Catch zero on costs as super app seeks to cut losses
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The company’s chief financial officer is cutting company expenses as the ridesharing and food delivery app seeks to cut losses and move closer to breaking even.
The Singapore-based company, which operates a so-called super app that offers a variety of services, went public in December through a combination with a special-purpose acquisition company. Grab, which operates only in Southeast Asia, has yet to make a profit.
In late August, the company reported second-quarter revenue of $321 million, up 79% from the year-ago period. Its loss narrowed to $572 million, down 29% from the second quarter of 2021. Grab said it expects gross commodity value measuring total transactions to grow between 21% and 25% this year, down from its previous estimate of 30% to 35%, partly due to currency effects. It expects revenue to be between $1.25 billion and $1.3 billion this year, the high end of its previous forecast.
In recent months, investors have sold loss-making technology companies in favor of more stable stocks, hurting companies such as Grab, whose share price has fallen about 60% since the start of the year.
This puts pressure on Peter Oey, the company’s chief financial officer, who said he was accelerating Grab’s efforts to become profitable. He declined to provide a timeline for when that might happen, but said profitability “is one of the biggest questions most of my investors have.”
US peers Uber Technologies Inc.
and Lyft Inc.
face a similar challenge to achieve overall profitability. Grab said it expects its core food delivery unit to break even in the first quarter of 2023, followed by overall delivery activity in the second quarter of next year.
To achieve this, Grab’s Oey pulls various levers, including looking at spending on professional fees, real estate, cloud computing and marketing. “It’s all on the table for us,” Mr Oey said. The company has slowed its hiring in recent months, although it continues to recruit. Mr Oey declined to comment on Grab’s membership growth this year. The company had 8,834 employees at the end of 2021.
Another way to increase profitability, alongside increasing revenue, is to increase the productivity of its more than five million registered drivers by reducing wait times. “Every minute they idle and wait is not good,” Mr Oey said, referring in particular to food delivery drivers.
In recent months, Grab has closed support operations for GrabWheels, its electric scooter service, in Singapore and Malaysia, and merged its scooter business in Indonesia with the car rental service there. The company has also closed some store operations in Singapore, Vietnam and the Philippines and will offer more deliveries through a third-party marketplace model and, in Malaysia through Jaya Grocer, a grocery chain.
The finance team is also involved in the cost reduction effort. Mr. Oey, who became chief financial officer in April 2020, is working to eliminate manual tasks and introduce new tools, most recently a cash management system.
Grab, which had net cash of $5.6 billion at the end of the second quarter, is trying to preserve cash, Oey said. “We have to assume that there is no market, that we cannot go back and raise funds,” he said. Among the company’s early investors was SoftBank Group Corp.’s Vision Fund, which provided Grab with $2.7 billion in liquidity. Grab also has $2.1 billion in debt.
The company plans to provide additional details on its path to profitability at its first investor meeting later this month, to be held in Singapore.
Analysts pointed to the recent increase in incentive spending, or the amount of discounts and promotions offered to customers, to $523.4 million from $414.8 million the previous year.
Grab should reduce those expenses, said Rob Sanderson, managing director of Loop Capital Markets, a financial services firm. “Grab’s difficult year has to do with several factors: it went public via a SPAC, it’s not yet profitable, it’s an emerging market and rideshare and delivery business. [companies] haven’t been great stocks,” Mr. Sanderson said.
The company should focus on its existing businesses and not expand into new areas, even if that affects its super app strategy, said Venugopal Garre, principal analyst at Sanford C. Bernstein, a financial services firm. Bernstein expects Grab to be fully profitable in 2025, although a clear focus on costs could allow the company to get there sooner, Garre said.
“There’s more focus and urgency, no doubt,” Mr Oey said of the company’s plan to become profitable.
Write to Nina Trentmann at [email protected]
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