Consumer Tech

Will GoTo IPO be an encore of Grab & Bukalapak?

by Sandeep Kumar

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GoTo, the largest technology group in Indonesia which was formed in 2021 as a result of a merger between ride-hailing giant Go-Jek and the e-commerce firm Tokopedia, is all set to go public on the Indonesia Stock Exchange (IDX). The company aims to raise over $1.1 Bn. The price range for the IPO is set between IDR 316–346 per share, which could give an estimated market capitalisation of about $29 Bn. It is anticipated that the IPO will be one of the biggest milestones in the region for an internet company. However, this is considered to be a bold move, especially in times when most stock markets are facing turbulence.

Looking at the fate of one of the highly anticipated tech stocks of 2021, Grab, which is facing a continuous downfall, we try to see whether GoTo will follow a similar path?

GoTo Snapshots

GoTo’s Financials — Is the valuation justified?

GoTo Group provides a unique ecosystem that combines the need for on-demand, e-commerce, and financial services under a single umbrella through its Gojek, Tokopedia, GoTo Financial platforms. Given the broad range of services offered, GoTo’s ecosystem contributed to more than 2% of Indonesia’s GDP by addressing the needs of about two-thirds of the country’s household consumption.

Source: GoTo

With Pro-forma orders of approximately 2 billion in the 12-months ended 30 September 2021, the company has earned GTV 28.8 Bn during the period. As per the company’s reports, its total addressable market (TAM) in Indonesia is expected to grow significantly by 2025. Despite having a gross revenue of about $1 Bn on the year ending September 2021, GoTo is yet to achieve profitability. With the reported data, GoTo’s EV/Revenue multiple is estimated to be around 28. While its valuation is less than its competitor Grab’s valuation at the time of its IPO, there is no denying fact that GoTo is still highly overvalued. GoTo Group must learn from the tragic post-IPO performance of other tech companies so as to ensure stable results.

How are other Southeast Asian tech companies performing post-IPO?

GoTo’s IPO is sought to be one of the biggest IPO in Indonesia this year. The decision to go public at this time is surely a bold move as most of the financial markets across the globe suffer due to the Ukrainian crisis, along with sharp sell-offs in tech stocks and expectations of rising interest rates. Moreover, the performance of GoTo’s peers in Southeast Asia like Grab, Bukalapak, post-IPO have been disappointing. As a result, some investors are now contemplating GoTo’s prospects.

GoTo’s Singapore-based rival, Grab’s debut on the NASDAQ witnessed an immediate slump after a record SPAC which valued the company close to $40 Bn. Despite its huge market presence, the company still struggles to make profits. Grab’s shares have hit a low this month as the company reported an annual loss of about $3.6 Bn. As we mentioned in our previous article, Grab had highly overestimated its valuation and hence the decline was meant to be.

Another Indonesian e-commerce startup, Bukalapak had a great start on the IDX, soaring 25% on its debut. While the company was a big hit in the Indonesian stock market raising $1.5 Bn, these moments were short-lived as it started to dip a few days after the IPO. The company has now lost more than 74% of its value since its public listing. Singapore-based Sea Ltd, on the contrary, soared after its IPO in 2017 but has seen a decline in recent months. From an all-time high of USD 372.70 per share to its share price recorded at 93.70 (as of 15th March 2022), it has seen a decline of 74.85%.

Will GoTo shares see a similar fate?

The favourable Indonesian stock market is making the stakeholders hopeful of GoTo’s decision to go public in such turbulent times. With some of the existing shareholders agreeing on an 8-month lockup period, the IPO won’t see any sale of shares from existing owners. According to the prospectus, the company also plans on offering about a 10% stake sale outside of the domestic market. However, the dual listing will take time and will happen only after analysing the market dynamics once it becomes public.

It is very bold of GoTo to opt for public listing in times like these when tech stocks are facing sharp sell-offs. Additionally, high valuations with lacking profits may not turn out in favour of the company in the long run, as seen in the case of Grab. While GoTo stock may see a fine start on the IDX, the company’s valuation might be disturbed, as it goes public. Although the extent of variation is difficult to determine right now, it is still a risky bet.

