Earnings Report /
United States of America

Altimeter: Grab it before the great meme-driven short squeeze

  • Grab, with which Altimeter is planning to merge this year, has announced its Q3 results, reporting a loss of US$988mn

  • GMV grew 32% yoy to US$4,038mn, led by a 63% yoy increase in the deliveries segment

  • We have raised our target price for Altimeter to US$20, implying an upside of 22% – reiterate Buy

Altimeter: Grab it before the great meme-driven short squeeze
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
15 November 2021
Published byTellimer Research

We have raised our target price for Altimeter Growth Corp to US$20 from US$16.50, implying 22% upside – we reiterate our Buy recommendation. Altimeter Growth Corp is planning a SPAC deal with ASEAN super-app Grab Inc., which we expect to be completed by the end of December. We have raised the stock's target price for the following four reasons. We have raised the stock's target price for the following four reasons.

1) Transformed consumer behaviour

A study released by Google last week reveals that Covid has transformed consumer behaviour in Grab's home market of Southeast Asia. The scale of this transformation has exceeded our earlier expectations. In 2021, 40mn new internet users came online in the region, bringing total internet users to 440mn – 22% higher than the level before Covid. Internet penetration in Southeast Asia now stands at 75%.

2) Grab's promising results

Grab's Q3 results illustrate the depth of this consumer transformation. The quarter was marked by intense lockdowns in the key ASEAN markets of Singapore, Indonesia, Malaysia and the Phillipines. Food delivery boomed; ride-hailing stagnated.

Grab's results show a vigorous rise in gross merchandise value (GMV) in the company's delivery segment – overall, 63% yoy growth in GMV. Revenue rose 58% yoy to US$49mn, while losses narrowed. The adjusted EBITDA loss of US$22mn was 4% down yoy.

Company 3Q Snapshot

3) Grab on track to meet revenue target

Grab is on track to meet our FY 21 revenue target of US$798mn and GMV target of US$17.1bn. For FY 22-23, we have raised our revenue and GMV forecasts, with the digital transformation gathering momentum.

The mobility business segment (mainly ride-hailing) is likely to recover as the worst of Covid appears to be over for ASEAN, with vaccination rates now over 50% in most markets. This suggests there will be a return to offices and to entertainment in late FY 21 and early FY 22. The digital financial services (DFS) segment is growing as a corollary of the mobility and delivery businesses.

4) Altimeter is a meme stock

AGC US has emerged as a meme stock. The stock is the number one trending company on trader chatroom, Stocktwits. There are unverified comments that the 'deSPAC' with Grab has received the approval of shareholders.

There is also speculation on Stocktwits that Altimeter Growth Corp will rise like DWAC US, the Donald Trump-led SPAC. Last month, the former US president announced that his new venture, Trump Media & Technology Group (TMTG), would merge with Digital World Acquisition Corporation (DWAC), a SPAC that raised US$293mn on the Nasdaq.

DWAC rose almost 850% on the news on 21 October, with its share price shooting up from US$10 to a high of US$175, before closing on US$94.20.

But a short squeeze on the way

We highlighted the high likelihood of a short squeeze on AGC US last week and the stock has risen 27% since then.

AGC US's short interest ratio (the number of shares held short divided by the stock's average daily trading volume) has increased sharply from less than 1x before the announcement of the Grab merger. It peaked at 52x after the deal was delayed in June and remains elevated, at 6.4 times average daily trading volume.

AGC US: Short Interest Ratio

The high short ratio is due to concerns around a flood of liquidity. The SPAC terms state that 29% of the shares outstanding will be floated when the merger is completed.

The five biggest shareholders hold 70% of the shares and have a 180-day lockup period. However, half of the holdings of the top five shareholders could be unlocked if the share price exceeds US$12.50, which it now has.

At a Squeeze Risk Score of 98 (low is 0, high is 100), AGC US still has the highest probability of a squeeze among EM Tech players. In fact, it has one of the highest ratios of any EM stock.

Squeeze Risk Scores