Chit Chat Stocks - Grab (GRAB) | Deep Dive

Episode Date: May 9, 2021

Grab is a southeast Asian super-app. The company will go public via a SPAC whose current ticker is AGC. Grab offers ride-hailing, mobile payments, food delivery, shopping, and even investing. Grab is attempting to let users have access to everything on their phones. Listen in as Ian, Brett, and Ryan dive into what the company does and how it may grow from here. As always enjoy the show! Subscribe to Potential Multibaggers: https://seekingalpha.com/checkout?service_id=mp_1308 Follow Ian and check out his work on Twitter: https://twitter.com/IanGrayLive Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Youtube Channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Email us: [e-mail] Timestamps Company Background | (2:43) Industry | (6:09) Management & Ownership | (7:32) Valuation | (9:50) Earnings | (11:03) Balance Sheet | (13:06) Our Analysis | (14:48) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. This is the Sunday Deep Dive episode. Typically, we have Brad Freeman on, but he is out this week, should be back next week. And we got our fill-in, Ian,

doing double time this week. So, Ian, thank you for coming on the show and taking the time. How are you doing? We're right in the hard burning season. How are the companies, you know what are you what are you feeling out there it's uh it's an interesting time in the market you know there's there's some companies that are reporting some pretty good earnings but as we've been talking about for months now valuations are so stretched that sometimes it doesn't even matter what a company reports it just it's it's time for a little haircut so and at any time to get double double the time with you guys is is a great week for me so all right we'll take we'll take that uh we'll take that to heart um yeah it's it's it's big uh great

quarter stock down by more time at times well that's what the tweets are telling me uh there's a lot of chaos out there uh some of the high growth stocks are going a little bit crazy but today we're going to be talking about a spec from altimeter and it is a super app from asia uh called grab southeast asia i guess uh but before we do that we're going to talk about our friends at potential multi-baggers. The aim of potential multi-baggers is to find stocks that can go 10x over the next 10 years or compound at 26% per year. Potential multi-baggers, which is run by our friend Chris at From Growth to Value. You probably know him on Twitter or on Seeking Alpha. He has picked Shopify at $77 a share, Seed Limited at $54 a share, Okta at $64 a share,

Roku at $113 a share. The list goes on and on. I don't need to say anything else. There's a great community that they have around there where you can discuss in the comments section. Chris is always interacting with people, giving updates on the picks, making sure that you know what you're doing

if you're trying to invest in high growth companies. If you want to become a multi, you can go on Seeking Alpha and look up FromGrowthToValue, Google it or go to at FromValue on Twitter. All right, enough of that. Ryan, do you want to introduce Grav? Yeah. So as you kind of mentioned there, Grab is a Southeast Asian super app. And so there

really aren't any comparables in the US. I guess you could make a case that Cash App kind of does some of this stuff. But they offer rides, which is sort of their like Uber type of product. They have Grab Pay, which is kind of like an Apple Pay, but it's also a point of sale. So it's not just like digital uh it's not like just remote payments it's also like you can put your phone up to whatever the point of sale system is and pay there's food delivery they're shopping bill payment uh there's even investing um there might be a peer-to-peer payments element i saw that on a youtube video that was kind of like it was it was kind of a funny youtube video they like go through this guy's day and he uses grab for everything oh yeah they haven't taken two ride

like ubers you know they have the uber things well they haven't taken two of those each day i'm like And, uh, but the, the ride service, there's also like shuttles and trains that are like grab shuttles or whatever. So it's not just like cars. Um, and then the idea is basically that customers no longer need a wallet. They just go out there with their phone and they've got grab on there and they can do whatever they need. Uh, but on the driver's side, they have a bit of a super app as well, and they treat them more like employees. So there are full-time grab drivers and there's part-time grab drivers. Um, but they offer driver insurance. They've got savings goals. schedules. And then they also have like grab driver centers. And you can like sit down with

a representative and they can take you through like your earnings and like insurance programs and anything else that they have. But they operate in Singapore, Malaysia, Philippines, Vietnam, Thailand, and Indonesia. So that's basically their geographic market. And then they've got, as far as history goes, the company was actually born out of the Harvard business competition by Anthony Tan and Hui Ling Tan in 2011. The two are not related. So just kind of a coincidence there. But Anthony Tan actually comes from a pretty wealthy family. So they operate Tanchong Motors, which is the leading Nissan franchise seller in Southeast Asia. They're actually publicly listed in Malaysia. So he kind of came from money, I guess. And then him and Hui