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This article has been co-authored by Tamanna Kapur, who is in the Research and Insights team of Torre Capital.

Reinvention of Sharing Economy Companies — Changing Perspective to Thrive through Covid Crisis

by Sandeep Kumar

How has Covid impacted various sectors

Due to the COVID-19 pandemic, activities in the sharing economy (SE) were in jeopardy. Even though SE is regarded as a disruptive phenomenon, particularly in the lodging and transportation industries, the pandemic raised concerns about its long-term sustainability. Before the outbreak, SE was estimated at a faster rate. SE was expected to be worth $335 Bn by 2025, according to estimates.

Source: Sharing or paring? Growth of the sharing economy, PwC

Because many sectors, such as healthcare, tourism, and restaurants, were closely linked to the SE, the importance of sharing grew in the pandemic era. Activities such as lodging, eating out, hosting in-person conferences, and cruising, as well as the role of travel agencies and tour operators in organizing such activities, ground to a standstill.

However, because various nations were put under lockdown as a result of the COVID-19, the use of online shopping and food delivery services soared. The need for freelance work soared as workplaces closed. As a result of the closing of movie theatres, video streaming services have become the primary source of entertainment. Preventive measures have impacted all sectors of SE, increasing the need for some services while slashing demand for others.

Sharing Economy Model

By the second half of the 2000s, consumer behavior had shifted dramatically, and an increasing number of individuals were beginning to see that their current purchasing patterns would not be sustainable in the future. Companies arose in this atmosphere to provide a new type of answer to the evolving customer needs. A sharing economy is a form of the new economic model that focuses on the peer-to-peer exchange of goods and services to increase the efficiency of underutilized resources. The phrase “sharing economy” began to be used to refer exclusively to enterprises of this sort. Couchsurfing, Airbnb, Uber, and its peers, which are developing as a result of significant shifts in consumer habits, have overturned whole industries with their so-called “creative disruption” in the span of only a few years.

There is an opportunity for the sharing economy to thrive in the post-pandemic period. The sharing economy has revolutionized the way people travel, dress, and stay as a result of technological evolution. It has posed a challenge to traditional marketing strategies, but it has also given the business model a new direction and a brighter future, with many organizations taking use of technology advancements. According to industry estimates, sharing will increase from $13.75 billion to $19.25 billion over the next five years, with half of the contribution coming from people under the age of 30.

People were more interested in taking advantage of free and reduced services before the pandemic. However, they are now more cautious about the implementation of safety and preventative measures. In post-pandemic circumstances, we’re witnessing the positive side of the sharing economy and how it’s affecting service providers and platforms.

Traditional businesses must examine which of their service sectors are vulnerable to the advent of a sharing economy player; then, once these areas have been identified, businesses must determine how they will be able to stay up with the trend.

Companies following sharing economy model to reinvent themselves

The pandemic had imposed several forms of restrictions on the way people interact with each other. As a result, a lot of sharing companies had to reinvent their business models to suit the current scenario in order to sustain themselves. This has been the need of the time as most of these companies were on the verge of scaling their businesses and a crisis like this would have sabotaged their growth. Spending huge amounts of money and giving great discounts to keep hold of the market would be unlikely for these growing startups as they take a hard look at unit economics in these challenging times. We look at how different companies across various industries have reinvented themselves to overcome the economic drop due to the pandemic.

· Mobility — Shared commuting was growing popular before the pandemic. However, the market was bound to witness a decline due to the safe commute preferences of consumers. Cab services like Uber and Ola focussed on selling their self-driving car services, instead of shared rides. Some have even expanded their operations to the delivery of essentials, packaging, and moving services.

· Co-Working — Co-working spaces had just started to gain the attention of firms when suddenly people were forced to work from home. In response, startups in the space took the support of AI to access controls like contactless cards and facial recognition. Smartworks even increased the area per employee to 120–140 square feet from 70–80 sq feet per employee, keeping in mind the social distancing norms.

