Shares of ride-hailing firm Grab dropped 21% on its first day of trading on the New York Stock Exchange, marking the biggest Wall Street debut by a Southeast Asian company. The drop comes despite Grab having raised more than US$4 billion in private funding leading up to its listing, valuing the company at US$35 billion and making it the region’s most valuable “unicorn” startup, or technology company with a valuation over US$1 billion.
Grab’s market debut is a key indicator of investor sentiment towards companies in growth markets like Southeast Asia, which have surged due to their economies of scale and growth prospects relative to their developed counterparts. As such, the dramatic drop in share price signals a cautionary note regarding long-term optimism for tech investments from the region.
Analysts have attributed this discrepancy largely to uncertainties caused by a macroeconomic downturn. Many countries face slower gross domestic product (GDP) growth due to political uncertainty and rising trade tensions. There are also specific worries about Grab, such as slowing revenue growth and tougher competition from similar companies like Gojek.
Overview of Grab
Grab is a Singapore-based ride-hailing and food delivery company, widely known as Southeast Asia’s first “unicorn”. It is the biggest Southeast Asian company to make its Wall Street debut and its share price plunged 21% in its first trading day.
Let’s look at what propelled Grab to this remarkable milestone and what made the market respond with a sharp drop in its share price.
Company Background
Grab is a Singapore-based technology company that offers various services, including transport, food delivery, payments, and financial services. Founded in 2012 by Anthony Tan and Tan Hooi Ling, Grab is Southeast Asia’s largest ride-hailing company with operations across eight countries.
As of Sept 2020, the company has over 200 million users and over 5 million drivers. It also provides GrabPay Mobile Wallet service in Singapore, Thailand and Myanmar, enabling users to pay without cash or cards. The app also showcases a wide range of offerings from GrabFood to promote local merchants.
Grab has grown into the region’s leading mobile on-demand service platform by providing ride hailing for cars; bikes; tuktuk services; freight forwarding services; grocery delivery and payment solutions in South East Asia (SEA). It recently acquired Uber’s SEA operations after six years of competing against each other.
Recent IPO
On March 27th, 2021, Southeast Asian ridesharing and delivery giant Grab Holdings Inc, completed its initial public offering on the New York Stock Exchange. However, Grab’s IPO received a cold reception. The shares fell 21 percent in its first trading session, as investors adopted a “wait-and-see” approach instead of piling into the company’s stock.
Grab had priced its public listing at US$36 a share, at the lower end of its expected range of US$34 to US$40. This represented an implied valuation for Grab of about US$35 billion, making it one of the region’s largest tech startups.
The IPO is noteworthy because it marks the largest Tech IPO debut by a Southeast Asian company on Wall Street. It was oversubscribed nine times and raised over US$2 billion in proceeds, with Singaporean state investor Temasek Holdings taking up part of that figure. At the same time, Softbank Group Corp sold most of its stake in Grab during the listing process.
It is also significant because it comes on the heels of two other IPOs from Southeast Asian technology companies: Sea Ltd’s listing in 2017 and Razer Inc’s offering back in November 2020. Both stocks have seen strong gains since their debut on public exchanges: Sea Limited has more than doubled; Razer Inc has quadrupled since November 2020. The performance (or lack thereof) from Grab thus stands out as something unique from otherwise stellar showings from other players from within the technology industries present within Southeast Asia.
Grab plunges 21% in biggest Wall Street debut by a Southeast Asian company
Grab, the ride-hailing giant from Southeast Asia, plunged 21% in its biggest Wall Street debut ever for a Southeast Asian company. Market analysts were expecting a higher price, especially in light of the strong performance of its competitor, Gojek, which had a successful IPO in July.
There could be various reasons behind the plunge of Grab’s stock and this article will provide an in-depth overview of why Grab’s IPO didn’t perform as expected.
Ride-Hailing Competition
Grab Holdings Inc.’s meteoric debut on the public markets has been overshadowed by heightened competition in the ride-hailing sector, a crucial market for the company.
The Southeast Asian startup had initially surged as much as 30% following its Nasdaq debut but quickly reversed course, plunging by as much as 21%. The wild movements have been attributed to investors’ worries about intense competition from rivals such as Indonesia’s Gojek and India’s Ola, which are aggressively expanding into other Southeast Asian countries where Grab has traditionally held a monopoly.
Competition has already taken a toll on Grab’s market position outside Singapore. For example, analysts report that its share of ride-hailing bookings in Singapore’s neighbour Malaysia had dropped from 73% in 2019 to 53% last year. This can be attributed to an increasingly fleshed out partnership between Gojek and local ride-hailing firm Dacsee, which threatens Grab’s current 65-35% market share of ride bookings in Malaysia.