Ling met at Harvard. They were both from Asia and they said that friends were complaining about how hard it was to get a taxi in Malaysia. However, Uber was founded in 2009. So I feel like they were just seeing Uber's success and just like, let's just do the same thing over there, whatever. But they won second place at their business plan competition. They received a $25,000 grant. Winning the competition also caught the attention of several Asian investors. And that's sort of they got their funding about 10 years later him uh by him i mean anthony tan and brad gersner connected and so they both went to harvard so they kind of had that background in common and they decided to come take the company public via spac um that or they've announced the merger now

and brad gersner if you're not familiar is the sponsor he's the founder of altimeter which alt agc is sort of the ticker it's altimeter growth corp he's the founder of that sponsor yeah they're kind of a growth investing fund they took public uh snowflake or their lead investor in snowflake something like that they were private private for that yeah for snowflake and then they they invested in roblox before the ipr started the direct listing as well but i'll hit industry and landscape here for grabs in southeast asia just give a reference for anyone doesn't know the overview of the uh region has a population of about 670 million people they see from grab themselves about a 52 billion dollar total addressable market that is rapidly expanding

again seeing the addressable market stuff always take it with a grain of salt really not that important but i i think it's a good reference here um outside of singapore though gdp per capita in the region is typically very low i think it's about 14 000 a year maybe 20 000 to some of the richer countries um and the difference between and i kind of came up with this because we covered Jumia this week as well. So I guess interesting timing. So the difference between like Africa and Southeast Asia, a huge difference is the average age of the population. A lot of the countries have an average age of around 30. But in Africa, it's around 20. So different demographics there. Southeast Asia has about 400 million internet users and about $100 billion

in annual digital spend. So really not that much spend compared to the Western markets or the East Asian markets. And that's projected to triple within five years, which seems very reasonable. And you have to remember when looking at this, though, that there are differences between each market, too. So there's a big difference between Singapore, Indonesia, Malaysia, Thailand. They all have their unique economic, you know, whatever's going on in the region. But Ian, do you want to hit management and ownership? Yep. As Ryan mentioned, Anthony Tan and Hui Ling Tan are the co-founders. Anthony Tan is the CEO now, whereas Hui Ling Tan is the COO.

As Ryan mentioned, they met at Harvard Business School and had that interesting story about the pitch competition. One other interesting note about them is Hui Ling Tan, the COO, had a slightly different path to the company. So following Harvard Business School, she had to go work at McKinsey for a year. It was part of like an education agreement with them that she that they would like cover her education if she came back to work for them because she was previously working for McKinsey. And so she had to go back and work there for a year. And then she joined Salesforce for a couple of years. She didn't go full time at Grab until 2015. But apparently they welcomed her back. We're happy to kind of have her full time with the team. She owns a little under 1% of the company. And so not as much as Anthony Tan, who post merger will own about 2.2%. When it was announced, this was the world's largest SPAC acquisition. And I think still to date, there hasn't been any larger SPAC acquisition in taking a company public through a SPAC. One other note, SoftBank has been involved.

They're going to receive about a $4.5 billion cash payout from this agreement. I know there's probably some varying opinions by different people about what SoftBank involvement means. um they're going to continue to remain a fairly major shareholder owning about 18.6 percent of the company post um this merger um uber owns about 14.3 post merger dd um owns seven and a half percent and then toyota actually owns about six percent of the company post you rarely see those or i see toyota i'm kind of surprised to see that that's weird all these ride sharing companies seem to have invested in each other in like every company except for lyft and uber who are just kind of big competitors they all seem to invest right between ride sharing lidar companies