· Accommodation — Accommodation companies, like Airbnb, were at great risk of facing the brunt of the pandemic. Airbnb in particular shifted its focus by introducing short-term rentals and opening up its spaces for frontline warriors. The platform largely encouraged domestic travels over global travel, owing to the travel restrictions due to Covid. Co-living rents were cut down and annual hikes were deferred. Globe — a platform that offers hourly rentals, on the other hand, had performed substantially well as it identified the new market among those who need to work-from-home or need a change of atmosphere.

· Others — While some sharing companies have suffered due to the pandemic, there has been minimal impact on companies, such as those engaged in furniture and appliance rentals. Furlenco, Rentomojo, etc. have not suffered much as these affordable products never go out of demand. Unlike other sharing economy companies, their products are used by customers over longer time durations.

Future Outlook — Will the sharing economy lead to a boom?

Due to its several advantages to consumers as well as businesses, sharing economy companies are on a rise. The trend is visible not only in B2C companies where the concept has already garnered reliability, but it is also on the rise in the B2B sector. Some companies that have served individual customers in the past, now look forward to grabbing onto the institutional customers as the demand from the former declines.

Technology has played an essential role in preparing innovative business models which have helped growing startups to reduce their expenses without compromising on the scale during such turbulent times, thus leading to the reinvention of the sharing economy companies. With the conscious efforts among customers as well as businesses to achieve sustainability, we see the continued rise of sharing economy companies.

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This article has been co-authored Vivek Kumar and Tamanna Kapur who is in the Research and Insights team of Torre Capital.

Internet Of Things: Building a Connected World Through Powerful Technologies

by Sandeep Kumar

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Internet of Things (IoT) is one of the most prominent technology trends, IoT is disrupting both the consumer (retail, healthcare, and services) and industrial sectors, such as transportation, water, oil and gas, agriculture, and manufacturing. In the manufacturing sector, the business of extracting and transporting oil and gas is filled with challenges. There are several drivers of growth for this sector. A report by McKinsey mentioned that the number of businesses that use the IoT technologies has increased from 13% in 2014 to about 25% today. And the worldwide number of IoT-connected devices is projected to increase to 43 billion by 2023, an almost threefold increase from 2018. The IoT cloud platform market is expected to grow from US$ 6.4 Bn in 2020 to USD$ 11.5 Bn by 2025. The IoT solution segment has dominated the overall IoT monetization market.

The trend in the market is expected to continue both as a result and an impetus of constant technological advancements. The pandemic, along with our lives, has also affected the way this trend is developing. In a world where work from home is a norm, more intelligent automated scheduling and calendar tools, as well as better quality, more interactive video conferencing, and virtual meeting technology will be required while working remotely. Healthcare witnessed a drastic change in the way it is delivered from telemedicine to smart wearables to sensors.

Source: Pitchbook, Gartner

IoT is not just a technology initiative anymore, after the worldwide lockdown imposed by the pandemic businesses will look for ways to improve efficiencies. The emphasis on the business outcome from implementing has increased significantly IoT initiatives are no longer driven by the sole purpose of internal operational improvement.

Industry Performance in the Recent Years

The global market for Internet of things (IoT) end-user solutions is expected to grow to $212 Bn in size by the end of 2019. The technology reached 100 Bn in market revenue for the first time in 2017, and forecasts suggest that this figure will grow to around 1.6 Tn by 2025.

Source: Pitchbook, Gartner

Key Highlights

• In 2021, there are more than 10 billion active IoT devices. In 2019, around 127 new devices per second connect to the web.

• It’s estimated that the number of active IoT devices will surpass 25.4 billion in 2030.

• 83% of organizations have improved their efficiency by introducing IoT technology.

• The amount of data generated by IoT devices is expected to reach 73.1 ZB (zettabytes) by 2025.

• In 2018, 57% of businesses adopted IoT in some way. By the end of 2021, the figure should hit 94%.

