Grab is set to go public through a SPAC merger with Altimeter Growth Corp., in a deal that values the ride-hailing company at $39.6 billion.

SINGAPORE Investors will be keeping a close eye on when Grab will turn profitable after its record-breaking SPAC listing, according to Tom White, senior research analyst at D.A. Davidson.
“There’s obviously a growing scrutiny from investors about a path to profitability,” White told CNBC’s “Squawk Box Asia” on Wednesday. But there has been a shift in investor sentiment from a singular focus on growth and market share gains to a more balanced approach, he said.
While still focused on breaking even, investorswill likely also give the Southeast Asian ride-hailing firm more leeway to invest in new product categories, said White.
The Grab Holdings Inc. app is displayed on a smartphone in an arranged photograph taken in Singapore, on Friday, Sept. 25, 2020.
Singapore-headquartered Grab announced on Tuesday it will go public through a SPAC merger with Altimeter Growth Corp. a deal set to value the ride-hailing company at $39.6 billion. It was the world’s largest blank-check merger involving special purpose acquisition companies, which are set up to raise money to buy over private companies such as Grab.
Path to profitability
Grab as a whole is still not profitable. It lost $800 million in 2020 on an EBITDA basis and projected a $600 million loss for this year, according to a regulatory filing.
EBITDA a measure of overall financial health for a business stands for earnings before interest, taxes, depreciation and amortization. It is a common earnings metric used by tech companies even though seasoned investors are skeptical about it.
Grab said EBITDA for its transport segment turned positive since the fourth quarter of 2019. Adjusted net revenue last year came in at $1.6 billion and is projected to jump to $4.5 billion in 2023 Grab predicted it might generate $500 million of EBITDA in two years.
“They do have, I think, a nice story to tell when you look at the two core segments,” said White, who also covers other online ride hailing and delivery apps like Uber and DoorDash.
“All their markets in ride sharing are at least EBITDA profitable, so, presumably, not burning cash. Five out of the six markets for food delivery are EBITDA profitable as well,” he said.
“Grab, I think, is going to be given a fair bit of leeway from the market to invest in new adjacencies, new categories, new products, given how well they’ve executed in the two legacy offerings,” White added.
Building up scale
Loss-making is a function of trying to acquire market share, said Sachin Mittal, a senior vice president at Singapore’s DBS Bank. That’s especially so given the current market environment where cheap capital is readily available, and can help companies build scale and lower costs, he added.
“So you have to be that player who kind of gains the market leadership, builds up scale, lowers the cost and ultimately, when the money is not so cheap, that is when you can be profitable instantly because you’ve built that scale,” he told CNBC’s “Street Signs Asia.”
Mittal added that investors may also be attracted enough to pay a premium for Grab’s market dominancein areas like food delivery. Investing in the stock would also expose them to the financial technology scene in Southeast Asia, he said.
One of Grab’s key business is the financial services segment, which includes digital payments, lending, insurance, digital banking and wealth management.
The company has yet to prove its market leadership in fintech unlike in ride-sharing and food delivery and this segment will likely be a high-growth, cash-burning business in the near term, according to Mittal.
“Hence, this whole listing will raise funds and those funds can be deployed towards fintech,” he said.
As part of the SPAC merger, SoftBank-backed Grab will receive about $4.5 billion in cash, which includes $4 billion in a private investment in public equity arrangement, managed by BlackRock, Fidelity, T. Rowe Price, Morgan Stanley’s Counterpoint Global fund and Singapore state investor Temasek.