Grab Holdings (NASDAQ: GRAB) dropped over 37% on Thursday, March 3rd, 2022 after the company’s fourth-quarter earnings report delivered surprisingly disappointing results.

According to an article by CNBC, Grab Holdings stated that they had invested heavily in boosting incentives to bring in drivers, as the demand for ride-shares grew due to the steadily decreasing threat from the pandemic in recent months. However, despite Grab’s sunny forecast following the company’s debut in December 2021, revenue dropped 44% to $122 million in their fourth quarter, widening its lost to $1.1 billion – significantly higher than its $635 million loss a year earlier.

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Why is GRAB stock dropping?

According to the same CNBC article, GRAB funneled a significant amount of money into incentives to retain its market leader position, and to bring in drivers to “[catch] up in terms of supply”. However, as more people started to dine out as the threat from COVID lessened, demand for food delivery services dropped and revenue from Grab’s delivery unit plummeted 98%. Revenue from its mobility unit, which was responsible for 85% of overall sales, declined 27% in their fourth quarter alone.

Grab Holdings: a “SPAC IPO.”

In December 2021, Grab Holdings went public through merging with a special purpose acquisition company, Altimeter Growth Corp (NASDAQ: AGC), becoming a “SPAC IPO.”

SPACs, or special purpose acquisition companies, are commonly known as “blank check” shell companies. SPACs provide an alternative to the traditional IPO process, and serve the primary purpose of raising investor proceeds to eventually acquire a private company. Investors typically buy into a SPAC before it announces, or even decides, which private company it will attempt to acquire. While SPAC investors have the potential to realize significant gains, they are also much more vulnerable to market volatility and other types of fraud. Investors may be vulnerable to a variety of SPAC fraud by sponsors, including:

  • Misrepresenting material facts related to the SPAC or the company to be acquired;
  • Failing to properly investigate or conduct due diligence on the company to be acquired; or
  • Engaging in self-dealing or failing to disclose conflicts of interest with the acquisition company.

SPACs have recently come under SEC scrutiny and investor lawsuits against SPACs are on the rise.  According to MarketWatch, many of these lawsuits allege SPAC directors failed to disclose sufficient information about the companies they intended to merge with.

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