997 million, while gross merchandise value (GMV) for on-demand services jumped 21% to $6.5 billion. Adjusted EBITDA rose 54% to $168 million, and the company's revenue margin improved to 16.9% from 13.3% in the prior-year period.
Chief Executive Anthony Tan highlighted the quarter's strength, noting that monthly transacting users reached 54 million. The growth was broad-based, with financial-services revenue surging 59% to $134 million, loans disbursed up 72%, and the gross loan portfolio expanding 197% to $2.3 billion—a figure that still doubled even when excluding the consolidation of PT Super Bank Indonesia Tbk (IDX:SUPA).
Cost Pressures and Segment Dynamics
However, the expansion came with increased costs. Total incentives reached $706 million, with on-demand incentives rising 72 basis points to 10.9% of GMV, driven by driver support amid higher fuel prices. Mobility revenue grew 12% to $331 million, and Mobility GMV rose 18% to $2.21 billion, but segment EBITDA contracted by nine basis points to 8.6% of GMV.
Financial services, while growing rapidly, continued to post losses, with adjusted EBITDA narrowing to a $15 million loss from a $26 million loss a year earlier. The segment's performance is being closely monitored as Grab integrates Superbank and expands its lending portfolio.
Profit and Cash Flow Divergence
Grab reported net income of $235 million for the quarter, but that figure includes a $307 million remeasurement gain from its Superbank stake. Operating cash flow came in at $56 million, while adjusted free cash flow stood at $73 million, highlighting a significant gap between reported profitability and cash generation.
The company's balance sheet remains a source of flexibility, with gross cash liquidity at $7.4 billion and net cash liquidity at $5.4 billion. By July, Grab had completed $351 million of previously announced buybacks, leaving room for further repurchases under the current program.
Analyst Sentiment and Risks
Wall Street remains largely optimistic. Of 26 analysts surveyed by S&P Global, 21 rate Grab a strong buy and five recommend buying, with a consensus price target of $5.86—well above the current trading price. Targets range from $4.60 to $8.00.
However, risks persist. Sustained fuel-related incentives could keep costs elevated, rapid loan growth may lead to higher credit costs, and integration challenges from Superbank and Stash could disrupt operations. Additionally, fair-value changes could continue to distort reported earnings.
Looking ahead, Grab expects adjusted EBITDA of $720 million to $740 million for the full year. Investors will be watching closely to see if that growth translates into meaningful free cash flow, which would justify the current buyback and support a re-rating of the stock.