other autonomous vehicle companies everybody owns a piece of everything basically so it's it's always interesting to see the exact breakdown but um definitely another situation like that here yeah i'll hit a valuation quick it's a bit different because we're not getting that audited financials yet. We'll kind of see later, but the ticker of the SPAC is AGC. Ticker will be grab post-merger. So G-R-A-B. Equity value is estimated to be about $39.5 billion. It's higher based on the SPAC price, which is around $12, a little less than $12 right now. So typically that's based on a $10 per share value, which is what they'll convert at. So if you're buying the SPAC at a bit of a premium, just know you're buying at a bit of a higher valuation. It kind

goes up when you're looking at that. Price to sales would be about 25. If you see the GMB numbers, they're predicting about a 13% take rate once they get to scale. I think they're pretty close to that right now. So they count a lot of the GMB numbers in the growth. You can kind of get an indication of what future revenue could be. They also got future revenue too. But yeah, price to sales, pretty expensive, 25 right now. And then any profit multiple that I would have seen in their investor presentation would either be negative or extremely high. I mean, they have like a contribution profit number that was basically break even. So that's not really relevant right now. Just know that they have a lot of money and I'm sure it'll be down to the

balance sheet and they're trying to rapidly invest for growth. And that really transitions right over to Ryan. You want to talk about earnings? Yeah, they had 12 and a half billion in gross merchandise volume for 2020. That was up only about two and a half percent. So it sounds like they're growing kind of slow, but you have to remember that even though this is sort of a tech-driven business, a lot of their business is still done in person. So whether it's rides or like point of sales payments, like with GrabPay, it still requires people kind of going out and doesn't really operate that well in a social distanced environment. So 2020 kind of had a hit for them, but their adjusted net revenue was 1.6 billion, which was actually up 60% year over

year. So revenue as a percentage of gross merchandise volume went from 8% to 13%. And I'll kind of talk about why I think that was, but I guess that's good to see. It shows that they can kind of get a higher percentage of that volume, but then contribution margin was 7% in 2020. Obviously that doesn't sound very high, but it was up from negative 118% the year before. And so you're going to see like just really, really lumpy results because before this, I mean, it was really a business. And even now it's a business that's driven by how much cash are they getting from financing and can they pour that into investments and then sort of reap the benefits later on. So when you've got SoftBank as a backer, that seems to be kind

of the game plan you go after. But their EBITDA margins were negative 52% for the year, which I think equates to like an $800 million EBITDA loss. But then they had a $2.7 billion net loss. They had negative $800 million in operating cash flow. So big cash burn there, but there's obviously a lot of liquidity, which we'll talk about. And then as far as non-financial results go, they had 25 million transacting customers, 5 million registered driver partners, and then 2 million merchant partners. So remember, there's also the merchant side. So there's that shopping feature and the grab pay stuff. So they kind of have, I guess, a multi-sided marketplace. Obviously, there's a lot of stakeholders given a super app. So that's

pretty much all for earnings and you want to hit balance sheet? As far as the balance sheet goes, they've got about $3.4 billion in cash pre-SPAC. Looks like from what I'm reading that it's going to be somewhere in the neighborhood of $4 billion in cash that they're receiving from this SPAC. And so they'll be in the neighborhood of somewhere between seven and seven and a half billion post SPAC would be my guess, but definitely we're going to keep harping on this, but definitely something that you're going to want to take a look at this company once we get audited financials to see exactly where all these numbers come out. They've got about $200 million in what I would consider like true debt, and then $11 billion in convertible notes, which, again, can't find the

exact information on what those convertibles look like. But I would expect, you should expect some probably fairly heavy dilution with those convertibles. And so, again, like I said, you're going to want to take a look at these audited financials once they come out, but a lot of convertible notes. Yeah. And I'd also add before we hit the break that if you're looking this company up, there isn't one central place to find all the information. It's broken into a bunch of different investor slides. So just look up AGC filings and you'll hit the SEC page. And then there's all these different investor sites that you have to go through. Very pretty graphs, but nothing really consolidated into one page.

