Grab’s mega layoffs send chill over company, but analysts upbeat on direction

THE mood was sombre on Wednesday morning (Jun 21) as Grab employees – survivors of its mass layoffs – logged into a virtual company-wide town hall.

At the top of their minds was a question bugging them since the night before, when their chief executive Anthony Tan announced Grab was letting over 1,000 people go: will there be a second wave of retrenchments?

Tan avoided giving a straight answer, said one source who was present at the meeting.

He told employees that it was important to keep improving the company’s structure as the environment around them changed, said the source, who spoke to The Business Times (BT) on condition of anonymity.

Grab’s retrenchment exercise on Tuesday night, affecting 11 per cent of its workforce, is the biggest in the company’s history. It eclipses a 2020 round that reportedly impacted 5 per cent of staff, or 360 employees.

Tan, in a letter to employees on Tuesday, talked about streamlining the company’s focus areas, and indicated that an overhaul of the business’ operations and cost structure could be overdue.

Grab’s main business units comprise mobility, deliveries, financial services, and enterprise and new initiatives. In the first quarter of 2023, deliveries accounted for 52.3 per cent of revenue, followed by mobility at 36.9 per cent and financial services at 7.2 per cent. Enterprise and new initiatives contributed to 3.4 per cent of revenue.

A swathe of roles, including those in software engineering, marketing, recruitment and risk, were hit by this week’s job cuts, BT understands. The retrenchments affected staff across markets such as Singapore, Indonesia and the Philippines, going by BT’s review of social media posts.

Grab’s engineering hub in the US has also been badly hit, BT understands, suggesting the company could be rationalising headcount in higher-cost cities.

“We believe fundamental step-changes in our operating model and cost structure are needed to build our competitive moat for the longer-term,” said Tan in his letter. He emphasised that the staff cuts were not “a shortcut to profitability”.

Scant details have been shared about the reorganisation or cost structure revamp at Grab. But Tan has said that even without the layoffs, the company will hit its target of adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) break-even this year.

Long-term sustainability

Analysts viewed the cost cuts as a positive move for the company.

“Indeed, one of the investors’ pushbacks on Grab has been the scale of cost control,” wrote BofA Securities analysts, in a report on Tuesday. “And the reduction of headquarter costs has been relatively lower, perhaps as the company, with about US$5 billion in net cash, doesn’t feel the need as much, compared to other Internet companies.”

Bloomberg Intelligence analyst Nathan Naidu noted that Grab’s regional costs are disproportionately larger than that of Uber, its US-based peer that operates on a global scale.

Grab’s regional costs were US$858 million in 2022, which dwarfed a combined US$65 million Ebitda – before regional overheads – across all four of its business segments.

Uber, on the other hand, had lower costs relative to Ebitda, less overheads. For the same period, the group recorded US$2.4 billion in regional costs and US$3.9 billion in Ebitda before regional overheads, noted Naidu.

Grab is the latest of South-east Asia’s large Internet companies to axe staff as the economy turns increasingly sour. The group had held on to staff even as its peers GoTo and Sea slashed headcount by the thousands.

“In some ways, Grab is playing catch-up with peers in addressing people costs, having delayed it earlier with other cost-saving initiatives in hiring, pay freezes and travel budgets,” said CrossASEAN Research analyst Angus Mackintosh.

Grab’s share price opened higher on Tuesday at US$3.51 after the retrenchment news, and closed down 1.2 per cent or US$0.04 to US$3.38.

JP Morgan, which has a “sell” rating on the stock, said that Grab’s corporate costs are likely to increase in the absence of major cost initiatives.

“We have also been of the view that if Grab were to monetise its elevated costs by passing them on to consumers, it could face risk of market share losses, as we find that mobility competition has been broadening in Asean,” JP Morgan analysts wrote after news of impending layoffs broke, but before the exercise was confirmed.

Grabbing a hand

On the ground, morale among “Grabbers” has been shaken. One laid-off employee said that word of an impending lay-off first came around lunchtime on Tuesday. “It was a few hours of anxiety, wondering if we were affected. Then eventually at 9pm, those that were affected got the e-mail,” she said, speaking on condition of anonymity.

Another employee, whose role dodged the cuts, said that the head of department had reassured them earlier this year that no layoffs were planned.

Still, that employee was not surprised by the retrenchments, after seeing similar exercises by other tech companies. “Even small teams were affected. It will be disruptive for sure,” this employee said. “We are being given time to process everything this week. Next week, we just have to make adjustments and move forward.”

Former Grab employees have been eager to lend a hand, with several reaching out on LinkedIn and social media groups. One LinkedIn group for former Grab employees, formed by Grab alumni Chua Ee Chien, has seen about 250 new joiners since the layoffs happened.

The tech community has begun to rally around those who were affected. Sales strategist Raghav Mathur posted about job openings at his company HubSpot, while offering career help and moral support to affected Grab employees. On previous occasions, when he had extended the offer to other laidoff staff, only four or five would reach out within the first few hours.

This time, however, about 40 people contacted him on LinkedIn within an afternoon, said Mathur, who was speaking independently of his company.

Recruiters were quick to seize the opportunity to offer possible openings for those fresh out of work. “I’ve had a few ex-Grab employees reach out and recommend people from their teams,” said Alicia Keith, associate director, tech and product at recruitment consultancy Hyphen Partners.

Talents from Grab are likely to be well-placed in the market, she added, though opportunities might surface in startups rather than in other big tech firms.