Despite these issues, Grab CEO Anthony Tan is confident that these initial bumps will not prove fatal to their long-term goals — “We remain enormously proud of our achievements since launching eight years ago,” he said in an open letter to shareholders.
Regulatory Uncertainty
Grab, a ride-hailing giant in Southeast Asia, had its stock sink 21% on its first day of trading on the public markets. The sharp decline comes despite a successful Initial Public Offering (IPO), pegging its market capitalization at over $36 billion. It was the biggest debut for a tech company this year and the largest IPO by a Southeast Asian company ever.
Many have attributed the plunge to lingering regulatory uncertainty surrounding Grab, with lawsuits from local competitors being among the primary concerns for potential investors. Grab’s legal woes stem from allegations that it has been abusing its market dominant position due to ‘unfair practices’ such as predatory pricing and exclusivity clauses. Recent reports claim that government agencies in Indonesia and The Philippines are looking into these allegations and could impose hefty fines or even revoke Grab’s operating licence if they find them true.
These threats and rising competition suggest that investors may be unwilling or too cautious to risk their money in such a volatile stock as these issues remain unresolved.
Weaker-than-expected Earnings
Weaker-than-expected earnings were cited as the main reason for Grab’s 21% plunge on Wall Street, which the company had previously anticipated topping out at $88 per share. However, according to analyses by several financial and technology firms, Grab’s quarterly earnings have been hitting record numbers over the past year and estimates predicted they would gain solid returns from their inaugural stock offering.
Despite analysts’ forecasts of a $90/share IPO price, Grab ended up pricing its offering of 185 million shares—valued at $80 per share—as uncertainty about ongoing US-China trade negotiations continues to unsettle investors. With an estimated value of nearly US$40 billion, Grab notably became Southeast Asia’s largest tech firm in market capitalization and revenue.
The disappointing start was likely partly influenced by Uber’s stock dip on its first trading day earlier this year. Nevertheless, the experience undoubtedly serves as a reminder that even tech startups with strong business strategy and high investor confidence can face greater volatility than expected when trading in volatile markets – putting further pressure on venture capitalists to temper their enthusiasm if future offerings show signs of cooling down amidst geopolitical shifts.
Impact of the Plunge
The impact of the 21% plunge of Grab in the biggest Wall Street debut by a Southeast Asian company is still being felt. Both investors and analysts are scrambling to make sense of this erratic display of the stock market.
To get the best perspective, let’s explore the factors that led to the plunge and analyse the implications for the Southeast Asian economy.
Impact on Grab
The 21% drop in Grab’s stock on its first day of trading paints a lacklustre picture of investors’ sentiment towards the ride-hailing giant’s initial public offering as it raises $2.5 billion. Analysts see the plunge as a warning sign of potential headwinds ahead and concern that the company’s expansion plans may not be able to produce sufficient returns to reward shareholders.
The sharp drop starkly contrasts other headline IPO events this year, such as Coinbase and Doordash, which doubled in value on their first day of trading. In addition, the underwhelming debut of Grab, Southeast Asia’s market leader, is likely to negatively affect the entire region, making it more difficult for other tech companies to raise money this year.
For Grab itself, the stock plunge could signal reduced reward for its risk taking investments into new areas such as financial technology and food delivery which could hurt future results if those initiatives don’t pay off quickly enough. It also increases investor uncertainty surrounding regulatory setbacks and further competition from rival Uber Technologies who intends to launch its Southeast Asia service soon.
Overall, while Grab still has solid long-term prospects, investors will remain cautious until they can better gauge how successful Grab’s new strategies are – whether they can entice enough customers with improved services and monetize them efficiently without running up significant losses in the process. This week’s events make it clear that Grab’s failure in doing so would eventually lead to more short-term volatility around its stock price in coming days/weeks/months.
Impact on Southeast Asian Companies
The 21% plunge in Grab’s stock price on its first day of trading in the US highlights the uncertainty and risk inherent in initial public offerings. The likely cause of such a large drop was Grab’s lack of profitable operations. Having insignificant revenue and a high amount of debt with sizable accumulated losses, it is evident that much caution has to be taken by investors regarding tech startups and their IPOs.
The dramatic plunge so early during Grab’s first day of trading makes it a cautionary tale for other Southeast Asian companies hoping to seek listings on Wall Street. Moreover, the unexpected turn may make some companies rethink the timing or size of their offerings and enact more conservative strategies when raising capital from public markets.
At the same time, this could also show potential investors that risk is still an uncompromising factor when attempting to acquire substantial returns from technology stocks. The challenge for Asian firms now is understanding how best to respond to ensure that further losses are avoided and investors can eventually gain confidence after Grab’s stark debut.