How to lose billions and reduce the IPO by 20% is the way to success – Wired PR Lifestyle Story

I’m sure you’ve heard, Grab had a great day on Nasdaq yesterday (December 2), finally It was marketed with a valuation of about $ 40 billion, raising $ 4.5 billion in the process. However, you can read about it elsewhere – I won’t steal the job from market analysts.

Instead, I’d like to turn your attention to something else: why is Grab considered a big business?

You may be wondering how a company that has burned billions of dollars is possible recently A loss of $ 988 million in the quarter of 2021 alone – and it still needs to make a profit, can it be considered successful, let alone get a multi-million dollar valuation on a major US stock market?

After a brief rise, Grab’s shares fell 20 percent below its IPO price, but that also didn’t dampen the minds of its creators and investors. Are they crazy?

Is burning money, publishing endless losses a new way to be successful and rich? Is it a scam, perhaps?

After all, Grab isn’t exactly an exception in the IT industry, where many companies continue to make losses for many years (Grab’s former Uber main rival, Elon Musken, comes to mind Tesla is still losing money selling cars, and Singapore’s favorite e-commerce platform Shopee remains in red).

Ordinary wisdom would say that the mission of a business is to make a profit for its owners. Isn’t that the goal? After all, when you start any business, you expect to earn more than you put in. It’s not a charity and why do anything that costs you more than what you get in return? It sounds crazy.

The truth is, however, that companies do not exist for profit. They exist to maximize shareholder value.

For a family store, bakery, or coffee shop, making a profit is precisely how they maximize the value of the shareholder (i.e., the owner). That’s why so many small businesses fell into the pandemic that even a brief disruption to their operations immediately destroyed the value of the owners. Many were better off shutting down than taking losses for months on end.

But for a large enough corporation, which aims to become a public trader, profits are of little importance.

Local investors risk their money to buy a stake (which continues to fund loss-making operations) in order not to withdraw money from their day-to-day business, but hope for a higher valuation, which can multiply the investment.

They are committed to growing revenue and market share, especially in innovative industries with the greatest potential for the future.

In that spirit, Grab’s main shareholder, Japanese SoftBank, has fallen $ 3 billion He joined the company in 2014, making another $ 3.1 billion in IPOs. Its 18.6 percent stake has boosted $ 6.1 billion, with a very high potential for further growth in the future.

If Grab’s shares return the $ 11 it started yesterday, SoftBank’s stake will be worth another $ 1.5 billion.

Winning can be a dirty word

In fact, on a large enough scale, profits are not necessarily a good sign.

Yeah Al that sounds pretty crap to me, Looks like BT aint for me either.

The value of each dollar of profit is less than one dollar for the company and its shareholders (minus one dollar minus government income and inflation taxes). But the value of each well-invested dollar can also be worth a few dollars in the market capitalization of the company. And that’s what shareholders want to maximize.

For a great example, let’s look at Amazon:

Until 2018, Amazon made almost no profit, and if so, it was small. Why?

Because he continued to reinvest in himself. He spent money on hiring more people, buying more equipment, building better warehouses, trucks and planes, and of course the growing IT infrastructure needed to increase sales growth in the U.S. and outside the U.S.

This is how Amazon Web Services was born in 2002, initially out of Amazon’s own needs and over time becoming one of the cornerstones of the global internet. It has opened up advanced cloud computing services to millions of businesses around the world, now hosting anything and everything from silly GIFs to mobile websites and applications to sophisticated business software and AI.

Every dollar spent on these investments was eventually multiplied by shareholder value, as evidenced by the company’s market capitalization, which now stands at just $ 2 trillion. All this while earning most of his life.

Instead, if he had tried to maximize profits, he would have grown much slower, paying 30 to 40 percent of every dollar in taxes to the state, and never being able to get what he wants now.

Today, you may know it from being a huge Amazon online store, but the truth is that the best part of the business is the least known to the general public: AWS.

Grab is considered a successful and attractive company for the same reasons.

Its quarterly losses, especially in a tumultuous pandemic, when it goes up and down along with cuts in various branches of the business, are not worrisome.

Nor was it a 20 percent drop on the day the IPO was launched. Anthony Tan Grab founder said after ringing the bell: “The stock will go up and down” – in a few hours he saw his personal wealth enter and leave the land of millions.

But that was not the purpose of the IPO. The goal was to raise another $ 4.5 billion in the coming years to continue to drive Grab’s growth, with the goal of greater financial stability from 2023 onwards.

Sea Ltd., for example, debuted in 2017 and traded below its IPO price for just one year for just $ 15. This year, it’s been over $ 350, despite the fact that its Shopee platform still makes money in the blood.

Even after falling to $ 260, analysts said keep the forecast at around US $ 400 – 26 times what the company was worth four years ago.

When investors look at Grab, they don’t see a booth and they don’t see a cyclist giving meals and food. They see a platform of millions of people who already rely on Grab’s services and reputation.

The company started out as a taxi app, becoming a competitor to Uber, which then went on to deliver food to the pandemic blockade that saw this business explode and shrink its mobility branch.

GrabMart’s creations and food deliveries – wrapped around all of GrabFinance – provide another layer of digital financial services that allows Grab to become a superapplication that will use much more than moving Bra from point A to point.

As Amazon began to sell books, it became the world’s largest e-commerce store, a cloud service provider, and more recently a full-fledged entertainment outfit that makes millions of dollars in shows (like the latest version of Tolkien’s saga). it is seen because of opportunities, and not because of their current operations.

One dollar spent (as well as one borrowed) spent to grow new markets and new services promises a future return that far exceeds current spending.

Featured Image Credit: Grab