Grab down 20% on NASDAQ debut – why I’m still holding on

The moment I heard the news about Grab’s SPAC merger with AGC, I took a nibble. Held throughout negotiations and saw a brief period of gains but I didn’t take profit as I’m in this for the long haul.

They finally debut on Nasdaq on 3rd Dec 2021 after a record $40b deal with Altimeter Growth Corp. And I bought even more on their “IPO” day.

Alas, Grab’s share price fell from the high of ~$15 (at pre-trading) to below $9 at closing, and I’m left with now is the single largest unrealized loss in my portfolio that I had brought upon myself. All in a day’s work.

Am I the only fool here HODL-ing (Hold-On-for-Dear-Life) this stock and what are my reasons for doing so? Let’s explore below.

Grab’s SPAC merger on NASDAQ

I’ve mentioned this in detail when I first covered Grab but do note that the right terminology is actually a SPAC Merger. Here is a quick diagram to summarize their listing process:

3 reasons why am I holding on to a stock that’s down 40%?

1) Everyone knows Grab

I’m sure we can skip the introduction on Grab because everyone knows what Grab does and that is one of the main reasons why I have such high conviction in this company.

Thanks to Covid and multiple lockdowns, even kids and old folks who don’t have handphones know about Grab’s services – they would have hear of their neighbours ordering food in or have seen Grab Riders around their neighbourhood (free marketing).

This is something which is happening not just here but in almost every country that Grab is operating it. I can say this with utmost certainty as in my previous job, I had to travel frequently around Southeast Asia and perhaps the one thing which was most consistent amongst SEA states was that Grab is always there.

If I could sum this part up with a theory, I’d say that what happening here is proof of how Grab has leveraged on the idea of the Network Effect to grow its company. In its most simple definition, the Network Effect is,

The network effect is a phenomenon whereby increased numbers of people or participants improve the value of a good or service.

Investopedia

More information about the network effect is explained in the video below.

2) Market Dominance

Grab is beating the competition. This is a fact.

They are beating the competition not just here in Singapore but all over the world. Most of us here would remember Uber and chances are probably felt an unspoken sense of familiarity with Grab over Uber. This level of familiarity which we have with Grab reflects their understanding of their target market over here in Singapore.

Grab was always “seen as friendlier – as, in some ways, more in tune with the needs of their customers”.

Associate Professor Chu Junhong, from the NUS Business School’s department of Marketing

So this begs the question, will Grab ever achieve a monopoly?

Legally no.

But in every other way, I’m compelled to think that even at present, Grab doesn’t have a strong competitor in Singapore at all considering the wide spectrum of services which they provide.

If we look beyond our shores, this very same ripple effect is also taking place in every other country which they are operating in.

In my personal opinion, it is only a matter of time before Grab emerges as the ultimate victor and if I’m wrong, I’m happy to take my losses home with me.

3) Newly listed stocks tend to face strong selling pressure in early days

Take a quick look at the chart above. It shows the price action of pretty famous company (which changed its name recently) during its IPO back in 2012. Interestingly enough, Facebook (now known as Meta), shaved off almost 50% of its price during its IPO year before embarking on a rally unlike any we’ve ever seen. While Facebook was profitable at the time of IPO, even that wasn’t enough to stop the selling.

In my own experience, there is usually an immense amount of selling pressure during the weeks after a company’s IPO as what we have are shareholders and early investors wanting to cash out after their lock-up period expires.

So why then did I buy prior to Grab’s listing if I suspected that there would be selling on the first day? Quite honestly, I would attribute it to every investor’s weakness and that is himself/herself. Oh yes, I was indeed a little more reckless than usual and now I’m paying for this grave mistake which at the time of writing, the position is actually down 43%.

That said, Grab’s future won’t be smooth. Alvin shared his counter viewpoints in our Ask Dr Wealth FB group earlier:

2 Key Risks

1) Not Profitable Yet

As an investor, I will be holding on to this stock for at least the next 3 to 5 years as I believe that the company is far from achieving its full potential.

In my opinion, I believe that I have done my due diligence in ensuring that I’ve thoroughly looked at the factors which support their growth in the future. However, as with all investments, my position in Grab does carry with it more risk than I’d normally have the appetite for as to date, Grab has not achieved profitability.

In fact, their fundamentals leading up to this recent listing were actually far more disappointing than I thought. A brief summary,

• Net loss of US$988 million (S$1.34 billion) for the July-September quarter, 59 per cent more than the year-ago loss of US$621 million.
• Total revenue for the third quarter fell 9 per cent to US$157 million, from US$172 million a year earlier.
• The company’s adjusted loss before interest, taxes, depreciation and amortisation widened 66 per cent to US$212 million in the third quarter.

2) Impact of Omicron weighs on investors’ minds

Q3 was a really bad quarter for Grab and with Omicron lurking, its hard to find any possibility of a “major recovery for the ride-hailing business in the fourth quarter, especially in Indonesia, Malaysia and Vietnam” as mentioned by Chief executive Anthony Tan during an investor webcast. Furthermore with the recent outage which affected their app for about 2-3 days, it is highly unlikely that Q4 would be an improvement.

Apart from their fundamentals, there are also other risks involved in the Legal & Socio-cultural microenvironment which Grab operates in which I’d explained here.

Concluding Thoughts

Overall, I am optimistic about Grab’s growth and I am truly excited to be “involved” in it as an investor and consumer. Though not mentioned in the article, Grab also has many projects in the pipeline such as their digital bank license and their venture into autonomous robo-taxis. Furthermore, with many major institutional players in the game such as Morgan Stanley, BlackRock, Temasek Holdings, Fidelity, Altimeter, and T. Rowe Price, I can’t help but feel that they would surely have done executed their due diligence on a much deeper level than myself.

Looking back at my entry points, I must admit that I have indeed made a grave mistake by being a little too gutsy. Fortunately for me, my initial 2 entry points were really small positions so there will come a time where I will be doubling down if the stock touches the psychological price point of say $5.