Making sense of Grab’s surprising U-turn from ‘no layoffs’ stance

The news that Grab was slashing 1,000 jobs – 11% of its total workforce – came like a bolt from the blue.

While the company did not provide details on which markets or departments were affected, Tech in Asia understands that the layoff was not specific to a country.

A review of various Linkedin posts by employees who were laid off indicates that they were from departments including engineering, marketing, and HR.

One of the affected functions was user research, according to an employee who spoke to Tech in Asia on the condition of anonymity. Staff members in the department are mostly located in Singapore and the US.

The source, who was not retrenched, lamented that “some really good people got impacted” and described the general mood among employees as “upset.”

They have good reason to be. Even as other Southeast Asian tech firms like Sea Group and GoTo Group underwent several rounds of job cuts starting last year, Grab COO Alex Hungate said in September 2022 that the super app didn’t “see [itself] in that category” of companies embarking on mass layoffs.

He added that the firm had been “very careful and judicious” about recruitment and had not gotten to a “desperate” point of needing to freeze hiring or decrease its headcount as a result.

Alex Hungate / Photo credit: Linkedin

However, Grab did shed about 5% of its workforce at the start of the Covid-19 pandemic.

The firm’s no-layoffs stance was reiterated by Anthony Tan, Grab’s CEO and co-founder, in a memo to staff last December. However, he intimated that it was halting recruitment for non-critical roles and implementing a salary freeze for senior managers to avoid “knee-jerk reactions” down the road.

As such, Grab’s seeming about-face is bound to ruffle feathers. Why did it reverse course?

Layoffs not “a shortcut to profitability”

Tan was quick to refute any suggestion that the move was motivated by the need to hit earnings guidance.

In a note to employees, he stressed that the measure was not “a shortcut to profitability.” He also emphasized that with or without the job cuts, the company is on track to reach group adjusted EBITDA breakeven this year.

It’s true that Grab’s group adjusted EBITDA has been trending in the right direction, with five consecutive quarters of improvement.

But Tech in Asia previously noted that Grab’s gross merchandise value in its results for the first quarter of 2023 was stagnant. To achieve its breakeven target, the company would have to boost its GMV numbers.

On a rough estimate, we calculated that if Grab were to stay on its current trajectory, its deliveries and mobility businesses would generate US$52 million in additional adjusted EBITDA by Q4. But this would still be US$14 million short of the amount needed to plug the US$66 million gap before breaking even.

See also: Grab’s GMV is stagnant. It needs to reverse that to break even

How much could Grab save by shrinking its workforce?

Indonesian rival GoTo is a good benchmark. In November 2022, the company retrenched 1,300 employees or 12% of its workforce. This was on a similar scale to Grab’s layoffs.

During GoTo’s earnings call for its Q1 2023 results, the company estimated that its November headcount reduction resulted in “around 210 billion rupiah of savings” in the most recent quarter.

How much does this work out to? US$14 million – that’s in line with Tech in Asia’s estimates of the shortfall mentioned above.

While our numbers are definitely not precise, the coincidence is uncanny.

Peter Oey / Photo credit: Linkedin profile

In any case, CFO Peter Oey noted in Grab’s most recent earnings call that the company expects deliveries GMV growth to pick up in Q2. Some combination of accelerating growth in deliveries GMV with further improvement in EBITDA margins may be enough to meet Grab’s guidance.

Official reasons raise questions

If this layoff is not about meeting profitability targets, then why was it necessary?

In his message to employees, Tan said the “primary goal” of the move was to “strategically reorganize” Grab so it could “move faster, work smarter,” and rebalance resources across its portfolio in line with longer-term strategies.

“To most effectively leverage these opportunities, we must combine our scale with nimble execution and cost leadership so that we can sustainably offer even more affordable services and deepen our penetration of the masses,” he added.

The CEO also emphasized the need to “adapt to the environment” in which new technologies like generative AI are “evolving at breakneck speed” and the increasing cost of capital is changing the competitive landscape.

Anthony Tan / Photo credit: Grab

All the corporate-speak aside, there is some merit to the reasons Tan cited.

A higher cost of capital means that companies like Grab can no longer boost GMV by heaping incentives on their consumers and merchant partners.

Combining scale with the lowest cost to serve can help the company expand its GMV by deepening its penetration of the affordable services segment, which is among Grab’s focus areas.

Yet in spite of these reasons, some questions remain.

First, it still isn’t clear why implementing a major layoff is necessary to meet these goals. Is it so impossible to achieve cost leadership over time, with salary and hiring freezes as well as the natural attrition of employees?

Second, many of these issues were already evident last September, when Grab did not see big job cuts on the horizon. What has changed since then?

Third, a higher cost of capital also means that rival tech companies have curbed spending on incentives and marketing, and potential new entrants are less likely to secure the funding they need to rock the boat. These developments should have eased the competitive pressure on incumbents like Grab.

Shareholder signaling

By downsizing its workforce, Grab could also be showing shareholders that it is serious about reducing costs and operating efficiently.

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

But if this were the case, Grab could have done so earlier. If it had resisted the pressure to implement layoffs last year when its peers were doing so, why would it cave in now?

Also, Grab’s shares have actually performed better than Sea, which let go of 7,000 employees over six months in 2022.

Over the past year, Sea’s shares went down 16% while Grab’s rose by 24%.

Looking at Uber, Grab’s performance pales in comparison to its peer in the ride-hailing and food deliveries space, which logged a 94% increase over the past year. But while the US firm is reportedly conducting vigorous performance reviews and replacing underperforming employees, it has not implemented broad layoffs.

What’s next?

To Grab’s credit, it has given what seems like a comprehensive support package for affected employees, including severance payments (which are on the high end of Singapore’s guidance for retrenchment benefits), goodwill payments for forgone bonuses and equity, and continued provision of services like medical insurance coverage till the end of the year.

There were certainly merits in Grab’s previous approach to holding off on layoffs, even as its competitors were doing so. Some may argue that Grab should have bitten the bullet earlier: Sea recently announced that most of its employees would get a 5% pay increase in July, sending a strong signal that the company had turned a corner.

But unlike some of its peers, Grab could contend that the cutback was not about achieving profitability targets. That puts the company in a different category to begin with, which appears to be consistent with COO Hungate’s September 2022 statements.

Whatever the case, Grab needs to ensure that the morale of remaining employees, who may now fear that this is just the beginning of more layoffs, stays high. Unfortunately, given how the company did a U-turn on its no-layoffs stance, it is unlikely to rule out further cuts for now.

Currency converted from Indonesian rupiah to US dollar: US$1 = 14,972 rupiah.


Simon Huang

Exploring the impact business and technology will have on Southeast Asia

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