SINGAPORE – Investors will be watching closely as Grab becomes profitable after its record-breaking SPAC listing, according to Tom White, senior research analyst at DA Davidson.
“There is, of course, an increasing demand from investors on the road to profitability,” White told CNBC’s “Squawk Box Asia” on Wednesday. However, there is a shift in investor sentiment from a single focus on growth and market share profit to a more balanced approach, he said.
While still focused on break-even, investors can White is also likely to give the Southeast Asian business more room to invest in new product categories.
The Grab Holdings Inc. app is displayed on a regular photo on a smartphone taken in Singapore on Friday 25 September 2020.
Erts Huiying | Bloomberg | Getty Images
The headquarters of Grab, based in Singapore, announced on Tuesday that it has merged with Altimeter Growth Corp. through a merger of the SPAC. It was the largest merger of blank checks in the world with specialty procurement companies, set up to raise money to buy private companies like Grab.
Road to profitability
Grabbing as a whole is still not profitable. It lost $ 800 million on an EBITDA basis in 2020 and, according to a regulatory filing, predicts a loss of $ 600 million for this year.
EBITDA – a measure of the overall financial health of a business – represents earnings before interest, tax, depreciation and amortization. This is a common earnings measure used by technology companies, although experienced investors are skeptical about it.
Grab said EBITDA for its transport segment has been positive since the fourth quarter of 2019. Adjusted net income last year was $ 1.6 billion and is expected to rise to $ 4.5 billion in 2023 – Grab predicts that it would yield $ 500 million in EBITDA within two years.
“They have, I think, a nice story to tell if you look at the two core segments,” White said. It also covers other online equipment and delivery programs such as Uber and DoorDash.
“All of their ride-sharing markets are at least EBITDA profitable, so presumably it does not burn cash. Five of the six food delivery markets are also EBITDA profitable,” he said.
“Grab, I think, will get a fair amount of market space to invest in new frontiers, new categories, new products, given how well they performed in the two legacy offerings,” White added.
Scale build up
Sachin Mittal, a senior vice president of DBS Bank in Singapore, says the loss-making function is to try to gain market share. This is especially so in light of the current market environment where cheap capital is readily available, and it can help grow companies and facilitate lower costs.
“So you have to be the player who has the kind of leadership in the market, builds scale, lowers costs – and ultimately, if the money is not so cheap, then you can be immediately profitable because you built the scale,” he said. told CNBC’s “Street Signs Asia”.
Mittal added that investors may also be attracted enough to pay a premium for Grab’s market dominance in areas such as food delivery. Investing in the stock will also expose them to the financial technology scene in Southeast Asia, he said.
One of Grab’s most important issues is the financial services segment, which includes digital payments, loans, insurance, digital banking and wealth management.
The company has yet to prove its leadership in fintech – unlike it does with food and food delivery – and this segment is likely to be a growing, cash-burning business in the short term.
“Therefore, this entire listing will raise funds and these funds can be used for fintech,” he said.
As part of the SPAC merger, SoftBank-backed Grab will receive approximately $ 4.5 billion in cash, which includes $ 4 billion in a private investment in public equity arrangement, managed by BlackRock, Fidelity, T. Rowe Price, Morgan Stanley’s Counterpoint Global Fund and Singapore. state investor Temasek.