Yeah. I think the key thing to think about with the... I think the two things you got to think about with Grab is that they've raised a lot of money, I think over $10 billion, and they are also burning a lot of money. That's, you know, that's really it. And it's all through equity financing and no debt. But I think that's going to cover it for the first half. Let's take a quick break, and we'll get to the second half of the show. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real-time alerts. Oh, like this one so you don't have to worry about malware or when your kid downloads a song from a shady link and now all your computer can play is red color red color where are you

all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply okay next up we are going to be talking about product experience. It looks like Ian and I don't have anything, but Ryan, what'd you find? Yeah. Did some Reddit thread digging, which that's where most investors get their alpha, if you don't know. But there was basically someone asked like, what's it like to be a full-time driver for Grab? And there were some less, there were some not so great comments, I'd say. So apparently starting in about 2019, they started to remove some of the incentives. they started to peel back, uh, sort of the promotions for the drivers, like the full-time

drivers. Um, and that's also the time when they turned EBITDA profitable. So I kind of find that interesting and on ride sharing, not in general, right on the ride sharing part. Um, and so a lot of people were like, it's better to just do part-time driving because then you can just go whenever the incentives are high, because if you're not familiar with the ride sharing, the right the driving side there's like peak hours or whatever so you get like twice the whatever take rate or something or new year's eve a lot right and so there's uh i guess they said they started to peel them back for the full-time drivers uh i guess just something to pay attention to i want to over they classify the full-time drivers as employees i want to overthink how

great that is like it's not like these are phenomenal jobs it's still a lot like uber driving you're kind of like the payments aren't that good yeah and then one thing i also say is that in their presentations they tout adjusted revenue i had a hard time figuring out what true revenue was uh but i know that one of their adjustments are these uh driver incentives and rider incentives so again when you're looking at that once we get audited financials we're going to see how much of like the revenue is driven by all these incentives they're giving these 10 off or whatever yeah and i'll also add like if you're thinking of it as like the super app who cares about the rides part the rides is still prime i'd say probably one of the more

prominent parts of the business um there is all these different little features that go along with it but i think rides and grab pay those are like really the big ones yeah all right competitive advantages is up next and what do you have i've got a competitive advantage that's really true of all super apps it's for grab um they tout a 79 one-year retention rate if they can get users to use more than three services and that's kind of the allure of these super apps is hey we can get people on here once they're doing lots of stuff on it if they're using it every day for different aspects of their life we're going to be able to monetize through many different avenues and get a lot out of these users and so um it one this isn't a competitive advantage that

helps them against other super apps necessarily but um it is something that it's it's kind of the allure of super apps in general and so like i said 79 one-year retention rate if they can get users to use more than three services and they seem to have enough compelling services to achieve that retention with the goods um with a significant amount of their users yeah the and this is another one where even though it's a large company against like jimmy and we were trying to identify future things i mean the competitive advantage is right now it's probably either pretty weak or non-existent maybe i don't know what maybe ryan has some other point but i would ask you do you think 79 is a good number because when i see that i think 21 sure that's a good question i i look at that and

yeah there's a there is a significant amount of churn but some 79 retention should be enough if they can continue to monetize and continue to raise that average revenue per user and add new services. And I'm going to get into this later, but with some of their cohort analysis, they're finding that people are spending more and more the longer they're on. And so to me, that's the more important number. As long as they maintain a reasonable retention rate, I think the numbers start looking good. And it's just, I think this is a competitive enough space where some churn is to be expected yeah that cohort analysis is good i would also yeah it feels like the type of app where it can be either like core to your day-to-day life or you can rarely use it like

i'm not an i'm not like a daily customer on uber but there might be people that are uh i think the same thing kind of applies like i think it partially depends where you live and whether or not it's like applicable for you but my competitive advantage i guess is the stickiness of the mobile wallet so and this is more a theoretical competitive advantage because i don't actually have any numbers on it but once you get locked in and you've got money on uh sort of in this mobile wallet and you're using grab pay on a regular basis and then you're receiving uh kickbacks or rewards benefits that kind of thing i feel like it's tough to switch and i mean if you're in a low churn environment and you're kind of the first mover uh that's that