VC Investment Sentiments

VCs poured close to $11.1 Bn in IoT companies in 2020, though the deal count was less the total was on 2018 level. Majority of the drop came from early stage VC deals, which fell to its lowest since 2016. At the product category level, the IoT-compatible chipsets, manufacturing & supply chain, connected vehicles, smart home, and IoT security segments each raised over $1 Bn in VC, driving the year’s total deal value.

Instead of a sole value driver IoT is more suited for driving diversified software and hardware companies. Business dealing in connectivity devices, energy and utilities and connected commercial real estate witnessed sharp increase in funding. Each segment drew over 2x gains in deal value YoY, although each was dramatically affected by the pandemic.

The IoT industry set VC exit records in 2020, achieving $14.0 billion in total value across 61 exits. Exit values have never crossed $4 Bn in previous years. The star of the show was C3.ai, which had a record $3.4 Bn IPO in the US market. 2020 was also a strong year for M&A activities with 48 deals valuing up to $2.8 Bn. IoT hardware, IoT software, and connected buildings generated most of the activity.

Segment-wise Analysis of Performance and Opportunities

 IoT Hardware and Devices

The IoT hardware includes sensing devices that have the capabilities to collect and route data to enable control and communication through the internet. Continuous innovations in chipsets, sensor systems, and connectivity devices for IoT networks, may result in an innovator’s dilemma for the incumbents. However, startups have an advantage as they can experiment and develop freely. The reducing cost of production for IoT hardware and greater connectivity are driving the market. Moreover, as the devices are becoming cost efficient, it has encouraged their adoption and innovation.

It is estimated that the IoT hardware market constitutes nearly 48% of the total IoT industry and would reach $271 Bn by the end of 2021, growing at a CAGR of 12% during 2021–2026. The segment had a positive response from VC investment last year, raising over $2.5 Bn. During the pandemic, China was in particular the driver of deal flow in the segment. The custom chips for IoT applications witness higher inflow of funds from China compared to the USA.

One can capture great market opportunities within the segment by focussing on future possibilities for growth in Tiny ML microcontrollers and battery sensors. It is projected that the Tiny ML device market would grow at a CAGR of 41% from 2021–2024. Some startups that are already focussing on this opportunity are Arm, Greenwaves, Syntiant, etc.

 IoT Networking Infrastructure

The IoT network connects the device data to cloud networks. The segment is expected to witness growth as the governments across the world provide incentives for building smart cities, and enterprises prefer novel networking for asset tracking and predictive maintenance.

So far, the segment is expected to grow with a CAGR of 17% from 2020–2022. The investment deal activity has relatively plateaued in 2020, but still managed to raise over $500 Mn last year. Majority of the VC investments have inclined towards 5G technology. Some firms that appear to benefit from growth in 5G are EdgeQ, Blue Danube, Siklu, among others. However, the pandemic has delayed the execution and deployment of 5G technology.

 IoT Software Solutions

IoT softwares enable various functions throughout the IoT value chain. These include connectivity routing, application enablement, device management, data management and analytics, etc. Analytics is required in almost every field today. Therefore, IoT devices with abilities such as sensory data, AI and ML algorithms will witness a huge market opportunity.

The market for IoT software is expected to grow at a CAGR of 11.4% from 2021–2024. However, the share of the segment in total market for IoT is expected to decline over time as more processing shifts onto the devices themselves. AI and ML play an important role in driving the segment due to its widespread adoption. It is suggested that startups will be able to provide improvements in the area by upto 10x, making it a competitive marketplace. Some companies that are already working in this direction include C3.ai, SparCognition, FogHorn, Noodle.ai, among others.

 IoT and Industry 4.0

Industry 4.0 includes IoT technologies that facilitate the growth of smart capital intensive industries, including manufacturing, agriculture, energy and utilities. Such technologies are largely implemented to empower autonomous equipment operations.

The segment is projected to grow at a CAGR of about 23% during the period 2021–2028. The VC investment in the segment remained strong even during the pandemic due to faster adoption of digital operation in capital-intensive industries. There are several opportunities within this segment that are expected to witness fast growth in the coming years. These include asset-tracking, drones, predictive maintenance using ML, among others. Samsara, CloudLeaf, Embention, Clobotics are some companies that will benefit through their operations in these areas.

