Grab tumbles 33% on Nasdaq debut day, fails to sustain initial surge

Sharanya Pillai

Published Thu, Dec 2, 2021 · 10:48 PM

SHARES of Grab lost over a third of their value on the first day of trading on the Nasdaq, plunging under the crucial US$10 mark. This came after the stock briefly surged 18 per cent at market open on Thursday (Dec 2).

Grab ended the day at US$8.75, down 33 per cent from its US$13.06 opening price. Shares of the blank-cheque company Grab had merged with, Altimeter Growth Corp, had closed the previous day at US$11.01. As with other blank-cheque companies, Altimeter itself had gone public at the US$10 mark, which Grab is now significantly below.

Grab’s early share price slump comes as market observers have been split over the company’s prospects -- some laud the regional reach of the company, others are wary of its high cash burn.

Ahead of the listing, the mood at Grab’s bell-ringing ceremony was one of exuberance. Seated in rows spaced a metre apart, some 200 Grab employees and supporters filled the air with the thunderous 'applause' - made with plastic clappers. This is the first time Nasdaq has hosted a bell-ringing ceremony in South-east Asia.

Addressing the crowd ahead of the market open, Grab chief Anthony Tan said with a quavering voice: “Today, we shine a spotlight on South-east Asia and how tech companies are powering new possibilities for the region’s 660 million people.”

Co-founder Tan Hooi Ling said that it is “still very much Day 1” for Grab, and that the company would stay committed to South-east Asia.

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Some watchers were positive ahead of the listing, which raised US$4.5 billion and removes Grab’s 2023 refinancing risk. This makes Grab’s capital structure more sustainable, said S&P Global Ratings in a Dec 1 note. The agency has a B- rating on the company.

S&P believes that with business improvement and growth strategies, Grab can achieve positive operating cash flows by 2023. It added that Grab’s listing will provide a wider buffer against the company’s cash burn.

Analyst Brian Freitas, who publishes on Smartkarma, sees Grab as “easily meeting the threshold” for inclusion in the MSCI Singapore Index, at an estimated weight of 1.92 per cent. The earliest that it could be eligible for inclusion will be at the May index review.

But the near-term outlook is gloomy. Said S&P: “We continue to expect Grab’s credit profile to be constrained by a lack of track record in generating positive free cash flows and sustaining profitable operations. This is because the company continues to be loss-making.”

Some observers are more bearish. Analyst Shifara Samsudeen of LightStream Research recommends against investing in Grab, as potential earnings “do not justify its hefty valuations”.

For Q3 ended September, revenue dropped 9 per cent to US$157 million, as pandemic curbs across South-east Asia - especially in Vietnam - throttled the ride-hailing segment.

Grab is likely to continue being hit by movement restrictions in Q4, as Vietnam continues to struggle with Covid-19, even as the Philippines sees a resurgence, said Shifara, who publishes on Smartkarma. Restrictions to contain the Omicron variant could also impact Grab’s earnings in the first half of next year.

She added: “(Grab) may not be able to actually achieve profits as per its original plan to hit positive Ebitda in 2023, making it another Uber which has not yet seen any profits despite having operations globally.”

Aequitas Research is likewise cautious. In a Dec 2 report, head of research Sumeet Singh flagged that while deliveries are a key growth engine for Grab, the company spent considerable incentives for that segment in Q3.

“It appears to have ramped up both partner and consumer incentives in FY2021, probably to make sure that its sole rocket doesn’t sputter,” he said.

Singh believes that the valuation multiples that Grab currently commands shouldn’t be above its peers as well.

He also thinks that there is likely to be a lot of stock “waiting in the wings” once the lock-up period for certain shareholders comes off. Post-listing, Grab’s major shareholders will include SoftBank and Uber.

“SoftBank has already been selling its stake in Uber and even Doordash; Grab is unlikely to be an exception for the group either,” said Singh.

“Uber too has already sold some stake in Didi and it’s probably likely to do the same with its Grab stake, as it has been working towards cleaning its own house.”

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