or at least the first one to the market i think it's a good spot to be in brett you're probably kind of used to this with the cash app um i mean once you start to kind of reap those benefits and you've got money you've gotten used to it i feel like it's really easy to keep using it uh yeah i mean cash up has really good incentives uh they give me some dumb 10 back in bitcoin things that i just sell every time so i get like three bucks in bitcoin and sell it's like it's an amazing cashback program i think they're hemorrhaging money on that but uh it's i mean yeah i'm locked in pretty good service uh i mean if grab can replicate cash out yeah i mean that that product team has just executed phenomenally over the last five years if they can if they can replicate some

of that magic uh they'll be doing just fine all right what's your uh competitive advantage yeah so this isn't i wouldn't say this is not a competitive advantage but one thing i think people should consider is that most companies ignore the southeast asian market except uber who at a time when you i think you read the uber book they were trying to for some reason go it's every market in the entire world uh which was they obviously pulled that back and uh i don't know if you hit this ryan but uber like did a deal with grab to leave the southeast asian market something like that i forget the details on it but they did that in 2018 so theoretically grab has minimal competition especially from these western players you see a lot of the western

competition focusing on india it seems like there's a ton of attention to india amazon's go on there and Spotify, Netflix, Walmart, et cetera. So this could give them time to build out some sort of competitive advantage, but right now it's kind of tough to see, it might give them a room to, you know, invest with a good ROI less competition right now. But besides that, I mean, maybe the financial services thing, but, and it's kind of an engine might be lacking with this

company right now. Yeah. Great. All right. Future growth opportunities, Ian, what do you have? This one's a bit of a boring one, but I think it's the major growth opportunity for grab is just riding the secular wave. Um, a few numbers on that. They've got 11% penetration, sorry, they don't, but there's 11%, um, general market penetration of online food purchasing compared to China's 21%,

um, 3%, uh, penetration with ride hailing versus 15% in China, 17% of, um, transactions are made online versus 43% in China. So lots of growth if Southeast Asia is really going to follow China's kind of secular trends. But it'll depend on how the economies of these countries really grow over the next couple of years and whether they do follow China's trend towards more and more online purchases. If they do, and if Grab continues to be a major player in that, there should be plenty of growth in those growing markets to grow. But it's a little bit of a TAM argument and not necessarily an argument based on the operational efficiency and execution of DRAP.

They are the leading provider, I think, in ride-hailing mobile wallet or ePay in their markets. So I guess, yeah, the growth of the market as a whole is going to help them. Yeah, and I guess I forgot to really hit competitors pretty deeply. But the big competitor, I think a lot of people know, is C-Limited. So I'd watch out what they have. They compete on the mobile wallet, I believe. I'm not an expert on either of these companies, but yeah, definitely watch out with Sea Limited Stone. That's the other big player, I think, in the Southeast Asian market. But it's really hard

to identify the local competitors compared to the United States where we live. But Ryan, you want to talk about your future growth opportunity? Yeah, I've got Grab ads. So this is sort of the part where restaurants and local merchants can advertise to get more customers through the Grab platform. So if you're shopping or you're looking for food, you can kind of promote yourself if you're a restaurant or sort of that kind of merchant. Um, it seems like a smart idea, especially if there's 25 million active customers using this app. Um, it's a way for them to kind of,

it's a way to just help the merchant side and get more money from them. So, um, yeah, I think that's just a good area to go about it. Uh, probably better margins than ride hailing and food delivery. So yeah. and help that as well i would my other growth opportunity was going to be to uh kill the grab bikes um because that's a segment of their business and i hate those oh is that like line bikes yeah it's like line bikes um well i've never understood that yeah yeah that especially in the u.s it's been a total dud but and i guess in china it's been a total dud too if you've ever seen those photos of the landfills which is thousands and thousands probably almost a million of bikes

just in these landfills from all these startups that got capital but yeah well some southeast asian countries there's more of a bike and motorcycle culture i guess it's more motorcycles for like the delivery and stuff for the crowded city streets but i don't know if line bikes or whatever that comp is it's gonna be legit yeah i mean they touted that there's a lot more deliveries on two-wheel vehicles now so i think with like the food stuff there's a lot of people on like mopeds or motorcycles that kind of thing i don't know if that necessarily necessarily equates to people riding bikes to and from but yeah i would be so out if they started touting their two scooter metrics all right what's your what's your future growth opportunity so there's a lot of work

