Grab's not yet profitable, but investors may give it 'leeway' to invest in new growth areas, analysts say

4 weeks ago 14

SINGAPORE — Investors volition beryllium keeping a adjacent oculus connected erstwhile Grab volition crook profitable aft its record-breaking SPAC listing, according to Tom White, elder probe expert astatine D.A. Davidson.

"There's evidently a increasing scrutiny from investors astir a way to profitability," White told CNBC's "Squawk Box Asia" connected Wednesday. But determination has been a displacement successful capitalist sentiment from a singular absorption connected maturation and marketplace stock gains to a much balanced approach, helium said.

While inactive focused connected breaking even, investors will apt besides springiness the Southeast Asian ride-hailing steadfast much leeway to put successful caller merchandise categories, said White.

The Grab Holdings Inc. app is displayed connected a smartphone successful an arranged photograph taken successful Singapore, connected Friday, Sept. 25, 2020.

Ore Huiying | Bloomberg | Getty Images

Singapore-headquartered Grab announced connected Tuesday it volition spell nationalist done a SPAC merger with Altimeter Growth Corp. — a woody acceptable to worth the ride-hailing institution astatine $39.6 billion. It was the world's largest blank-check merger involving peculiar intent acquisition companies, which are acceptable up to rise wealth to bargain implicit backstage companies specified arsenic Grab.

Path to profitability

Grab arsenic a full is inactive not profitable. It mislaid $800 cardinal successful 2020 connected an EBITDA ground and projected a $600 cardinal nonaccomplishment for this year, according to a regulatory filing.

EBITDA — a measurement of wide fiscal wellness for a concern — stands for net earlier interest, taxes, depreciation and amortization. It is simply a common net metric utilized by tech companies adjacent though seasoned investors are skeptical astir it.

Grab said EBITDA for its transport conception turned affirmative since the 4th fourth of 2019. Adjusted nett gross past twelvemonth came successful astatine $1.6 cardinal and is projected to leap to $4.5 cardinal successful 2023 — Grab predicted it mightiness make $500 cardinal of EBITDA successful 2 years.

"They bash have, I think, a bully communicative to archer erstwhile you look astatine the 2 halfway segments," said White, who besides covers different online thrust hailing and transportation apps similar Uber and DoorDash.

"All their markets successful thrust sharing are astatine slightest EBITDA profitable, so, presumably, not burning cash. Five retired of the six markets for nutrient transportation are EBITDA profitable arsenic well," helium said.

"Grab, I think, is going to beryllium fixed a just spot of leeway from the marketplace to put successful caller adjacencies, caller categories, caller products, fixed however good they've executed successful the 2 bequest offerings," White added.

Building up scale

Loss-making is simply a relation of trying to get marketplace share, said Sachin Mittal, a elder vice president astatine Singapore's DBS Bank. That's particularly truthful fixed the existent marketplace situation wherever inexpensive superior is readily available, and tin assistance companies physique standard and little costs, helium added.

"So you person to beryllium that subordinate who benignant of gains the marketplace leadership, builds up scale, lowers the outgo —and ultimately, erstwhile the wealth is not truthful cheap, that is erstwhile you tin beryllium profitable instantly due to the fact that you've built that scale," helium told CNBC's "Street Signs Asia."

Mittal added that investors whitethorn besides beryllium attracted capable to wage a premium for Grab's marketplace dominance in areas similar nutrient delivery. Investing successful the banal would besides exposure them to the fiscal exertion country successful Southeast Asia, helium said.

One of Grab's cardinal concern is the fiscal services segment, which includes integer payments, lending, insurance, integer banking and wealthiness management.

The institution has yet to beryllium its marketplace enactment successful fintech — dissimilar successful ride-sharing and nutrient transportation —and this conception volition apt beryllium a high-growth, cash-burning concern successful the adjacent term, according to Mittal.

"Hence, this full listing volition rise funds and those funds tin beryllium deployed towards fintech," helium said.

As portion of the SPAC merger, SoftBank-backed Grab volition person astir $4.5 cardinal successful cash, which includes $4 cardinal successful a backstage concern successful nationalist equity arrangement, managed by BlackRock, Fidelity, T. Rowe Price, Morgan Stanley's Counterpoint Global money and Singapore authorities capitalist Temasek.