Is the ride-hailing business sustainable?

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Globally, one of the most sought-after business models within the start-up space has been the ride-hailing business.

From New York to Sydney and from Tokyo to Singapore, the ride-hailing business has been well sought after by private equity investors and over the last few years, some of these start-ups have even migrated to being full-fledged public companies. Names like Uber and Grab have even become household names, as our lives transformed from the old to the new economic model.According to data compiled by businessofapps.

The business model of ride-hailing companies has evolved over time, and as we are aware, some of them today are not just pure taxi services in the traditional sense but have ventured into other businesses, taking advantage of their data superiority, as well as their capability to provide last-mile connectivity.

For example, in the latest quarterly results, Uber’s revenue rose 35% quarter-on-quarter and more than doubled from a year ago to US$3.93bil , but both its adjusted earnings before interest, tax, depreciation, and amortisation and net earnings remained weak. Grab has almost the same storyline. Having raised some US$10.8bil up to the end of last year, its balance sheet showed that the company has total accumulated losses of US$10.4bil up to the end of 2020. With the reported net loss of US$652mil in Q1 of 2021, Grab’s cumulative losses would have now ballooned to above US$11bil .

This fair value is thereafter a reference point for investors to derive various multiples such as the enterprise value to revenue multiple or even the EV/Ebitda multiple if the denominator is a positive figure. EV is simply the market value of debt and equity of the company and this is then divided with the revenue or Ebitda of the company to derive a multiple.

 

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