they've been doing i think behind the scenes for the financial services and my thing was kind of like the grab bank and i'm assuming it'd be called grab bank because they call everything grab and then just what it is uh so the financial services part seems to be doing well it's a good concept and they just got a license for a bank in Singapore. They also have an insurance product on top of this as well. We've seen it from companies like Square. And I guess Uber is trying to do this as well. When you have your marketplace of either merchants

or just suppliers or whoever, sometimes they need financing, helping them with just all sorts of financial services. Having a bank do that is great. Providing them liquidity or whatever can just make it a better operating environment and improve everyone's profit margins in the long term. So that's kind of could be a key way for them to get some sort of operating leverage in this business.

But we'll see. And as well, the personal finance stuff with these mobile apps, there's just a tremendous opportunity for that. And there is I mean, they do offer, I think, merchant loans and micro loans. I think they're kind of on the ball with that already. So, yeah, they have that. So if they have a bank, they'll just be hopefully they'll get better, a better ROI. Yeah. All right. Highlights, lowlights. Ian, what do you have? For me, yeah, for me, the clear highlight was the cohort analysis. They basically showed their cohort analysis from 2016 through 2019. The 2016 cohort is spending 3.6 times the initial spend. The 2019 cohort is already spending one and a half times the initial spend. It's a nice looking graph. They're growing their GMV from each of these cohorts. and it's going up pretty linearly linearly and so um just it looks like they're doing a good job with the users that they're able to retain of growing um their share with those users and and

growing the share over time as well so i like that i also like the southeast asia market and grabs focus on and i think that's a i like the secular trends there the low lights for me though is it's just a tough main business to make money in this ride hailing slash taxi business is just and food delivery, right? It just, it's tough. Now they have some of these ancillary businesses in the payment side that I think is more interesting. You were just mentioning the banking side, but it's just tough to incentivize. It's tough to get customers to use your product and also be paying your drivers enough that everybody's happy. And for businesses where one or more of the parties are not happy in a general sense, I don't find those to be

long-term profitable businesses. I also kind of related to that. They, they have this net revenue reconciliation that they show on their investor presentation. And I'm not sure I really like this. So you kind of alluded to this earlier, Brett, but they, I'm just going to read their definition. So they have gross billings, which is basically a measure that calculates everything they take in um from like the the total billing for like a ride or whatever it is um then they have they break out driver and merchants base incentives which they say refer to the amount of incentives to the driver and merchant partners up to the amount of commissions earned by grab from those drivers and merchants which is a little confusing but basically you you learn what that

means when they they sum those two numbers to get adjusted net revenue and then they take out driver and merchants excess incentives to get to net revenue. And what are driver and merchants excess incentives? Well, they say excess incentives occur when payments made to the driver slash merchant partners exceed grabs revenue received from such driver and merchant partners. And so they're actually paying some of these drivers and merchants more and significantly more than they're taking in from these drivers and merchants. And so they're operating at a basically at a gross profit loss or an adjusted or a net revenue loss from the get-go on some of these things and so their net revenue number um i don't know it's just you'd want to see audited

financials to see exactly what's happening here but it basically they're spending more to generate revenue than they're generating in revenue and um that's always concerning to me when i see that yeah i agree totally agree with that that was a bit of a low light for me as well which was they kind of, they have, it feels like they're getting the WeWork treatment because they're backed by SoftBank because you just look at some of the graphs and it was just like, all the financials are really, really adjusted. I mean, you think about the difference between the net loss and the adjusted EBITDA loss of the last year, it was 800 million in adjusted EBITDA losses. I might be getting these numbers wrong, so recheck me, but, and then like 2.7 billion

