Technology giants such as Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META) have announced layoffs since the start of this year.
Several reasons have been put forward for these moves.
First off, economic headwinds have been building over the past year as surging interest rates and high inflation crimp consumer demand.
Another reason relates to the normalisation of demand as the pandemic recedes.
The latest company to announce a round of retrenchments is Grab Holdings (NASDAQ: GRAB).
The ride-hailing cum food delivery business slashed 1,000 jobs or around 11% of its workforce earlier this month.
Its CEO, Anthony Tan, cited the need to manage costs and keep the organisation trim to offer more affordable services in the medium term.
After making such a move, can investors hope for a rebound in Grab’s business and share price?
Profitability and free cash flow remain elusive
Since its listing through a SPAC merger back in December 2021, the super-app has seen its share price lose three-quarters of its value to close at US$3.27.
Grab reported a net loss of US$3.4 billion for 2021 on a revenue base of US$675 million.
2022 saw the company’s net loss shrink significantly to US$1.7 billion while revenue soared 112% year on year to US$1.4 billion.
Despite this improvement, Grab continued to churn out negative operating cash flow and free cash outflow for both years.
Revenue continued to gain traction in the first quarter of 2023 (1Q 2023), jumping 130.3% year on year to US$525 million as gross merchandise value (GMV) and monthly transacting users (MTUs) saw single-digit year-on-year increases.
However, the ride-hailing giant still reported a net loss of US$244 million for 1Q 2023 along with a negative operating cash flow of US$157 million.
On a positive note, total debt for the business declined by nearly 43% in the last three months to US$781 million as of 31 March 2023.
Investor Day highlights
Investors need to understand that Grab intends to continue investing in growing and improving its platform.
During last year’s Investor Day, the company touted the scalable and modular platform that allows it to grow regionally while being optimised for local needs.
The super-app is expanding its service offerings to include financing, advertisements, maps, and also digital banking by partnering with blue-chip telco Singtel (SGX: Z74) to set up GXS Bank.
Grab will also leverage its proprietary technology to personalise its offerings and drive growth for the business.
There’s also good news for the company with a technology analyst at Bloomberg estimating that GMV for the Southeast-Asian region may grow 15% per annum from 2022 to 2030 to exceed US$400 billion.
Ride-hailing GMV is also projected to grow by 25% per annum over the same period and Grab will retain the lion’s share of this market.
These tailwinds should provide Grab with ample opportunities to grow both its GMV and MTUs in the years to come.
The breakeven timeline brought forward
Indeed, this optimism has enabled Grab to bring forward its breakeven timeline.
CFO Peter Oey believes that the company will now break even on an adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) basis by the fourth quarter of this year rather than the second half of 2024.
For its Deliveries division, the adjusted EBITDA margin as a proportion of GMV turned positive in the third quarter of last year and steadily improved to 2.6%.
For the company-level adjusted EBITA margin, it has improved to negative 1.3% from negative 6% back in 1Q 2022.
These signs of improvement are encouraging as it shows the traction the business is enjoying as it continues to scale up.
Management changes
Grab also announced that its co-founder, Tan Hooi Ling, will step down from her operational roles by the end of 2023.
She will transition into an advisory role while also relinquishing her board directorship.
CEO Anthony Tan remarked that she will not be replaced immediately and that the board will decide later if it should consider candidates to supplement the board.
Get Smart: Slow and steady improvements
Grab’s numbers have shown that the business is enjoying continued top-line growth while management is working hard at reducing its costs.
The recent layoffs will help to make the organisation leaner and contribute to its eventual breakeven.
By reducing its debt load, Grab will also lower its finance costs in a rising interest rate environment.
Operating metrics are still improving and investors will need patience to see the company’s initiatives take root.
Grab may not report a net profit this year like what its Asian compatriot Sea Limited (NYSE: SE) had done for its recent 1Q 2023 results, but there is a good chance it can reach EBITDA breakeven in 2024.
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Disclosure: Royston Yang owns shares of Meta Platforms.
