Wednesday, 19 January 2022

Grab’s value drops post merger despite leading presence in Southeast Asia

5 min read

By Chris Kapfer

Grab's listing fulfils a key milestone for the platform’s early investors. However, a 12% drop in market value on its first trading day resembles Paytm’s trading debut, putting doubt on an industry that has seen an inflow of increasingly high levels of investment capital.

  • Drop of 21% in share price drags market value down to $34.6 billion
  • Grab reported loss of $988 million for Q321 but expects operating profit in 2023
  • Expanding role in e-commerce and financial services
  • Massive capital investments in super apps across the region

In one of the most high-profile listings in the US involving special purpose acquisition companies, Southeast Asia’s leading super app Grab completed its merger with Altimeter Growth, valuing the merged company at $39.6 billion at $10 per share. This marks a more than double in valuation compared with the $16 billion in early 2020. The deal involved close to 200 bankers and lawyers from the US and Asia.

The transaction raised gross proceeds of $4.5 billion in the largest-ever US public market debut by a Southeast Asian company, which includes a $4 billion private investment in public equity (PIPE) arrangement from Altimeter, a tech-focused investment firm founded by Silicon Valley investor Brad Gerstner.

Drop of 21% in share price drags market value down to $34.6 billion

Investors that are part of the PIPE arrangement get terms that are more favourable than those available to public shareholders via common stock. Grab's listing also brings fortune to early backers such as SoftBank Group, Didi Chuxing, Uber, Toyota Motor, Microsoft and MUFG. After Grab’s pursued deal to merge with Indonesian rival Gojek fell apart, Grab began eyeing a public listing as early as January 2021. Grab initially pursued a public listing via traditional IPO earlier this year at $2.5 billion.

The Singapore-based fintech was not able to sustain the valuation of close to $40 billion on its debut listing. Shares opened at $13.06 on 2 December, up from the previous day’s close of $11.01, when they were still trading as Altimeter Growth. They finished the trading day at $8.75, a drop of 21%, dragging the merged company’s market value down to $34.6 billion at market close. The drop in value mirrors the recent listing of fintech Paytm India, which suffered a 27% fall in the share price at the end of the first trading day at the Bombay Stock Exchange.

Grab reported loss of $988 million for Q321 but expects operating profit in 2023

In April, Sumeet Singh, partner at Aequitas Research, highlighted in an article on Smartkarma that Grab’s listing was “high” on ambition and “very high” on valuation, as Grab’s enterprise value to revenue multiple of nine for 2022. Grab reported a loss of $988 million for Q3 2021, compared with a loss of $621 million in the previous year. However, it expects to make an operating profit in 2023.

According to its September financial statement, Grab expects adjusted net sales of $2.1 billion to $2.2 billion for 2021. Those numbers were scaled down from the $2.3 billion that Grab had estimated in April. The company also expects to generate gross merchandise values (GMV) of $15 billion to $15.5 billion, down from $16.7 billion in its earlier forecast. 

Comparing its Q3 2021 filing to the previous year, top-line growth in GMV and average spend per user grew strongly by 32% and 43% respectively. Overall revenue came in at $157 million, down 9% year-on-year (YoY), as a result of the expected decline in mobility due to the severe lockdowns in Vietnam. Grab’s reported revenue is net of consumer, merchant and driver-partner incentives.

Expanding role in e-commerce, grocery delivery and financial services

Grab continues to expand its role as an e-commerce enabler, particularly in deliveries, which account for the majority share of GMV, at 57%, next to its ride-hailing business. In November 2021, Grab announced a partnership with e-commerce platform Lazada to enable its sellers to provide same-day delivery in Singapore via its delivery service GrabExpress. Grab has a similar partnership with Lazada in Indonesia and Malaysia.

Beyond its staple businesses, Grab regard its nascent groceries delivery business in GrabMart, GrabSupermarket and Grab Financial as key future growth areas. Overall financial services revenue in Q3 2021 grew by 11% YoY to $14 million, contributing 9% to overall revenue. Grab Financial is estimated to contribute 5% to 6% of total revenue for the full year 2021, according to TABInsights.

Massive capital investments in super apps across the region

Grab's competitors, including regional internet firms Sea and Gojek, have also attracted massive capital investments. Gojek, under its parent GoTo Group, is aiming to IPO in early 2022, though it has the least regional exposure among all three, making Sea the bigger rival to Grab. Sea made $2.7 billion in revenue in Q3 2021, compared with $157 million by Grab, although Sea’s financial services segment contribution is estimated to be less than 1% compared with 9% at Grab.

Sea operates across digital entertainment (44% contribution to revenue), e-commerce (56% revenue contribution), as well as digital payments and financial services. Active users across its three business lines reached 729 million by September 2021, with 39 million paying users for its mobile wallet services. Having recently launched its food delivery service ShopeeFood in Indonesia, Thailand and Vietnam, Sea is set to expand the service across the region. It also is testing the European market by opening in Poland.

In the area of public listings, a key development to watch is Nubank’s IPO on the New York Stock Exchange on 9 December. The Brazil-based digital bank has 35 million customers and has risen to become Latin America’s biggest bank by market value in just eight years. The bank was initially targeting a valuation of $50.6 billion but has recently cut down on the targeted price range by about 18% to $41.5 billion in market capitalisation value. In an amended filing with the US securities regulator, Nubank cited that it now plans to sell its shares priced between $8 and $9.

While Grab's listing fulfils a key milestone for the platform’s early investors, the 12% drop in market value on its first trading day resembles Paytm’s trading debut, putting doubt on an industry that has seen an inflow of increasingly high levels of investment capital. Nubank’s IPO will test the trend if a drop in market value on first trading day continues with the recent global sell-off in stocks weighing on year-end IPOs.



Keywords: IPO, Merger, Listing, Super App, Asset Valuation, Spac, Investment
Institution: Grab, Altimeter Growth, Paytm, SoftBank Group, Didi Chuxing, Uber, Toyota Motor, Microsoft, MUFG, Gojek, Sea, Bombay Stock Exchange, New York Stock Exchange, Shopee, GoTo Group, Nubank
Region: Southeast Asia
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