Even though this delivery company is 50% smaller, don’t grab it yet

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Grab Holdings (NASDAQ:GRAB) is a delivery, e-commerce and fintech company focused on the various markets of Southeast Asia. The company came to light through a special purchasing company (SPAC). Specifically, it recently merged with an SPAC called Altimeter Growth Corp. and changed its label symbol to “GRAB”.

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GRAB shares have not yet reached the most favorable start. Actually, me warned readers o Grab’s horrific financial performance in November. That was when the company was still trading under the name Altimeter, and the shares changed hands for about $ 14. In just two months, the stock fell 50%. After such a big drop, let’s see if the situation will look a little more interesting.

Oversupply is a big problem

Clearly, there are simply too many delivery companies chasing the same potential customers. There would probably be nothing wrong with their business models if there was much less competition in the sector.

However, because there are seemingly 1 million companies trying to do the same thing, labor costs are high and prices are low. If you own a restaurant, there are at least half a dozen different companies that can handle your orders. In this environment, the part of the bill that goes to each delivery company will be relatively low.

In addition, labor shortages are becoming a major problem for the sector. This applies to the economy in general and lower paid positions in particular, such as shared and delivery drivers.

The hornbeam could be interesting if it survives long enough

Recently, there was interesting news for Asian companies for rideshare. European space player, Delivery hero, is withdrawing from the Japanese market. Delivery Hero operated there under the Foodpanda brand. However, the company announced that it is exit from Japan this year, he cites a shortage of delivery drivers and growing competition as the main reasons for leaving.

Now Japan has not been and is not a key market for Grab. The company focuses mainly on the markets of Southeast Asia, such as Thailand. However, Grab still tested itself in the Japanese market in 2019 and could eventually enter it more aggressively. More broadly, delivery companies are beginning to respond more to their strong competition and low profit margins, rather than focusing on growth at any cost.

More delivery companies need to follow the example of Delivery Hero and start withdrawing from peripheral markets. Everyone in the industry is bleeding because companies like it Softbank simply invest too much capital in hunting for relatively small regional markets. If Grab, for example, has a 50% market share in Singapore or another country, it would probably make money there. But as long as a multitude of different companies are fighting for every customer and restaurant, the situation is win-win.

Grab’s assessment is still too rich

Investors might be tempted by the fact that the price of Grab’s stock is just over $ 6, and they think the deal is starting. However, don’t be fooled by the low share price; it is still an extremely expensive stock.

Grab has a market capitalization of $ 22.8 billion, thanks to a large number of outstanding shares. That’s a huge number for a company with less than $ 1 billion in annual revenue. Meanwhile, its revenues in the third quarter actually fell compared to the same period a year earlier. Even if his business was profitable and not, the selling multiple of the stock is terribly steep.

In addition, the incentives he gives to his drivers and customers together are roughly equal to all of his revenue. Without incentives, most of her business would probably disappear. In short, investors are paying a high price for a small business with horrific profitability measurements.

Judgment on GRAB stock

Grab has some of the worst financial results of all the companies I’ve reviewed in the last year. In the current climate, that says something. Even in the midst of a market full of vicious offers from SPAC, electric vehicles (EVs) and penny stocks, Grab impressed me with his ability to consume investor capital very quickly.

The hornbeam creates huge losses. Given the massacre we saw among SPAC shares, expect little mercy on Grab shares in the coming weeks and months.

At the date of publication, Ian Bezek did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are the subject of InvestorPlace.com Guidelines for publication.

Ian Bezek has written more than 1000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a junior analyst for Kerrisdale Capital, a large hedge fund based in New York City. You can reach him on Twitter at @irbezek.

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