Grab to Become Publicly Traded Through SPAC Merger

As anticipated, the leading Southeast Asian superapp, Grab, is set to enter the public market through a merger with a Special Purpose Acquisition Company (SPAC).

Details of the transaction, previously reported by TechCrunch, establish an equity valuation for Grab at $39.6 billion. The deal is expected to generate approximately $4.5 billion in capital, with $4 billion secured through a Private Investment in Public Equity (PIPE) offering.

SPAC Details and Investment

Altimeter Capital is leading the PIPE investment, contributing $750 million. This is particularly noteworthy as Grab is merging with a SPAC managed by Altimeter.

Upon completion of the merger, Grab will be listed on the Nasdaq stock exchange under the ticker symbol “GRAB”.

Context with Uber’s Performance

The announcement follows a disclosure from Uber regarding a resurgence in key transactional metrics, notably in ride-hailing and delivery services.

Uber has also affirmed its projection to achieve adjusted EBITDA profitability by the fourth quarter of 2021. Notably, Uber played a significant role in paving the way for the Grab deal, as analyzed in a recent Extra Crunch report.

Key Insights from Grab’s Investor Presentation

Today’s discussion will focus on several crucial elements detailed in Grab’s investor deck. These include growth strategies, segment-level profitability, overall cost structures, and the impact of the COVID-19 pandemic.

The full investor presentation is available for review here.

Areas of Focus in the Presentation

• Growth projections and market expansion plans.
• Analysis of profitability across Grab’s various business segments.
• A comprehensive overview of the company’s cost management strategies.
• Assessment of the ongoing effects of the COVID-19 pandemic on Grab’s operations.

These factors are central to understanding Grab’s future prospects as a publicly traded company.

The Effects of COVID-19 on Grab’s Business Performance

The repercussions of the COVID-19 pandemic on Grab’s business mirrored the experience of Uber, characterized by a significant surge in the deliveries sector alongside a decline in ride-hailing services.

Examining the broader financial picture, Grab’s gross merchandise volume (GMV) remained relatively stable between 2019 and 2020, increasing from $12.2 billion to $12.5 billion. Notably, the company achieved substantial growth in adjusted net revenue during this period, climbing from $1 billion to $1.6 billion.

A closer look at individual business segments reveals contrasting trends. While deliveries GMV experienced rapid expansion, growing from $600 million in 2018 to $2.9 billion and subsequently to $5.5 billion in 2020, Grab’s ride-hailing GMV initially increased from $4.6 billion to $5.7 billion between 2018 and 2019.

However, the ride-hailing GMV then experienced a considerable decrease, falling to $3.2 billion in 2020. This downturn was directly attributable to the pandemic’s impact on travel and mobility.

Despite the challenges, Grab’s overall profitability improved in 2020 compared to 2019. The company successfully reduced its post-combination EBITDA loss, narrowing it from -$2.3 billion in 2019 to -$800 million in 2020.

In essence, the COVID-19 pandemic severely impacted Grab’s transportation division, while its delivery services flourished. Consequently, the company demonstrated growth while simultaneously reducing its financial losses.

Identifying Grab's Most Lucrative Segments

Grab operates with a diversified portfolio, encompassing four core business lines. The majority of the company’s revenue is derived from its ride-hailing and delivery services.

In comparison, Grab’s financial services division currently contributes a smaller portion to overall revenue.

Revenue from financial services totaled approximately $200 million in both 2019 and 2020. However, this segment experienced substantial EBITDA losses of $400 million in 2020.

For context, Grab’s deliveries business reported an EBITDA loss of $200 million in 2020, while its ride-hailing segment generated an EBITDA of $300 million during the same period. These figures are presented after accounting for InterCo adjustments.

The “Enterprise & Others” segment of Grab produces minimal revenue and has a limited effect on the company’s overall profitability. Consequently, it requires little consideration.

To summarize, ride-sharing remains a profitable venture for Grab, despite experiencing setbacks due to the pandemic. The deliveries segment is experiencing rapid growth and demonstrating improved profitability.

