Morgan Stanley Sees 19% GMV Growth, Reaffirms Grab's Overweight Rating

Morgan Stanley has reaffirmed its "overweight" rating for Grab Holdings, setting a target price of $5.65 per share. The investment bank believes that a potential acquisition of GoTo by Grab would hold strategic significance for both companies, despite Grab's recent statement denying any ongoing negotiations for such a deal. Morgan Stanley's analysts suggest that the possibility of a future transaction remains, given the strategic benefits that a merger could bring to both entities. The acquisition of GoTo would allow Grab to expand its market presence and enhance its service offerings, potentially leading to increased revenue and market share. This move aligns with Grab's broader strategy of consolidating its position in the Southeast Asian market and leveraging synergies to drive growth. The potential deal would also provide Grab with access to GoTo's extensive user base and technological infrastructure, further strengthening its competitive edge in the region.

Over the past five years, there have been multiple reports of potential mergers between Grab and GoTo. Morgan Stanley maintains that such a merger would be strategically beneficial for both companies, enhancing their profitability and returns. Indonesia, the largest online delivery service (ODS) market in Southeast Asia by gross merchandise value (GMV), has seen intense competition between the two leading companies, which has weakened unit economics and potentially made it the lowest-margin market in the region. Therefore, Morgan Stanley believes that a merger could accelerate the market's profitability.

As of the first quarter of 2025, GoTo's ODS segment had an adjusted EBITDA profit margin of 2.0%, while Grab's comprehensive ODS profit margin was 4.5%. In 2025, Indonesia contributed 23% of Grab's revenue. Both companies have recently shown signs of seeking to improve their profit margins. Grab reported that the competitive landscape in the Indonesian market has become more constructive/ rational in recent quarters. Over the past two quarters, the company has increased its market share in the Indonesian ODS market. GoTo, on the other hand, has adopted a more balanced approach in the past two quarters, improving its profitability, with its ODS profit margin doubling from 1% in the third quarter of 2024 to 2% in the first quarter of 2025, while consumer incentives narrowed by 80 basis points during the same period. Without a merger, Morgan Stanley sees a risk of competition intensifying again.

Morgan Stanley maintains its "overweight" rating for Grab, a view that does not hinge on a merger. Despite market concerns about a slowing macroeconomy, Grab's management has indicated that trends in the second quarter are encouraging. The company's ODS business continues to see accelerating GMV growth, with 4-5 month ODS GMV growing by 19% compared to 16% in the first quarter. Morgan Stanley believes that currency fluctuations may also play a role. Grab also has a strong balance sheet, with net cash and short-term investments totaling $5.6 billion as of the first quarter of 2025.