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Delivery and ridesharing services provider Grab Holdings (NASDAQ:GRAB) didn't provide its investors with much of a lift in September. The company struggled with labor discontent in one of its major Southeast Asian markets and, on the financial side, disclosed a deal to acquire a financial services business.
Market players didn't react positively to either development and pushed the company's stock down by 12% that month. I think they have valid causes for concern.
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That hotspot for Asia-headquartered Grab was Vietnam, where contract drivers staged a two-day "app boycott," logging off from the system and encouraging consumers not to transact with the company. This was in protest of recent policy changes by the company that, numerous drivers claim, significantly reduced their earnings.
Although the consumer boycott wasn't widespread, the combined actions had the intended effect of drawing attention to Grab's practices. The day before the protests were scheduled to occur, Vietnam's Competition Commission requested Grab and other delivery and rideshare companies to provide a breakdown of driver charges. And from the other side, it requested that drivers supply similar data.
As of this writing, the Commission has not yet rendered a decision or taken action on the matter. Regardless, it's not a good look for Grab in one of its eight national markets.
Several days after these developments, Grab announced it had struck a deal to purchase a 60% controlling interest in Asian fintech Atome Financial. The price is $1.49 billion in cash. Investors were dismayed by the high price and sold Grab stock, although a nearly $30 million insider share purchase by CEO Anthony Tan subsequently led to a modest rally.
Atome is a next-generation fintech that harnesses artificial intelligence (AI) to assess the creditworthiness of people seeking consumer loans. Grab said in a press release that last year, 68% of its drivers taking out loans accessed formal credit for the first time in their lives.
Management is projecting that Atome will be accretive to its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). It believes it will help the financial services division achieve adjusted EBITDA of $500 million by 2028. Grab anticipates that the transaction will close by the third quarter of 2027.
Investors likely fear Grab will lose focus and/or stray from its core competencies by strengthening its financial services arm. Yet even though the unit has lately been a distant third in terms of revenue contribution (behind the company's delivery and ridesharing operations), it's the fastest growing. So it's understandable that management would be eager to give it a boost, although $1.49 billion is a significant amount and financial services continues to operate at a loss.
To me, Grab is a company that's grabbing at ways to keep the growth train running. I feel the Vietnam matter will be solved, possibly through a compromise with the government, but I'm not as convinced the Atome addition will be worth its price. This makes Grab stock a wait-and-see for me, but if Atome produces impressive growth, the bullish case for it will become notably stronger.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Grab. The Motley Fool has a disclosure policy.
Why Grab Holdings Stock Slumped by 12% in September was originally published by The Motley Fool
