SINGAPORE – According to Tom White, senior research analyst at DA Davidson, investors will keep a close eye on when Grab will turn profitable after its record-breaking SPAC listing.
“There is clearly growing investor research 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 single focus on growth and market share gains to a more balanced approach, he said.
While they were still focused on break even, investors will also likely give the Southeast Asian taxi company more leeway to invest in new product categories, White said.
The Grab Holdings Inc. app is displayed on a smartphone in an arranged photo taken in Singapore on Friday, September 25, 2020.
Ore Huiying | Bloomberg | Getty images
Singapore-based Grab announced on Tuesday that it will go public via an SPAC merger with Altimeter Growth Corp. – a deal that will value the ride-hailing company at $ 39.6 billion. It was the world’s largest blank check merger involving special acquisition companies created to raise money to purchase private companies such as Grab.
Path to profitability
Grabbing as a whole is still not profitable. It lost $ 800 million on an EBITDA basis in 2020 and expected a loss of $ 600 million for this year, according to a regulatory filing.
EBITDA – a measure of a company’s overall financial health – stands for earnings before interest, taxes, depreciation, and amortization. It’s a common measure of income used by tech companies, even though seasoned investors are skeptical about it.
Grab said EBITDA for its transportation segment has turned positive since the fourth quarter of 2019. Adjusted net sales last year were $ 1.6 billion and are expected to increase to $ 4.5 billion by 2023 – Grab predicted it would could generate $ 500 million in EBITDA for two years.
“I think they have a nice story to tell when you look at the two core segments,” says White, who also covers other online ride-hailing and delivery apps like Uber and DoorDash.
“All of their ride-sharing markets are at least EBITDA profitable, so probably no money burning. Five of the six food delivery markets are also EBITDA profitable,” he said.
“Grab, I think, will get a fair amount of leeway from the market to invest in new neighborhoods, new categories, new products, given how well they’ve performed in the two existing offerings,” White added.
Scale build-up
Making a loss is a function of trying to gain market share, said Sachin Mittal, a senior vice president at DBS Bank in Singapore. That’s especially true given the current market environment where cheap capital is readily available and can help businesses build scale and lower costs, he added.
“So you have to be that player who gains the market leadership, builds scale, cuts costs – and ultimately, if the money isn’t that cheap, then you can be profitable right away because you’ve built that scale,” he told CNBC’s “Street. Signs Asia. “
Mittal added that investors could also be attracted enough to pay a premium for Grab’s market dominance in areas such as food delivery. Investing in the stocks would also expose them to the Southeast Asian financial technology scene, he said.
One of Grab’s main businesses is the financial services segment, which includes digital payments, loans, insurance, digital banking and wealth management.
The company has yet to prove its market leadership in fintech – as opposed to car pooling and food delivery – and Mittal says this segment is likely to be a fast-growing, money-burning business in the near term.
“That’s why this whole listing will bring in money and that money can be used for fintech,” he said.
As part of the SPAC merger, SoftBank-backed Grab will receive approximately $ 4.5 billion in cash, including $ 4 billion from a private investment in a public equity scheme managed by BlackRock, Fidelity, T. Rowe Price, Morgan Stanley’s Counterpoint Global Fund and Singapore. state investor Temasek.