MUMBAI, Dec 1 (Reuters Breakingviews) – Grab has reason to be optimistic as it speeds towards its debut this week in New York. Southeast Asia’s answer to ride-hailing firm Uber (UBER.N), food delivery giant DoorDash (DASH.N) and financial super-app Paytm wrapped into one has held firm against severe pandemic-induced lockdowns since announcing a $31 billion merger read more with a blank-cheque firm.
At the time of the deal in April, acquirer Altimeter expected adjusted net revenue would grow 44% to reach $2.3 billion in 2021. Guidance was subsequently revised slightly down but if Grab increases fourth-quarter sales by just 15% from the previous three-month period, it will reach the original target. Assuming it does, the merger values its enterprise at 14 times.
Grab’s attraction is its reach in a mobile-first region with a population of 650 million people, half of whom are under the age of 30, and where penetration in ride-hailing, food delivery and more lags China and the United States. But Grab’s sprawl makes it tricky to value and so does the way it reports its sales.
Its adjusted net revenue is a measure which adds back some incentives Grab pays out. On that basis, its heavily subsidised deliveries business accounted for 60% of the company’s top line during the third quarter. Using a more straightforward revenue metric values the whole of Grab at over a stunning 40 times 2021 sales.
Grab certainly deserves a multiple higher than Uber’s five times sales, a valuation weighed down by its stake in China’s embattled Didi (DIDI.N). Grab’s adjusted EBITDA in the third quarter is 12% of its gross merchandise value. Uber’s comparable margin during the period is less than half.
The Singapore-based firm’s ride-hailing advantage might lie in its super-app model: Drivers can toggle between providing various services. That enables them to be better utilised and allows Grab to take more from its driver partners. It also means it is cheaper for Grab to acquire and retain customers. Its backers including SoftBank (9984.T) and Temasek are betting it will replicate that success in newer businesses like food and financial services.
Technology valuations closer to home are also rich: India’s Zomato (ZOMT.NS) trades at some 20 times and $165 billion Sea (SE.N), Southeast Asia’s games-to-online-shopping behemoth listed in New York commands 16 times 2021 revenue, per Refinitiv. Debuting at a time when new Covid-19 variants have made global markets skittish is unfortunate but Grab is on a solid enough road.
– Altimeter Growth Corp, a special-purpose acquisition company, on Nov. 30 said shareholders approved the merger with Singapore-based Grab. The latter’s shares are expected to start trading in New York on Dec. 2.
– The merger, announced on April 13, valued Grab’s equity at $39.6 billion on a post-money basis and the enterprise, including debt, at $31.2 billion.
– Grab, founded in 2012 and backed by SoftBank, offers ride-hailing, digital payments and other mobile services.