in net losses. And so they get those. And I think SoftBank kind of encourages it. And then out of nowhere, they just have the rosiest projections moving forward. Yeah. Ian, what do you have? Yeah, I was just going to say, and then they cite like some of their graphs, they cite like a 20% revenue growth CAGR, but they use their adjusted net revenue number rather than the net revenue number. And so taking out the excess incentives they pay to people, it just, it feels like you're being, you're being sold a little bit, right. And you always are on these investor presentations, but especially without the audited financials, um, you're just kind of, you're left in the dark a little bit. And it definitely feels like you were saying, you're getting a little bit of that

treatment. And here's one more thing. 2020 was a bad year. You know, you can't blame them COVID, right. But they're projecting pretty steady growth in areas that aren't going to get the vaccines for maybe two or three years for you know yeah and it wasn't just like it's it's when you look at the charts that they show you even with the adjusted numbers it's like lumpy the last few years and then 40 percent compound growth rate every year for the next four years blue skies we're a unicorn you ever seen a softbank presentation slide not a unicorn it's a Yeah, we got the DecaCorns coming in. Who knows SoftBank?

Also, the way they went public, I don't necessarily like the optics of it. It feels a little exploitative. Like they have, I don't know if that's the word, exploitive maybe, but it feels like Brad Gerstner was like at the peak of like SPACs. like hey i know you already have four billion dollars sitting around in cash from softback but how would you like to tap into these retail investors too like we can go ahead and i take a few fees on it and then you know dump it to the retail like yeah yeah i hate the capitalism mode strategy they didn't need the money i don't know i mean i guess that is my highlight is they are they have eight billion dollars in cash on a billion in annual revenue hey i'll say uber had

That post-IBO, Uber had more and it's dwindling. Yeah. I guess I didn't really like the optics of that. Also, the monthly transacting users declined 16% year-over-year. Even though the graphs were pretty with some of the user charts, I didn't think the numbers were actually that sound. Some of that might have been due to COVID, obviously, but then i guess the highlight i would say is it sounds like they have a lot of notoriety across southeast asia um and if you kind of put on some rosy glasses or rose colored glasses there is definitely an opportunity for this to be a really really good business or much larger business as well yeah that goes right into my highlights i'll try to get more you know optimistic here i mean

financial apps go that's a smart idea i mean we've seen the gross profit numbers from a lot you know paypal whatever i mean even cash flow numbers from all these uh square paypal whoever um it's a smart idea and then like jumia who we just covered in theory i want to say in theory there's an opportunity to become the backbone for some of these economies as they enter the 21st century and try to adopt some of the east asian and western infrastructure that is lacking in a lot of these areas um but well as for me i mean ride hailing and food delivery might be my least favorite business models. Ryan mentioned scooters and scooters is probably taking the cake because that seems like the worst business model. I don't think they're in scooters.

Well, bikes, whatever the bike stuff, the micro mobility revolution that never came into play is probably my least favorite thing. And then anything that the vision fund has touched makes me queasy simply because I think there's a tendency to bring in a culture of burning money. I like people who have a culture of making money. And while I said ignorance of these markets could be an advantage. There's a reason for that because it brings a level of uncertainty, even when they're trying to build like a super app

in Southeast Asia. They have no traditional e-commerce product, which I don't know why not. I mean, I don't know, it feels like that is needed. Maybe I'm wrong there. I think they have shopping features. I thought, oh, they might have. They might not have the logistics for delivery on shopping,

but I know on that little tutorial video, someone someone bought a dress after buying some grab eats okay so okay i might be wrong there um yeah and then i don't know i don't know it's just they do off they they will compete with coupang in singapore too that's true coupang isn't formally going there but there's a lot of job openings in singapore so you can read through the tea leaves that they're going there soon um yeah so like with gravitating to the standard we cover coupang uh i don't know if you guys on the same boat here everything that coupon is doing that i like grab isn't doing and everything that grab is doing that i don't like coupon isn't i just like coupon that type of business model

jd.com a lot better um i guess that goes into more or less interested you know what are your final thoughts here i'd say i'm a little less interested it's i just didn't like the types of numbers i was getting from the investor presentation and i felt like i couldn't really get a handle on this business because of that. I felt like I'd like to see what all these margins are looking like that aren't heavily adjusted numbers. And it's a business I could see potentially if they got a quarter or two into the public market, started getting some financials out there, got an annual report. It's something I could potentially see being interested in down the road. But right now, there's just too much uncertainty. It's probably one of those things,

