Analysts are talking about growth and profitability

SINGAPORE – Investors will be watching closely when Grab becomes profitable after listing the record SPAC, according to Tom White, senior research analyst at DA Davidson.

“There is obviously growing control by investors over the 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 gains in market share to a more balanced approach, he said.

Although still focusing on equality, investors It will also give the Southeast Asian company more freedom to invest in new product categories, White said.

Grab, based in Singapore, announced on Tuesday that it will go public through a SPAC merger with Altimeter Growth Corp. – an agreement that will value the company transporting vehicles at $ 39.6 billion. It was the largest merger in the world with blank checks involving special purpose purchasing companies that are set up to raise money to buy from private companies like Grab.

Grab as a whole is not yet profitable. It lost $ 800 million in 2020 based on EBITDA and projected a loss of $ 600 million for this year, according to a regulatory filing.

EBITDA – a measure of the overall financial health of a business – represents earnings before interest, taxes, depreciation and amortization. It is a common value of earnings used by technology companies, even if experienced investors are skeptical about it.

Grab said EBITDA for its transportation segment turned positive in the fourth quarter of 2019. Adjusted net income last year reached $ 1.6 billion and is projected to grow to $ 4.5 billion in 2023. – Grab predicted it could generate $ 500 million in EBITDA in two years.

“They have, I think, a beautiful story to tell when you look at the two core segments,” said White, who also covers other online shipping and delivery applications such as Uber and DoorDash.

“All of their travel-sharing markets are at least profitable for EBITDA, so they probably don’t burn cash. Five of the six markets for food delivery are also profitable for EBITDA,” he said.

“I think, I think it will be given some freedom from the market to invest in new adjacencies, new categories, new products, given how well they have performed in the two old offers,” White added.

The loss is a function of the attempt to gain market share, said Sachin Mittal, senior vice president at DBS Bank in Singapore. This is especially true given the current market context, where cheap capital is readily available and can help companies build lower and lower costs, he added.

“So you have to be that player who gains some kind of market leadership, increases the scale, lowers the cost, and finally, when the money isn’t that cheap, then you can be instantly profitable because you built that scale.” , said for CNBC “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. The investment in shares would also expose them to the financial technology scene in Southeast Asia, he said.

One of Grab’s main activities 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 food sharing and delivery – and this segment is likely to be a high-growth, short-term cash-burning business, according to Mittal.

“Therefore, this whole list will raise funds and these funds can be distributed to fintech,” he said.

As part of the SPAC merger, Grab, backed by SoftBank, will receive approximately $ 4.5 billion in cash, which includes $ 4 billion in a private investment in public equity agreements, managed by BlackRock, Fidelity, T. Rowe Price, Morgan Counterpoint Global Fund and Singapore state investor Temasek.