The Singapore-headquartered firm faces challenges with still-rising interest rates, a souring economic environment and the rise of artificial intelligence, analysts say.
SINGAPORE: Grab’s decision to slash more than 1,000 jobs stems from the need to address a “bloated” headcount and remain nimble for challenges ahead, analysts told CNA.
The Nasdaq-listed technology firm said on Tuesday (Jun 20) it would be shedding 11 per cent of its workforce, its biggest round of job cuts since the pandemic.
The retrenchments came as Grab is fighting to turn a profit and win back investors. It is targeting to hit adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) breakeven in the fourth quarter of this year.
In a letter sent to employees, chief executive Anthony Tan said the cuts were a strategic reorganisation to adapt to the operating environment, and not “a shortcut to profitability”.
Analysts agreed, noting that the company is “firmly” on the path to profitability, especially as demand for ride-hailing continues to recover across the region.
That said, challenges lie ahead in the form of still-rising interest rates, a souring economic environment and the rise of artificial intelligence, they added.
“Corporate restructuring, cost-cutting and layoffs happen once every few years for large, established companies. For tech companies, it happens on an even shorter cycle,” said Ms Vion Yau, insights lead at venture builder Momentum Works.
“Essentially they serve similar objectives – to make organisations leaner, more efficient and more adaptable to the changing market.”
In Grab’s case, the latest job cuts are unlikely to be due to investor pressure for profitability given how the firm has “a very healthy” net cash liquidity of US$5 billion at the end of the first quarter, Ms Yau told CNA.
Rather, the firm is mulling over the route to take after turning a profit.
“I actually think that Grab is confident about its breakeven target but as the fourth quarter approaches, they will need to think about what happens afterwards,” said Ms Yau.
“There is a long journey ahead after breakeven.”
One area that Grab needed to be leaner is in its staff count.
As other technology firms axed jobs in the thousands, Grab added more than 3,000 employees last year, largely because of its acquisition of Malaysian supermarket chain Jaya Grocer.
The Singapore-based ride-hailing and food delivery giant said last September it had no plans for mass layoffs. But in December, it put a freeze on hiring and pay raises for senior managers, and slashed travel and expense budgets.
“Grab’s management may have viewed its headcount as bloated,” said Mr Nirgunan Tiruchelvam, head of consumer and internet at investment advisory firm Aletheia Capital.
The company’s aggressive hiring during the pandemic boom and rapidly rising salaries for tech roles also meant it had to be more judicious with staff costs, other experts said.
“Human resource is a key component of costs, and it is important to manage them to achieve profits,” said Associate Professor Nitin Pangarkar from the National University of Singapore Business School.
Grab is also not immune to an economic downturn in its key markets.
While Southeast Asia remains a bright spot, growth could slow with the ongoing Ukraine war and declining demand from the United States, said Ms Yau.
Grab could also see its business affected as its customers grapple with inflation and rising interest rates, Assoc Prof Pangarkar said.
Across its operations, Grab’s foray into the digital banking space will remain its “weakest link” with capital likely required to keep the new venture going, said Mr Tiruchelvam.
More critically, the company will have to keep an eye on the rise of generative artificial intelligence – a key challenge mentioned by its CEO.
“Change has never been this fast,” Mr Tan wrote in his letter to employees. “Technology such as generative AI is evolving at breakneck speed. The cost of capital has gone up, directly impacting the competitive landscape.”
The recent surge in AI technology such as ChatGPT poses challenges for Grab, whose technology precedes some of the recent advancements, said Mr Tiruchelvan.
“The ChatGPT phenomenon would also make it easier for competitors to emerge,” he said. Grab has to be in a “nimble” position so it can ramp up its game, he added.
The latest layoffs could also be part of Grab’s preparations to acquire its closest rival, Indonesian ride-hailing firm GoTo, by the end of the year, according to Mr Tiruchelvam.
An acquisition will likely see Grab inheriting “huge costs and employees”. “This move may pave the way for that eventuality.”