Specifically, the delivery business reduced its negative adjusted EBITDA by 25% between 2019 and 2020. Conversely, Grab’s financial services business is currently impacting the company’s profitability negatively without significantly boosting revenue.

Key Segment Performance

• Ride-Hailing: Profitable, though impacted by the pandemic.
• Deliveries: Rapidly growing and improving profitability.
• Financial Services: Currently a drag on overall profitability.
• Enterprise & Others: Negligible impact on revenue or profitability.

Understanding these distinctions is crucial when evaluating Grab’s financial health and future prospects. The performance of each segment dictates the company’s overall success.

Assessing Grab's Path to Profitability

Currently, Grab is significantly distant from achieving breakeven. The company reported a net loss of $2.7 billion in 2020. This figure, while representing an improvement from the $4 billion loss in 2019, exceeded the $2.5 billion net loss recorded in 2018.

A substantial portion of Grab’s recent net losses is attributable to expenses related to redeemable convertible preferred stock (RCPS). This expense, effectively a form of interest, totaled $1.1 billion in 2019 and increased to $1.4 billion in 2020.

Understanding the Impact of RCPS

Because RCPS is considered a non-cash expense, the extent to which investors will accept the potential dilution resulting from these losses remains uncertain. This impacts their willingness to overlook the company’s current scale and financial performance.

Even with a complete exclusion of the RCPS expense, Grab’s net loss still surpassed $1 billion in the previous year.

Therefore, despite some improvements, substantial challenges remain before Grab can reach profitability.

Projected Growth Trajectory for Grab

The following visual representation details Grab’s anticipated expansion:

The initial chart illustrates the effects of the COVID-19 pandemic on Grab’s Gross Merchandise Volume (GMV). Subsequently, the company forecasts a substantial increase in overall platform expenditure.

This projected spending is expected to translate into significant growth in net revenue. However, it’s important to note a key expectation.

Grab does not foresee an increase in its adjusted net revenue as a proportion of GMV following 2021. In fact, the company predicts a decrease to 13% of GMV in 2022, following a peak of 14% in 2021.

Growth Rate Expectations

Despite this anticipated percentage decline, Grab projects a robust 40% compound annual growth rate (CAGR) in GMV from 2020 to 2023.

Furthermore, the company anticipates a 42% CAGR for adjusted net revenue over the same period.

While these figures are positive considering the company’s existing size, they represent a considerable deceleration compared to the 96% CAGR experienced prior to 2021.

• GMV CAGR (2020-2023): 40%
• Adjusted Net Revenue CAGR (2020-2023): 42%
• Pre-2021 CAGR: 96%

This shift indicates a maturing business model and a focus on sustainable growth rather than hyper-expansion.

Understanding Key Metrics in Grab's Financial Reporting

Let's begin by examining adjusted net revenue, a crucial figure in understanding Grab’s financial performance. Net revenue is calculated by subtracting “Drivers and Merchants Base Incentives” and “Drivers and Merchants Excess Incentives” from the company’s gross billings.

The adjusted net revenue figure, however, reinstates the latter category of incentive payments. This adjustment is a key point to note when analyzing Grab’s reported results.

Grab clarifies the rationale behind this accounting approach as follows:

Essentially, Grab aims to exclude the impact of overpayments to drivers and merchants from its revenue calculations. This practice allows for a potentially more favorable presentation of core business performance.

Analyzing Grab’s financial disclosures can evoke similar complexities to those encountered when reviewing Uber’s earnings reports. The intricacies of these adjustments require careful consideration.

It’s important to differentiate between data presented pre-InterCo – representing performance before consolidation – and figures adjusted for post-combination effects. The visual charts often present a more optimistic view than the underlying tables.

The charts reflect the company’s internal projections prior to the merger, while the tables, such as the data on page 26 of the presentation, sometimes challenge the company’s own optimistic narratives.

In conclusion, this represents a noteworthy transaction that will likely generate considerable market interest.