Shares of special purpose acquisition company (SPAC) Altimeter Growth (NASDAQ:AGC) are down 8% before trading begins today after its reverse merger target, Grab Holdings, reported underwhelming quarterly results. As a result, some investors are worried about the state of AGC stock.
Grab, the Singapore-based ride-hailing and food-delivery company, reported third-quarter earnings that were below the expectations of analysts. Furthermore, the company blamed the lackluster results on Covid-19 lockdowns and restrictions in Vietnam. However, both Grab and Altimeter Growth have sought to reassure investors this morning that the two companies remain on track to close their planned merger by year’s end. Yet the reassurance doesn’t appear to have comforted investors who are selling off AGC stock ahead of the opening bell.
What Happened With AGC Stock
Grab announced that its third-quarter net loss widened by 59% to nearly $1 billion ($988 million) from a loss of $621 million a year earlier. The loss for the quarter ended Sept. 30 of this year included $748 million in non-cash items, Grab said in a news release. Additionally, Grab’s adjusted earnings loss swelled by 66% to $212 million from $128 million a year ago, due primarily to a decline in mobility amid strict Covid-19 lockdowns in Vietnam. Grab also said its quarterly revenue fell 9% to $157 million from $172 million in the third quarter of 2020. Needless to say, the subpar performance raised eyebrows ahead of the upcoming market debut of Grab stock through a reverse merger with Altimeter Growth.
Grab did report a few bright spots in its latest earnings, including that its gross merchandise value hit a new quarterly record of $4.04 billion, up 32% from $3.06 billion last year in spite of an operating environment that continues to be challenging. Grab also said that its average spend per user increased by 43% year-over-year in the third quarter. Plus, the company said that it continues to successfully execute and grow its mobile app strategy. However, it did not provide specific details. Despite these few highlights, the latest earnings report paints a picture of a company whose growth is decelerating and whose losses are mounting.
Why It Matters
Grab’s bad Q3 earnings release comes weeks before the company is scheduled to begin life as a publicly traded entity. The poor performance throws cold water on Grab’s upcoming market debut. This is why its SPAC partner, Altimeter Growth, is down nearly 10% this morning. Before today, AGC stock had risen 50% over the past month as excitement built for the reverse merger with Grab. Altimeter Growth’s share price finished trading yesterday at $15.16 per share, which includes a 30% increase over the last week.
At the same time, there has been a lot of short interest in AGC stock lately and chatter on social media sites about executing a short squeeze on the shares. While it’s not clear if the recent 50% increase in Altimeter Growth’s stock was due to it being treated like a meme stock, the move lower today suggests that the fundamentals related to Grab are being factored in by investors. And while Grab’s disappointing performance is not likely to derail its planned market debut in coming weeks, it could impact the price of its stock and its immediate performance once the reverse merger is completed.
What’s Next for AGC Stock
AGC stock is going to take a hit at the start of trading today. The question is whether Altimeter Growth’s share price will continue to slump in the lead-up to its reverse merger with Grab. Or, on the other hand, if excitement over Grab’s market debut will override concerns about its poor financial results. Investors should keep an eye on Altimeter Growth’s stock in coming weeks for signs of how Grab’s market debut will be impacted. While this SPAC deal is still proceeding, expectations for its success have been lowered.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
