Happy Thanksgiving!

Hi Folks,

Wishing you all a very happy 🇨🇦 Thanksgiving! It is my favorite holiday of the year because it involves celebrating all the wonderful things and people in our lives and if we are lucky, we get to give thanks to our loved ones in person and over some delicious food! I’m the resident chef at the Arora household this year and have taken the liberty to replace turkey with a roast chicken. Mashed potatoes are out and potato dauphinoise are in; mostly because I’ve watched too much Jamie Oliver and was feeling a bit fancy. A lactose free pumpkin pie is about to go in the oven. And finally, since Thanksgiving is a New World holiday, the wines of the night are my new finds from my trip to the Canadian wine country a few weeks ago - 2014 Little Engine Reserve Pinot Noir and the 2016 Laughing Stock Portfolio.

(The latter was started by a couple working in finance but they took a ‘vow of poverty’ in 2003 because they felt compelled to follow their hearts and launch a winery. And as an ode to their old world, they named the winery ‘Laughing Stock Vineyards’ and labeled the wines with the ticker $LFNG. Their flagship wine was named “Portfolio”. Needless to say, the wager paid off tremendously, and we are the lucky benefactors of an incredible winery! The picture below is the gorgeous view from their winery.)

I also want to give my thanks to you all! Firstly, to Howie for encouraging me to start writing, and then to all of you for reading my rants every week, and for writing back to me! Your messages mean a lot and I appreciate you all very much! :)

And since today is about gratitude, I don’t feel like slagging SPACs. Instead, I want to write about this one SPAC in the bun that is about to close soon and is worth highlighting as a very quality de-spac. It’s $AGC, (Altimeter Growth Corp) and is due to close its merger with Grab Holdings in Q4 of this year, and could be as soon as the next two weeks. Before we get into the long term opportunity with this stock, I want to mention that the shorting vultures have been hovering over $AGC in the last couple of weeks, making the short interest soar to ~42% as of this Friday. The stock is currently trading at five cents above NAV, down 28% from when the deal was announced in April. So there maybe some short term volatility with the stock heading into its merger close, but since my thesis is more long term, this is a great entry point in my opinion.

As a quick refresher on the deal terms, $AGC announced the merger with Grab for an Enterprise value of $30.36B with a fully committed $4.04B PIPE, making it the largest SPAC deal so far. The PIPE was led by the funds managed by Altimeter ($750M and committed another $500M as contingent capital in case of excess redemptions). Others included Blackrock, Counterpoint Global, T. Rowe, Fidelity and Janus Henderson to name a few. The institutions have continued to load up on this Superapp play. Upon closing, the company would receive $4.5B in cash, giving it an equity value of $39.6B.

The shorts have been quick to point out that the valuation is too rich. Ok, sure $40B does sound a lot. But Brad Gerstner isn’t an idiot. So why did he pay that much? It’s because Grab isn’t just another ride hailing app like Uber. It is a Super App, and a better way to think about it is:

GRAB = UBER + DASH + PYPL + AFRM

Ok, let’s unpack that. Grab is *the* ride hailing app in South East Asia (SEA). Serving 700 million people in 11 countries, it is the most downloaded app in the region and boasts the highest amount of average active users. And if you have ever lived or visited Asia, you know that there are more scooters and tuktuks than cars, and guess what, Grab got ‘em all. As a consumer, you can request a ride on a car, tuktuk or a bike. And as a driver, you can drive with a car, tuktuk or a bike.

I don’t think I really have to explain why it’s a no-brainer for Grab to also have a Doordash or UberEats like division. And while the pandemic was the strong initial tailwind, the GrabFood business has proved to be more resilient even with the restrictions beginning to lift off. Their GMV for deliveries rose 58% y/y to $2.1B in Q2/2021 and represents 53% of total GMV. The revenues for deliveries rose 92% y/y and are up at $45M. In addition to the delivery business, they also piloted GrabMart in 2020, which is the everyday goods delivery business. That business has grown 5x since Q2/2020 and now they are getting ready to launch GrabSupermarket and GrabKitchens. Grabbin’ everything they can get their hands on!

Ok, next up is what makes them a PayPal - As SEA is still largely unbanked, GrabPay has become the go-to payment method of choice. Whether you want to transfer money to your friends, buy a latte at Starbucks or get your stimmy checks from the govt, GrabPay got you baby. In their most recent quarterly results, they reported that the GrabPay merchants have nearly tripled since the Q2 of last year.

Now on to the biggest credit revolution of the year - Buy Now Pay Later (BNPL). As we saw with $AFRM’s stellar performance last week, BNPL is the flavor du jour. And of course, Grab wants a share of the pie too. They introduced GrabPay and recently partnered with Adyen to enable BNPL facilities for the merchants in Singapore and Malaysia. This holiday season is going to rock!

Yes, I love the Morning Show and Billy Crudup’s crazy quirky enthusiasm is sooo well done. Ok, back to the Grab SuperApp because I’ve got cooking to finish and can’t digress too much. Now if you look at the the individual valuations of the companies mentioned in the equation above -

$UBER - $90B

$DASH - $69B

$PYPL - $305B

$AFRM - $38B

And the SuperApp, $GRAB = UBER + DASH + PYPL + AFRM = $40B.

I’m obviously not making a case for a $500B valuation but the point is that if you put it in the broader context, $40B isn’t that rich. I think there is some psychological perception that a de-SPAC company can’t warrant such a high valuation, but I feel that if GRAB would have gone public through a regular IPO, we wouldn’t even have batted an eye. In fact, the valuation probably would’ve been higher.

There is also a location bias in my opinion, which may lead it to trade at a discount in the short run. Of all the Reddit and twitter threads I’ve read on this merger, the people who are the locals in SEA or have experienced the comfort of this SuperApp, they are complete believers in the thesis and its ever growing penetration of the South East Asian market. But it’s much harder for us in North America or Europe to feel the same way since we don’t have a real reference point. Below are the Grab’s regional category shares vs the next largest competitor:

And with the current Chinese dumping going on, it’s easy to lump this in that category and make the case for a short. But I would like to compare this to a $SE, which is also based out of Singapore, and is a pro-business jurisdiction. Also worth noting is that $SE went from $12 to $320/share and $178B in valuation in two years, which goes to show the appetite for exposure and innovation in SEA.

Lastly, a quick note on the Sponsors. Brad Gerstner, who was actually an investor in $SE, is no stranger to the region. He’s also backed $UBER, and his investing acumen was most recently demonstrated by the successful IPOs of $RBLX and $SNOW. As part of the deal, he committed to locking up the Sponsor shares for 3-years. Now that’s real commitment, and it must be noted that he did this before the tide turned and Sponsors were forced to sweeten the terms to get deals done and show alignment.

So that’s my rant. I hope you $grab it 😉

Have a wonderful week ahead!

-Nikita