Frankly Speaking: It’s not about profitability

This article first appeared in The Edge Malaysia Weekly, on April 19, 2021 - April 25, 2021.
Frankly Speaking: It’s not about profitability
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By acquiring the remaining shares it does not own in BigLife Sdn Bhd, AirAsia Group Bhd is poised to take another step towards launching a super app, which can also provide microcredit financing.

Last week, AirAsia acquired the remaining 20% stake in BigLife from UK-based Aimia Holdings Ltd for RM103.04 million. The deal effectively values BigLife, which is one of the digital assets under AirAsia group that is profitable, at more than RM515 million.

BigLife is principally engaged in the business of managing customer loyalty schemes while its subsidiaries are involved in the marketing and distribution of loyalty programmes. For the financial year ended December 2020, BigLife recorded a profit after tax of RM31.9 million on a turnover of RM94.2 million.

However, in 2018 and 2019, BigLife was in the red to the tune of RM21.3 million and RM23.6 million respectively. The company has a deficit in shareholders’ funds of RM62 million.

AirAsia is paying for the additional 20% in BigLife in shares valued at RM1.20 each, which is a premium to the market and higher than the price of shares issued for its recent placement exercise. Aimia is probably taking the shares, although issued at a premium to market, because they are more liquid than holding a 20% stake in an unlisted entity.

According to AirAsia, the acquisition of the additional stake will allow it to accelerate the decision making in BigLife, and increase its productivity and efficiency. The purchase is also to add more value to the super app that AirAsia is building.

AirAsia’s super app is anchored on three pillars, which is Teleport, BigPay and AirAsia Food, Fresh and Shop. BigPay is the fintech arm while Teleport is the logistic branch of the super app. AirAsia Food, Fresh and Shop is competing against several other players such as GrabFood and FoodPanda.

AirAsia CEO Tan Sri Tony Fernandes was reported to have said that among the three, BigPay and Teleport were profitable, which distinguishes their super app from other such platforms.

It is true that the other platforms are not profitable. However, the US$40 billion valuation commanded by Grab for its listing in the US just goes to show that in the game of digital assets, valuation is not based on profitability.

It is based more on reach and how many people use the platform to purchase goods and services.

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