you know, this is one of the ones that could make me look pretty stupid that if this thing really gets going starts growing revenues really significantly you know it it could grow and it could now could be a great time to get in because there's more risk and there's more uncertainty right now but there's there's enough risk and uncertainty that i wouldn't want to get in it myself until i got a little bit of clarification on some of these uh some of these items especially at 25 times sales i mean right guys that's expensive i mean ev might be a little better but you know yeah they're if you take what they say at face value they sort of paint this picture of we run the day-to-day lives of our customers or our users i before i ever invest in this i think

i would have to know how important it really is to their users because if they're painting it as like a we're an all-in-one super app that everyone uses and people are just using like discounted rides or like the benefits, like where, you know, you see cash up kind of hemorrhaging money, to get people to get on, I guess. Well, they're doing fine financially, but they have a lot of those problems. Yeah. When I say that hemorrhaging money, I don't mean that cash up as a whole. I'm just saying as a user acquisition strategy, obviously I've made up for it. You know, I use the cash part all the time, but yeah. Yeah. I guess the financial services part i like but uh i just it's hard without knowing how important it really is in real life

i'd get i'd like to get some more anecdotal evidence i guess so i'm gonna go less interested for now yeah i'm less interested i would ask uh has there ever been a ride-hailing company food delivering money 2020 um that has generated a trailing 12-month operating like has been cash flow positive for a 12-month period ever has there been a ride-hailing company that is actually taxable positive i don't think there has been it's nascent it's an immature market yeah this is tens of billions of gmbs this is growth time also i find it incredibly uh concerning that they all own each other it's almost like uh one of us is gonna make it and we're all gonna like just piggyback off that person yeah i'm i'm way less interested this maybe and i don't want to fix

ad right here it's the least my least favorite company we've covered in a long time um coupon jumia uh i didn't like that at all either um but sorry yeah yeah um to each his own but for all the reasons i like coupon or all the reasons i don't like rap um again i just hate these businesses there's so much uncertainty 25 times sales in a market that's affected by COVID. What if I told you that the CEO is friends with Andrew Ross Sorkin? The Andrew Ross Sorkin stamp of approval. I don't know. I don't know what they're seeing here. Obviously, Altimeter got to see all this stuff. They probably were able to audit that themselves, but right now, with all that uncertainty, for us, we're kind of in on a black box.

I think Altimeter specs, because they've had such a successful track record, I think anything altimeter touches gets a premium yeah and hey maybe you know like ian said they could be doing 200 billion in gmb in 10 years or way more than that you know what i mean they could totally execute what are the how many users are there right now six million is that the number 25 million 25 million um they could get that to 200 million for all the people in southeast asia um i guess one of the people you were mentioning like the the actual use of people's lives if you track users versus gmb kind of just do whatever metric you want to do as a percentage like how you know gmb per user or whatever that's a good track of how much people are actually using it

yeah i agree all right uh anything else from you guys before we wrap things up nope i'm seeing some heads shake what's your uh what's your stock yeah my stock for next week is going to be after pay we're going to hit buy now pay later company that's been hot right now um we're going to look at the business model and see how it shakes out because it feels like a credit card to me Fred Liu. That's like a Fred Liu pick, right? Yeah. I don't want to speak for what they own now, but when they wrote their annual letter, great report on them. They've done, I mean, it's been a, it's been a phenomenal point in the stocks with like 10X. I think Grab might use them.

No, maybe. Cool. I think Afterpay might be a part of the mobile wallet. That's interesting. Yeah. All right. We'll go. Yeah. We'll investigate that next week. That's going to do it for this episode. Thank you guys for listening. Remember, we are not financial advisors and we say on the show is not formal advice or recommendation ryan and i are general partners at arch capital arch capital clients may hold securities discussed in this podcast again thank you all for listening we'll see you next sunday uh with brad we should We'll be back.