 Smart Services and Infrastructure

IoT can be a great help in offering smart assistance through smart healthcare, connected mobility, smart cities and other consumer services. These innovations will also favour the goals of sustainability and positive environment impact.

The market is expected to reach $200 Bn by 2021 and is projected to grow at the annual rate of 13%. Investments in connected services, particularly healthcare and vehicles have grown even during the pandemic. The demand for vehicle connectivity is expected to grow in the future as it is suggested that 60% of vehicles will have vehicle-to-vehicle connectivity (V2V) by 2023. Some companies that are expected to progress in the smart mobility and smart healthcare services segment are Kymeta, Smartdrive, Whoop, etc.

Industry Outlook and Key Limitations

 

Large internet of things (IoT) and operational technology (OT) security companies can be built across segments of the edge device value chain as well as for individual device types. However, IoT-focused platforms are limited in addressing the leading use cases for IoT security spending including manufacturing, natural resources, and transportation given devices’ limited connectivity to the cloud.

To overcome the industry’s concerns, security incumbents will be expected to address IoT security across the value chain and across product kinds. To date, security software providers have sought to address the IoT security opportunity with point solutions that aren’t tailored to specific industry threats. As a result, IoT security adoption is still low and uneven across organisations. More comprehensive vulnerability assessment and communications security capabilities will be included in future XDR platforms. As a result, we expect infosec incumbents to continue to improve their IoT security capabilities throughout the value chain.

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This article has been co-authored by Ayush Dugar and Tamanna Kapur, who is in the Research and Insights team of Torre Capital.

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Will GoTo IPO be an encore of Grab & Bukalapak?

by Sandeep Kumar

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GoTo, the largest technology group in Indonesia which was formed in 2021 as a result of a merger between ride-hailing giant Go-Jek and the e-commerce firm Tokopedia, is all set to go public on the Indonesia Stock Exchange (IDX). The company aims to raise over $1.1 Bn. The price range for the IPO is set between IDR 316–346 per share, which could give an estimated market capitalisation of about $29 Bn. It is anticipated that the IPO will be one of the biggest milestones in the region for an internet company. However, this is considered to be a bold move, especially in times when most stock markets are facing turbulence.

Looking at the fate of one of the highly anticipated tech stocks of 2021, Grab, which is facing a continuous downfall, we try to see whether GoTo will follow a similar path?

GoTo Snapshots

GoTo’s Financials — Is the valuation justified?

GoTo Group provides a unique ecosystem that combines the need for on-demand, e-commerce, and financial services under a single umbrella through its Gojek, Tokopedia, GoTo Financial platforms. Given the broad range of services offered, GoTo’s ecosystem contributed to more than 2% of Indonesia’s GDP by addressing the needs of about two-thirds of the country’s household consumption.

Source: GoTo

With Pro-forma orders of approximately 2 billion in the 12-months ended 30 September 2021, the company has earned GTV 28.8 Bn during the period. As per the company’s reports, its total addressable market (TAM) in Indonesia is expected to grow significantly by 2025. Despite having a gross revenue of about $1 Bn on the year ending September 2021, GoTo is yet to achieve profitability. With the reported data, GoTo’s EV/Revenue multiple is estimated to be around 28. While its valuation is less than its competitor Grab’s valuation at the time of its IPO, there is no denying fact that GoTo is still highly overvalued. GoTo Group must learn from the tragic post-IPO performance of other tech companies so as to ensure stable results.

How are other Southeast Asian tech companies performing post-IPO?

GoTo’s IPO is sought to be one of the biggest IPO in Indonesia this year. The decision to go public at this time is surely a bold move as most of the financial markets across the globe suffer due to the Ukrainian crisis, along with sharp sell-offs in tech stocks and expectations of rising interest rates. Moreover, the performance of GoTo’s peers in Southeast Asia like Grab, Bukalapak, post-IPO have been disappointing. As a result, some investors are now contemplating GoTo’s prospects.

