Why is it that when the whole technology village laid off, Grab was confident that it was not “desperate”, when “the waves were calm and the sea was calm”, Grab shocked when it cut 1,000 people?

According to Tech in Asia, the news that Grab cut 1,000 jobs – 11% of the total workforce – came as a sudden flash of lightning.

Although the company did not provide details on which markets or departments are affected by this layoff, Tech in Asia believes that the layoffs are not specific to any one country.

A review of the various LinkedIn posts by the fired employees revealed that they came from departments including engineering, marketing, and human resources.

According to an unnamed employee shared with Tech in Asia, one of the affected departments is user research. Most of the staff in this department are located in Singapore and the US.

The leaker (who was not included in the cut) lamented that “some really good people have been affected” and described the general mood of the employees as “sad”.

However, Tech in Asia believes that Grab has a good reason to do so. Even as other Southeast Asian tech companies such as Sea Group and GoTo Group have experienced multiple job cuts starting last year, Grab CEO Alex Hungate said in September 2022. that the super app “doesn’t find itself on the list” of companies embarking on mass layoffs.

Alex Hungate added that the company has been “very careful and prudent” in hiring and as a result is not “desperate” to stop hiring or reduce headcount. However, Grab laid off about 5% of its workforce at the start of the Covid-19 pandemic.

The company’s stance not to lay off employees was reiterated by Anthony Tan, CEO and co-founder of Grab, in a memo to employees last December. However, CEO Tan also revealed that they are suspending hiring for non-critical positions and implementing a salary freeze for senior managers to avoid an “immediate reaction” in the future.

So why is Grab now “spinning the car”?

Laying off employees is not a ‘shortcut to profitability’

Tan was quick to dismiss any suggestion that the layoffs were motivated by the need to hit a profit target.

In a post to employees, he stressed that the measure is not a “shortcut to profitability.” He also emphasized that with or without job cuts, the company is on track to break even this year.

In fact, Grab’s adjusted EBITDA (earnings before interest and taxes) is on track, with five consecutive quarters of improvement.

However, Tech in Asia previously noted that Grab’s gross merchandise value (GMV) in its first quarter results of 2023 has stalled. To reach the breakeven target, the company will have to increase GMV.

As a rough estimate, Tech in Asia has calculated that if Grab continues on its current trajectory, its transportation and delivery businesses will generate an adjusted EBITDA of $52 million in Q4. But this is still $14 million short of the amount needed to close the $66 million gap before breaking even.

How much can Grab save by shrinking its workforce?

Competitor GoTo is a good comparison. In November 2022, the Indonesian company cut 1,300 employees, or 12% of its workforce. This is the same scale as the layoffs of Grab employees.

During GoTo’s Q1/2023 earnings call, the company estimated that the November headcount reduction generated “savings of about 210 billion rupiah (about $14 million)” in the most recent quarter. best. This means, it is possible that Grab will save a similar amount with this round of layoffs.

So the question is, if this layoff is not to meet profit targets, why should Grab do it?

In a message to employees, Tan said the “key goal” of the move is to “strategically reorganize” Grab so the company can “move faster, work smarter” and reinvent balance resources in your portfolio in line with longer-term strategies.

He added: “To make the most of these opportunities, we must combine our scale with rapid execution and cost savings to be able to deliver sustainably. services are more affordable and penetrate deeper into the masses”.

The CEO also emphasized the need to “adapt to the environment” in which new technologies such as artificial intelligence AI are “evolving at breakneck speed” and increasing capital costs are changing. competitive landscape.

In fact, higher capital costs mean that companies like Grab can no longer drive GMV up by stacking incentives for their consumers and trading partners.

Combining scale with the lowest service costs can help the company expand GMV by penetrating deeper into the affordable services segment, one of Grab’s focus areas.

However, despite these reasons, some questions remain open.

First, it remains unclear why a massive layoff is necessary to achieve these goals.

Second, many of these issues became apparent last September, when Grab failed to see major job cuts coming. So since then, what changes have happened?

Third, higher capital costs also mean rival tech companies have limited spending on incentives and marketing, and potential new entrants are less likely to secure the capital they can afford. needed to steer the boat. These developments should have eased the competitive pressure on more established players like Grab.

Does the problem lie with the shareholders?

Of course, by downsizing its workforce, Grab can also show shareholders that it is serious about reducing costs and operating efficiency.

As of March 2023, Grab’s top shareholders include Morgan Stanley Investment Management, Capital Research & Management and Mitsubishi UFJ Kokusai Asset Management.

Also, Grab’s stock actually outperformed Sea, which laid off 7,000 employees within six months in 2022.

Over the past year, shares of Sea have fallen 16% while Grab’s is up 24%.

What could happen next?

For this layoff, Grab has launched a comprehensive support package for affected employees, including severance payments, other goodwill payments, and continues to provide additional benefits. services such as health insurance until the end of the year.

Whatever the cause of the layoffs this time around, it’s now up to Grab to ensure that the morale of the employees who stay, who may now fear this is just the beginning of many more. more layoffs. Given its history of “turning around” with a statement that it will not lay off, it is now difficult to rule out the possibility that Grab may cut further.

Source: Tech in Asia