Grab (GRAB): EBITDA +54%, Profit 12x - But Free Cash Flow FELL. Is GRAB a Buy?

Grab Holdings Limited (GRAB) Q2 2026 — Reported August 3, 2026 after the US close for Q2 2026 (the quarter ended June 30, 2026). Revenue $997M (+22% YoY, +21% constant currency) vs ~$990.4M expected. Adjusted EBITDA $168M (+54%), margin 16.9% from 13.3% - an 18th consecutive quarter of adjusted EBITDA growth. EPS $0.06 vs a $0.01 consensus. Profit for the period $235M vs $20M. On-demand GMV $6.5B (+21%); MTUs a record 54 million. FY2026 guidance RAISED at both ends: revenue to $4.10-4.15B (from $4.04-4.10B) and adjusted EBITDA to $720-740M (from $700-720M). New $750M buyback authorised, taking cumulative authorisations to $1.75B since 2024. Shares closed the regular session at $3.67 (+4.9% into the print) and traded up a further 4.1% after hours to about $3.82; the reaction session had not opened at publication. The stock is still ~43% below its $6.45 close of September 22. The line nobody printed: Grab's record $235M profit is almost entirely accounting. Operating profit was $19M - a 1.9% margin on $997M of revenue. The gap is a $307M one-time gain on consolidating Superbank plus a $66M deferred-tax credit, less a $183M larger fair-value loss on the convertible notes; management called the Superbank gain 'one-time in nature' themselves. Meanwhile adjusted EBITDA rose 54% but operating cash flow FELL to $56M (-$8M YoY) and adjusted free cash flow fell to $73M (-$39M YoY): cash conversion went from ~103% of adjusted EBITDA a year ago to 43%. And in Mobility, transactions grew 28% while GMV grew 18% and revenue grew just 12% - a take rate down roughly 90bps to 14.9% as on-demand incentives rose 72bps to 10.9% of GMV. Grab is buying volume through a fuel crisis. Separately, the gross loan portfolio TRIPLED to $2.3B and $2.5B of digibank customer deposits now sit inside the $7.4B 'gross cash liquidity' - depositors' money, not shareholders'. THE CALL: BUY (3/5, CHEAP - JUST NOT AS CHEAP AS THE STREET SAYS) — base-case value ~$4.6 vs ~$3.67 today. KEY METRICS: - CALL: BUY 3/5 - fair value ~$4.60 vs the $3.67 close (+25%), and ~+20% vs the $3.82 after-hours print. DCF on free cash flow AFTER charging share-based compensation as a real cost: revenue from the $4.125B 2026 guidance midpoint to $8.65B by 2031, adjusted EBITDA margin 17.7% -> 24%, less SBC at 6% of revenue fading to 3.5%, capex 4%, cash tax 20%. Free cash flow $0.38B (2027) rising to $1.12B (2031). At an 11% discount rate and 3% terminal growth: PV of 2027-2036 FCF $5.66B + PV of terminal value $7.24B = EV $12.90B, PLUS $5.40B of net cash liquidity, / 4.098B shares (Class A + Class B) = $4.47/sh. Bear $2.86, bull $6.22; probability-weighted 25/50/25 = $4.50. We sit at ~$4.60, a shade above the weighted case, for the $750M buyback executing below fair value. - REVERSE DCF: at $3.67 the market capitalisation is $15.0B and enterprise value ~$9.6B - 13x this year's guided adjusted EBITDA and 2.3x revenue. At an 11% discount rate with 3% terminal growth, that price only asks Grab to grow revenue about 11% next year, fading to 5%. It just grew 22% and guided to 21%. That gap is the entire bull case. - WHY WE ARE BELOW THE STREET: the consensus target is $5.63 across 12 analysts with live targets (11 buy / 0 hold / 1 sell, range $5.00-$6.25), and $5.88 across the wider 26-analyst panel. To justify $5.88 at an 11% discount rate you need Grab to compound revenue near 23%, fading to 10%, reaching roughly $19B by 2036 - a decade of near-flawless execution across eight emerging markets, through an oil shock, Indonesian regulation, and a loan book that has never seen a downturn. We ALIGN on the rating and are far more CAUTIOUS on the number. - SEGMENTS (Q2 2026 revenue, with our year-ago derivation from the stated growth rates): Deliveries $531M (+21% from $439M), segment adjusted EBITDA 2.3% of GMV from 1.8%; Mobility $331M (+12% from $296M), segment adjusted EBITDA 8.6% of GMV, -9bps; Financial Services $134M (+59% from $84M), segment adjusted EBITDA -$15M from -$26M; Others ~$1M. Deliveries GMV $4,249M (+24% cc), Mobility GMV $2,214M (+18%). Our segment bridge: of the $59M adjusted EBITDA improvement, Deliveries supplied roughly $36M, Mobility ~$27M and Financial Services ~$11M, less $12M of higher regional corporate costs ($104M). - FINANCIAL SERVICES IS NOW A BANK: total loans disbursed a record $1.2B (+72%); gross loan portfolio $2.3B, +197% from $781M (still doubled excluding Superbank, consolidated from June 2026); customer deposits $2.5B across GXS Bank (Singapore), GXBank (Malaysia) and Superbank (Indonesia). The release names higher net impairment losses on financial assets, mainly Digibank expected credit losses, as a reason operating profit did not improve more. Stash Financial was acquired 100% in July 2026 and consolidates into Financial Services from Q3. - BALANCE SHEET: gross cash liquidity $7.4B (from $6.9B at March 31), net cash liquidity $5.4B (from $5.0B) - more than a third of the $15.0B market capitalisation. $1.5B of convertible notes outstanding, whose conversion feature is carried as a derivative and remeasured each period. Caveat: $2.5B of the gross cash is digibank customer deposits, so cash genuinely available for repurchases is materially below the headline. - SHARE COUNT: 3,969,290,878 Class A + 128,355,800 Class B = 4,097,646,678 shares (FY2025 20-F cover page). Both classes are economically identical; Class B is super-voting only. Several data providers publish a market capitalisation on the Class A count alone (~$14.5B); the correct figure at $3.67 is ~$15.0B. Grab is a foreign private issuer: it files 6-K / 20-F, not 10-Q / 10-K, and reports under IFRS. What to watch: Bullish: adjusted free cash flow reconverging with adjusted EBITDA over the next two quarters, or Financial Services crossing into positive segment EBITDA (it improved from -$26M to -$15M). Bearish: a rising net-impairment line as the tripled loan book seasons, or the Mobility take rate falling another 50bps - which would say the incentive spend is structural rather than a fuel-crisis response. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.