Swvl Holdings Corp, the Egypt-founded transportation startup once hailed as a beacon of African tech innovation, is facing turbulent times as allegations of impending bankruptcy swirl around the company. A recent report from Wolfpack Research has intensified scrutiny, sending shockwaves through the market and leading to a significant drop in Swvl’s stock price. Amid these developments, US-based law firms, including Pomerantz LLP, have launched an investigation into potential securities fraud by the company, putting Swvl’s management under a harsh spotlight.
Founded in 2017, Swvl aimed to revolutionize urban transportation by offering affordable, technology-driven bus-sharing services across cities like Cairo, Dubai, and other regions. The company’s meteoric rise saw it achieve a $1.5 billion valuation in 2022 when it went public via a SPAC merger, making it the first unicorn startup in Middle East and North Africa. However, its fortunes have rapidly declined, culminating in Wolfpack’s damning report published on September 17, 2024.
The report, titled “SWVL, a ‘Transportation-as-a-Service’ Start-up Appears to Be a Few Breaths Away from Bankruptcy,” paints a grim picture of the company’s financial health. According to Wolfpack’s investigation, Swvl’s operations in its home market of Cairo have all but ground to a halt due to a severe cash crunch. The report further alleges that the company lacks the funds even to maintain its website, with investigators hired by Wolfpack struggling to book rides on the platform or sign up as drivers. Wolfpack’s research claims that the majority of Swvl’s routes in Cairo are no longer operational, echoing widespread customer dissatisfaction with limited ride availability.
In the immediate aftermath of the report, Swvl’s stock price plunged by 43.62%, closing at $3.05 per share on the day. This sharp drop is a far cry from its initial listing price of $10.00 per share on the Nasdaq. As investors reeled from the news, Pomerantz LLP, a well-known U.S. law firm specializing in class-action lawsuits, announced it was investigating claims on behalf of Swvl’s shareholders. The firm is exploring whether Swvl’s executives engaged in securities fraud or other unlawful business practices, potentially misleading investors about the company’s true financial condition.
The core of Wolfpack’s critique rests on Swvl’s deteriorating financials. The company, once promising triple-digit revenue growth, recorded a mere $22.9 million in revenue for the 2023 fiscal year, far below its previous projections of nearly $400 million. Swvl’s one-time boost in net income for 2023, attributed to a $18.8 million debt settlement, is viewed by Wolfpack as a temporary reprieve rather than a sign of long-term stability. The research firm also noted that Swvl has only $2.9 million in cash remaining, down from $9.1 million at the beginning of 2023.
Adding to Swvl’s woes is Egypt’s volatile economic climate, Wolfpack Research claims. The Egyptian pound’s 40% devaluation earlier this year has severely impacted Swvl’s operations, given that the company generates more than 90% of its revenue in Egypt. This currency devaluation, coupled with rising inflation, has exacerbated the company’s liquidity challenges, casting further doubt on its ability to remain afloat, Wolfpack notes.
In a bid to reassure investors, Swvl recently announced it had secured multiple new contracts in Saudi Arabia, with an estimated value of $2.6 million. However, this move has done little to stem the concerns. Wolfpack was quick to dismiss the announcement, questioning the credibility of Swvl’s claims and pointing to the absence of customer details or a joint press release with the supposed Saudi partners. In Wolfpack’s view, the hastily issued press release only highlighted Swvl’s precarious financial position.
Swvl’s rapid ascent and fall raise broader questions about the sustainability of transportation-as-a-service (TaaS) models in emerging markets. While Swvl initially gained traction by tapping into Cairo’s demand for affordable, flexible transport, the company struggled to maintain its competitive edge, particularly as ride-hailing giants like Uber expanded their services. Swvl’s attempts to enter new markets, such as the U.S. and Europe, have largely faltered. In 2023, the company sold off its European and Latin American businesses, with management citing a desire to focus on the U.S. market. However, its footprint remains predominantly limited to Cairo, where its operations are now in question.
As Swvl battles mounting financial pressures and legal challenges, the next few months will prove critical for the company’s future. The outcome of any investigations related to the bankruptcy allegations, alongside any regulatory or legal fallout, could have significant implications not only for Swvl but for investor confidence in African tech startups more broadly.
For now, Swvl’s investors remain in limbo, watching closely as the company navigates what could be the most challenging period in its short history.