GoTo’s Singapore-based rival, Grab’s debut on the NASDAQ witnessed an immediate slump after a record SPAC which valued the company close to $40 Bn. Despite its huge market presence, the company still struggles to make profits. Grab’s shares have hit a low this month as the company reported an annual loss of about $3.6 Bn. As we mentioned in our previous article, Grab had highly overestimated its valuation and hence the decline was meant to be.

Another Indonesian e-commerce startup, Bukalapak had a great start on the IDX, soaring 25% on its debut. While the company was a big hit in the Indonesian stock market raising $1.5 Bn, these moments were short-lived as it started to dip a few days after the IPO. The company has now lost more than 74% of its value since its public listing. Singapore-based Sea Ltd, on the contrary, soared after its IPO in 2017 but has seen a decline in recent months. From an all-time high of USD 372.70 per share to its share price recorded at 93.70 (as of 15th March 2022), it has seen a decline of 74.85%.

Will GoTo shares see a similar fate?

The favourable Indonesian stock market is making the stakeholders hopeful of GoTo’s decision to go public in such turbulent times. With some of the existing shareholders agreeing on an 8-month lockup period, the IPO won’t see any sale of shares from existing owners. According to the prospectus, the company also plans on offering about a 10% stake sale outside of the domestic market. However, the dual listing will take time and will happen only after analysing the market dynamics once it becomes public.

It is very bold of GoTo to opt for public listing in times like these when tech stocks are facing sharp sell-offs. Additionally, high valuations with lacking profits may not turn out in favour of the company in the long run, as seen in the case of Grab. While GoTo stock may see a fine start on the IDX, the company’s valuation might be disturbed, as it goes public. Although the extent of variation is difficult to determine right now, it is still a risky bet.

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This article has been co-authored by Tamanna Kapur, who is in the Research and Insights team of Torre Capital.

Will Grab make money for its investors even post the massive $40Bn SPAC valuation?

by Sandeep Kumar

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Grab Holdings, Southeast Asia’s largest ride-hailing firm, plans to merge with Altimeter Growth Capital, based in the United States, in a deal worth approximately $40 Bn and allowing it to trade on the Nasdaq Stock Exchange.

If it goes through, this SPAC deal will be the largest ever U.S. equity offering by a South-East Asian firm, with the planned deals giving Grab a Pro-forma equity valuation of about $39.6 Bn. Grab will earn up to $4.5 Bn (SGD 6.05 Bn) in cash as part of the SPAC contract. BlackRock, T. Rowe Price, and Fidelity are among the large institutional investors who have poured money into the offer.

Can Grab justify its supercilious valuation?

We Know that Grab has a huge dominance over the South East Asian market and is also a fairly good company but the real thing to ask is that how justified it is to give a massive valuation of around $40 Bn? Is there anything for the investors to be happy about their investment in the company? If we go with the past history of Grab including the recent Private Investment in Public Equity round where it raised around $4 Bn. A total of around $17 Bn has been raised till date in 19 rounds which is way more than any other Southeast Asian startup which suggests that they have raised a huge amount from the market so far.

We believe there’s already a saturation with respect to the addressable market size. Grab has already conquered most of the market in the field with 66 concurrent rides in one second across seven countries, occupying 97% market share in the third-party taxi-hailing market and 72% in the private vehicle hailing market. This data suggests that the company already has attained a humongous market share. Despite this fact, inflating its valuation to $40 Bn seems difficult to digest making it too rich a stock.

The scale of its multi-faceted business model

Grab is Southeast Asia’s leading ride-hailing network, headquartered in Singapore with services including ride-sharing, food delivery, taxi booking, insurance, bill payment, and more. In 2018, Grab bought Uber’s entire Southeast Asia ride-hailing service in 2018.

Grab charges a 16% to 25% commission for using their services. It has around 3.5 million drivers in Malaysia, and the minimum ride cost is RM5. After a 25% cut (RM1.25), the company would gain around RM4 million if every driver gets a verified ride.

