Photo: Bloomberg
In 70 AD, a unique battle was fought in Jerusalem. Most of the great battles in history involved two parties. The siege of Jerusalem was different. It featured three. The Judeans were occupying Jerusalem. They were besieged by the Romans.
The Judeans themselves were facing a revolt within Jerusalem from the Zealots.
Alliances shifted during the two-year war. At one point, the Zealots joined hands with the Judeans to defy the Romans. Later, they would be at each other’s throats. About 1.1 million, both combatants and civilians, were killed as the three warring armies butchered each other.
In the end, the Romans prevailed. The Romans were better armed. They also outnumbered the Judeans and Zealots put together.
The Siege of Jerusalem was an early warning of a battle in the 21st century. In Southeast Asia, a vicious three-way battle has begun. The spoils will not be a holy city. The holy grail will be the super app of Asean.
A super app is a one-stop shop. The classic example is Alibaba Group Holdings in China. In China, people order lunch, transfer money and pick their insurance policy through the Alipay app. It is ubiquitous and dominant.
A super app enjoys benefits of scale. One can cross-sell products across industries.
Grab aspires to be the Asean super app. It dominates ride-hailing, digital payments and food delivery in Asean. It has also entered digital banking by securing a licence in Singapore via a joint venture with Singtel.
In April, Grab announced plans to list through a special acquisition company (SPAC). It will list its business by a backdoor listing with the Nasdaq-listed Altimeter Capital Group. The deal is expected to be completed in 4Q2020. At US$40 billion ($53 billion), Grab’s deal is the largest SPAC deal in history.
Grab’s rival in this slugfest is Sea, which listed on the New York Stock Exchange in 2017. It operates an e-commerce platform in Asean called Shopee, which has cornered a 25% market share in Asean e-commerce. It has just entered digital payments.
GoTo will be the third warrior. GoTo is the name of the merged entity between Indonesia’s ride-hailing giant Gojek and Tokopedia. Gojek has more than two million drivers in its fleet. Tokopedia is one of Indonesia’s top e-commerce players. It has a tight grip on e-commerce in Indonesia, a country of 17,000 islands.
Market share and revenue growth is the main priority in this war. Cashflow and profitability is a later objective.
A sea of red will stalk Grab, GoTo and Sea for some years. Grab has said that it will not be operationally profitable till 2023. Sea’s net loss for 2020 worsened by 11% y-o-y to US$1.62 billion.
They want to follow Alibaba’s playbook. Alibaba became free-cash-flow (FCF) positive in 2011 after years of cash burn. Its FCF has grown at a compounded annual growth rate of 45% in the last decade. The FCF has increased by a factor of 27.
The aspirant for Asean super app status needs to have deep pockets. Capital expenditure would be required for fulfilment centres to store the goods. Heavy advertising expenses would be needed to get the word out.
Grab is in pole position to emerge as the super app. It will be a one-stop shop for ride-hailing, food delivery and payments. Grab is already active in 400 cities in eight countries. It has 25 million users and two million merchant partners.
Grab’s super app potential has been ignored by the market. Its adjusted net revenue as a percentage of gross merchandise is 5%. Its monetisation rate has risen three-fold since 2018. This is better than Alibaba’s.
The clincher will be Grab’s balance sheet. Grab will have more cash. It will be able to outspend its two rivals.
The PIPE (private investment in public equity) investors from the SPAC will pony up US$4 billion. If one adds the US$500 million that Altimeter holds, Grab will have a net cash balance of US$7 billion. This is more than the sum of Sea’s net cash of US$4 billion and GoTo’s estimated net cash of US$1.5 billion.
The Romans prevailed in 70 AD because their swords were longer and their manpower was greater. Similarly, Grab has deeper pockets. It is the firm favourite in the Battle for Asean.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer (Exotix Capital) and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column
