Explaining Swvl's revival

This interview was conducted, transcribed and edited by Timothy Motte.

Biography

Youssef Salem was the CFO of Swvl from 2021 to 2023. He is now a board member.

SWVL operates a ride-hailing marketplace for private buses. It also offers a SaaS product for bus fleet operators.

SWVL was the first Egyptian company to list on the NASDAQ. After a tumultuous beginning to public life, the company reached profitability last year and avoided delisting.

The most visible sign of SWVL’s distress was its stock price drop. What were the fair and unfair reasons for that drop?

When going public, investors ultimately define a company’s valuation. Part of that calculation is benchmarking “comparables”. That is: what are other companies doing similar things worth? For SWVL, these companies included Lyft, Uber, Doordash…

When we went public, those companies were valued in a 2021, zero-interest-rate-policy (ZIRP) environment. They were valued accordingly. Investors followed the benchmarks and valued Swvl on a relative basis. When interest rates rose and our comparables’ valuations dropped, ours mechanically dropped as well.

When going public via a special purpose acquisition vehicle (SPAC), a company also puts forward a business plan. The execution of that business plan is dependent on raising sufficient money. This creates a chicken-and-egg problem, because SPAC investors have “redemption rights”, the right to pull out their money. This means there isn’t funding certainty for the business plan you just put forward.

When interest rates increased and the Russia-Ukraine war started, some investors pulled out because they preferred to lend their money rather than invest it. This had a snowball effect. Investors pulling out of our SPAC reduced the funding available to achieve the original business plan, necessitating a less ambitious business plan, further decreasing our share price.

To summarize: our valuation dropped because our comparables’ valuation dropped and because our valuation was linked to a business plan we couldn’t fund, since investors pulled out. The valuation’s recent revival comes off the back of Swvl achieving profitability.

The NASDAQ, where Swvl is listed, issued a “delisting warning” because the stock had dropped too low. How can a company extricate itself from that situation?