Any time the driver completes a booking, the credits deposited by the driver will be deducted in the same amount. In Singapore, Grab offered $4.30 to $5.70 for each ride last year; such offers could cost the company millions per month. Grab does not provide travelers with free or discounted rides.

Consider another example, the average gross earnings of a full-time (12 hours) driver in a month is $1435 — $1670. After a 25% commission cut, drivers will earn $1795 — $2088. Based on this, Grab would have gotten about $360 — $418 of commission from a single driver.

Scale and Leadership in South East Asia (Source: Grab S-1)

Dominance in the Southeast Asian Market

Since launching in 2012, Grab has evolved from a humble taxi-booking app to Southeast Asia’s largest land transport company, with over 200,000 drivers and over 11 Million mobile downloads.

Since mid-2015, GrabCar rides have increased by 35% on an average monthly basis, while GrabBike rides have increased by 75% on an average monthly basis. Ride-hailing services have become invaluable to Southeast Asia’s infrastructure, and the region’s industry has been shaken by the sudden emergence of now-dominant player Grab. With the departure of Uber Technologies of the United States, the sector is entering a new era of competition. Grab will not go unchallenged, and will need to prepare for competition from new corners and in new fields as it expands beyond its core business.

Stellar growth with no profitability

Though Grab currently is far off from achieving profitability in its financials, it has been growing tremendously in the past few years. Recently, the coronavirus pandemic has spurred growth in Grab’s food and grocery delivery business, turning them into some of the company’s biggest revenue streams.

Mobility segment profit and EBITDA (Source: Grab S-1)

Through the SPAC Merger, Grab will have hands-on cash proceeds namely, $4.0 Bn (SGD 5.37 Bn) in fully committed PIPE financing, led by $750 Mn (SGD 1.07 Bn) from Altimeter Capital Management, LP, the firm that owns Altimeter Growth Corp.

Snapshot of key financial metrics:

  • Revenue: $1.19 Bn in 2020, up from $455 Mn in 2019.
  • Loss: $2.7 Bn in 2020, which was $4 Bn in the year 2019.
  • Profits: The company is also expecting its earnings before interest, taxes, depreciation, and amortization to turn profitable by the year 2023.

Grab’s edge over its competitors

Grab has a lot of benefits, most of which include easy booking, insured drivers, rider ratings, and low or at least confirmed wait times.

Positioned as a forum for a variety of services; Grab offers:

  • Licensed and Insured Drivers: Grab drivers must register as a local business, convert their vehicle to a commercial vehicle, sign up in person at the Grab office, and buy commercial insurance to protect themselves and their property. If you use GrabTaxi, you will only be connected with licensed taxi drivers, not novice ones.
  • Flat rate fees: Grab charges a flat rate that you can see before you ride. This feature removes the element of surprise from many taxi fares and helps you to choose the best ride for your budget. Shorter wait times — With over 30,000 drivers in 30 cities, Grab rides are readily available.
  • Accessibility as a Super App: The network effects are one of the most important force multipliers for the business model of a super-app, which Grab is positioning itself as. i.e., as there are more rides available at any given time, more people can use services like ride-hailing from you, which makes it lucrative for drivers to register on your platform.

Concerns surrounding Grab’s SPAC merger route

Getting regulatory approvals for an IPO would have been difficult for a cash-burning business like Grab (where all the promised land of gold is in the forecasts and excels). Recent cases, such as WeWork’s failed IPO, are fresh in the minds of aspiring public companies. When there are no positive cash flows, it is easier to sell the forecasts to a SPAC rather than the general public. The markets are overflowing with the supply of cash-rich SPACs looking for big enough startups to invest in.

However, because of the SPAC’s nature, many aspects are inherently opaque, making it easier for big companies to dupe retail investors. In the case of a SPAC, unlike a conventional IPO, a company decides on the valuation, and if Grab had chosen a traditional approach, it would have been impossible for the company to achieve the same in such a short span of time.

