Long Take: Grab's $40 billion SPAC in the context of Uber's borked neobank, Apple's iOS, and Ant Financial's superapp
Hi Fintech futurists --
This week, we look at:
The economics of Southeast Asia’s largest super-app and its $40 billion SPAC valuation
The industrial logic of building out financial features adjacent to the core business of transportation and delivery
Why this model has not worked for Uber, but has worked for Apple, and the broader impact on financial services.
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A record SPAC for a record company.
Grab is planning to hit the public markets at a $40 billion valuation, raising $4.5 billion in cash. Coinbase’s direct listing priced at around $65 billion, so it seems that double digit billions is the main way to get Wall Street’s attention.
Revenues are at $1.6 billion on a gross merchandise volume of $13 billion, a bit over 10% that of Uber. The company is eeking out a positive contribution margin, and has limited EBITDA losses — something Uber has still not been able to turn around. For both, Covid hammered the mobility revenues (i.e., taxi cabs go unused), but the food delivery business has performed well as an offset.
We are not expert in the Asia markets, so we want to look at Grab as a lens that reflects back on Uber, Apple, Facebook, Google, and other Western attempts at a super-app. And in particular, why those attempts haven’t really been laser-focused on or successful in blowing up the finance industry. Unlike the Western tech companies, Grab has a real and functional fintech arm, which is also generating real economics — $320 million of revenue from payments on $9 billion of payments volume is nothing to sneeze at. That alone could justify a $10+ billion fintech SPAC in the current market.
We recommend everyone start with the Grab investor deck. Point number one is geography. Grab was founded in Malaysia and has Harvard roots, but it serves 8 different countries with no single country comprising over 35% of revenue (*adjusted net). For the Europeans out there, think Transferwise or Revolut expanding across nation states and actually winning premium competitive positioning in different jurisdictions. For the Americans, think about winning over both democrats and republicans in Georgia.
The corollary about geography is also a relationship to China, and by reflection, to the United States. The Chinese economy, its high tech and fintech footprint (e.g., Ant Financial), and its geopolitical power reverberate throughout Southeast Asia as the historically hegemonic incumbent. The Chinese super apps and payment rails and economic motions are icons. The region is also highly strategic to China and its growth.
The US, on the other hand, expresses soft economic and cultural power in the region. American companies are not native, and therefore are unlikely to win on execution. They instead compete through capital allocation and investment. One such clear example is Uber selling its operations to Grab in 2018, in exchange for 27% of its equity. Similarly, Uber exited the Middle East and sold to Careem, the local leader. Being a global monopoly should be left to Amazon, Bitcoin, and Arnold Schwarzenegger.
The Mobility Super App
Let’s turn to disambiguating the super-app. We’ve explored similar ground in the past with a profile of Reliance Jio, as well as coverage of Uber’s Money and Uber’s IPO. Those are still important mental frameworks. You can’t understand a super-app without also having a grasp on the underlying economic activity, existing payment rails, telecom infrastructure, and the smartphone experience.
Whereas Ant and Alibaba are definitional to eCommerce, which is the growth vector of small business production and retail consumption, Grab anchors in mobility and delivery. This is a smaller market in relative terms, and maps to a more circumscribed — though still ginormous — part of GDP. It is large enough to have millions of drivers and contractors platformed to deliver services, and hundreds of millions of users consuming them.
Most platforms mediate payments, enabling money in motion. Eventually platforms are tempted to offer solutions for money at rest as well, pulling them to expand into banking, investments, lending, and insurance. You can see these dynamics playing out with the introduction of GrabPay in 2017, and the rest of the fintech monetization suite in 2019 and thereafter. The banking license is coming.
We also notice Apple-like thinking in the Grab deck. The below chart looks like the usual “attention economy” framing, showing that Grab is competing now for a user’s time of the day rather than vertically in some particular product. Once you are incumbent in a category, horizontal attention expansion is the high-tech playbook.
For comparison, here’s American media consumption per day.
How much of the day does your iPhone take up? Let’s make a rough assumption and say that it is 100% of your attention. We think of the operating system of the iPhone playing a similar behavioral role as that of the maximally broad super-app, providing little portals that leads to the full range of economic activity. There’s a banking feature (Bank of America), a taxi feature (Uber), and anything else you can dream up.
That competitive position in the world’s top GDP market is worth $2.25 trillion in enterprise value at the time of this writing. Grab will be worth $40 billion, or about 1-2% of Apple’s market capitalization. Also note that Southeast Asia GDP is around $3 trillion, or 15% of US GDP at $20 trillion.
This rough math shows that Grab can 10-20x from its current financial packaging by becoming that core operating system for a person’s daily experience. It is still very, very early on the journey. And while prioritizing the build of financial infrastructure will accelerate the monetization of its addressable economy, it will not accelerate operating economic expansion.
To understand that a little better, let’s take look at the dynamics of the hardware in which the app is served. We won’t deep dive too much, just give you a flavor. Affordable Chinese phone brands, like Oppo, realme, and vivo are the ones showing most relative growth. The operating systems are based on open-source Android, maintained by Google, and then some (e.g., Oppo’s ColorOS) are made to resemble Appe’s iOS.
Here’s a screenshot from realme. These phones are higher powered than those from Reliance, but are still priced as low as $96 all in.
Apple benefits from the long tail of app features in its OS, because it controls a large share of the market and has become a standard. But when you have a splintering in operating systems, it is the largest apps that will have power and control over user experience. Southeast Asia has multiple phone manufacturers with different operating systems, based on third party software and tweaked in different ways, competing for the consumer. We think this helps Grab retain its position as a core attention destination.
Key Takeaways for Western Fintech Super-Apps
The dynamic around capturing “real” economic activity and then financializing certain features is the only way to build a super-app. We remain fully unconvinced about going the other direction — building a financial company or product, and then reverse engineering into the economy. No start-up, from Starling to Revolut, has been able to do that hat trick.
Here’s a toy example:
Imagine you have 100,000 units of GDP, and your app gets 1% of that GDP for a total of 1,000. Then, you convert 5% of that into revenue, and another 5% of into adjacent financial services revenue. That gets you 100 magic points.
Alternately, you start with financial services, which is 20% of 100,000, or 20,000. You capture 1%, or an equivalent of 200, and charge 5% on top, yielding 10 magic points. And out of that position, you try to recreate an economy by selling third party stuff. Oops.
One potential path through this quagmire is to re-imagine digital economies on a trillion dollar scale. This is what Bitcoin and Ethereum have been able to accomplish; essentially ignoring the real economy in favor of building out the Metaverse. The money created on blockchains powers blockchain-based operating activity. But blockchains are multi-variate networks owned collectively, not companies.
Unlike Grab, which is able to lay down payment rails, get banking licenses, and pursue tech-fin integrations, American tech giants are now in much hotter water. Facebook’s continued public flogging over Libra/Diem have evidenced a growing public dislike for attention monopolies. We want to keep them away from our money. Further, regulators are likely to introduce new rules for tech companies on their native turf in regards to data and privacy. Going into a highly-controlled and regulatorily adversarial industry like finance, where mega-banks and regional lobbying bodies want to stop you at all costs, feels expensive for a company like Uber, which hasn’t even achieved core profitability. Even in China, regulatory anti-fintech sentiment has bubbled into bizarre expressions of listing constraints and private company restructuring.
That doesn’t mean venture capitalists won’t keep catapulting new brands into the stratosphere. It’s more a question of total addressable market beyond the $100 billion in market capitalization.
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