SINGAPORE: Investors will be watching for Grab to become profitable after its record SPAC listing, according to Tom White, senior research analyst at DA Davidson.
“Obviously, there is a growing scrutiny of investors on a path to profitability,” White told CNBC’s “Squawk Box Asia” on Wednesday. But there has been a shift in investor sentiment from a singular approach to growth and market share gains to a more balanced approach, he said.
While they still focus on balancing, investors it will probably also give more leeway to the Southeast Asian firm to invest in new product categories, White said.
The Grab Holdings Inc. app is shown on a smartphone in an organized photograph taken in Singapore on Friday 25 September 2020.
Ore Huiying | Bloomberg | Getty Images
Singapore-based Grab announced on Tuesday that it will be made public through a SPAC merger with Altimeter Growth Corp., a deal that will cost the public transportation company $ 39.6 billion. It was the largest merger of blank checks in the world that included special-purpose acquisition companies, which have been set up to raise money to buy from private companies like Grab.
Road to profitability
Grab as a whole is not yet profitable. It lost $ 800 million in 2020 on an EBITDA basis and projected a loss of $ 600 million for that year, according to a regulatory record.
EBITDA, a measure of a company’s overall financial health, means earnings before interest, taxes, depreciation and amortization. It is a common profit metric used by technology companies, although experienced investors are skeptical.
Grab said its transportation segment’s EBITDA has been positive since the fourth quarter of 2019. Adjusted net income last year reached $ 1.6 billion and is expected to jump to $ 4.5 billion on 2023: Grab predicted it could generate $ 500 million in EBITDA in two years.
“I think they have a good story to tell when you look at the two core segments,” said White, who also covers other online travel delivery and delivery apps like Uber and DoorDash.
“All of their travel-sharing markets are at least profitable from EBITDA, so presumably they don’t burn cash. Five of the six food-sharing markets are also profitable from EBITDA,” he said. to say.
“I take it, I think, that you will be given some leeway to invest in new adjacencies, new categories, new products, given the performance they have had of the two inherited offerings,” White added.
Expanding scale
Loss loss is a function of trying to gain market share, said Sachin Mittal, senior vice president of Singapore’s DBS bank. This is especially important given the current market environment, where cheap capital is readily available, which can help companies increase costs and reduce costs, he added.
“So you have to be that player who gains a little market leadership, increases the scale, reduces the cost, and ultimately, when money isn’t so cheap, that’s when you can be instantly profitable because you built that ladder, ”he told CNBC’s“ Street Signs Asia ”.
Mittal added that investors could also be attracted enough to pay a premium for Grab market dominance in areas such as food delivery. Investing in stocks would also expose them to the financial technology scene in Southeast Asia, he said.
One of Grab’s key businesses is the financial services segment, which includes digital payments, lending, insurance, digital banking and wealth management.
The company has yet to demonstrate its leadership in the fintech technology market, as opposed to car-sharing and food delivery, and this segment is likely to be a business with high, effective growth in the short term, according to Mittal.
“So this whole list will raise funds and those funds can be deployed to fintech,” he said.
As part of the SPAC merger, Grab with SoftBank support will receive about $ 4.5 billion in cash, which includes $ 4 billion in a private investment in a public capital agreement, managed by BlackRock, Fidelity, T. Rowe Price, the Global Counterpoint fund by Morgan Stanley and Singapore. state investor Temasek.