SPACs are appealing to people who want to go public in a volatile market. IPOs are considered riskier because there is always a possibility that the papers will not be accepted until they are filed publicly. The same thing happened with WeWork’s IPO, which was canceled after the company’s details were made public and investors were forced to withdraw.

Some other relevant concerns that will arise post Grab’s SPAC Merger:

  • Disproportionate Voting Rights: The founder Anthony Tan will receive a voting share that is 30 times greater than his equity stake in the company as a result of this transaction.
  • Grab’s Cash Burn: Grab is at a point in its growth where it has a high valuation but is also cash flow negative. Shares in the SPAC that were purchased at the start of the company can be redeemed. If redemptions meet forecasts, cash availability becomes unpredictable, forcing SPACs to seek PIPE funding to make up the difference. Grab’s cash burn may be exacerbated by this contract.
  • Shareholding Dilution: SPAC sponsors usually hold a 20% stake in the SPAC in the form of founder stock, or “promote,” as well as warrants to buy more shares. They also benefit from an earn-out component, which allows them to gain more shares if share prices reach a certain level. This could result in more dilution, which could lead to mismanagement at Grab.

Should you invest?

Despite being Singapore’s largest unicorn, Grab, like many other startups, is still burning cash and isn’t expected to turn EBIDTA positive until 2023, according to Moody’s. Grab’s value has more than doubled to $39.6 Bn, up from $16 Bn in the last round of funding. Grab, on the other side, would have $4.5 Bn in cash on hand.

At more than 3 times its GMV, the company’s valuation leaves very little space for new investors, at least for the time being.

A lot would hinge on Grab’s ability to maintain its remarkable 96% CAGR in net sales over the last three years. The company may lose some of its moats in the long run as a result of legislation, market changes such as customers shifting away from ride-sharing, and competition from other regional players such as Gojek, Urge, and others.

A long way to go

SPAC Mergers are seen as a simple way to avoid the conventional IPO enforcement procedures. Many critics believe that the SPAC merger is used by low-performing companies that have no other way to get listed on the stock exchange. Even though the company has a positive outlook, it is still too rich, driving such a large valuation, encompassing negative returns (EBITDA), and generating negative emotions among many investors.

Grab’s valuation premium will take some time to catch up with the promised cash flows. However, the sheer potential of being in inherently high-growth markets with penetration levels in the single digits and lower double digits, combined with technology-enabled day-to-day services and Fintech solutions for markets with very low banking penetration (only 40% penetration), could eventually propel Grab to emerge from a long list of failed SPAC mergers. For the time being, the valuations are on the verge of becoming a bubble, and they are still pricing in a lot of stuff happening for Grab, making us cautious to dive deep into the Grab SPAC at the moment.

– – – – –

This article has been co-authored by Sargam Palod and Sayan Mitra, who is in the Research and Insights team of Torre Capital. 

The Pre-IPO Startup Equity Market

by tradmin

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“Listing gains are likely to be capped by reputational concerns around an otherwise enviable product stack”

Palantir IPO: Exercise extreme caution, may not be as smooth sailing as other recent tech IPOs

We believe that Palantir might continue to make winning bids for government contracts and maintain/increase its revenue share. However, future growth and share price will be driven by Palantir’s ability to acquire and grow large corporate customers, and not govt. contracts.
Palantir has not seen a single year of profits since inception 17 years ago. It is not clear to us how this situation will change in the coming year.

We firmly believe that their data mining software is industry leading. But we’re not convinced that this alone is enough for widespread corporate consumption.
Palantir has the first-mover advantage to offer specialised, customer-specific, use-case data analytics software. It needs to become price competitive to capture market share.
Given the negative public image and governance concerns, we don’t think Palantir would repeat the success of a Snowflake or Unity. Listing gains maybe limited, long term investors may want to back the company.

The success of Foundry- Palantir’s enterprise SaaS platform will be the primary driver of its growth. However, in the near term, it will be out shadowed by its negative public perception and unethical use of private data. The stock is likely to underperform, atleast compared to more straight forward SaaS companies. Download the report for an in-depth analysis of this tech giant.

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