Grab: Laying off 11% of Workforce May Be Slightly Beneficial in the Long Term, but Too Early To Tell

Grab GRAB announced in an internal memo yesterday that it was laying off about 1,000 employees, which equates to about 11% of its total workforce. While the layoffs should provide some short-term reduction in operating expenses, we are not changing our fair value estimate yet given the lack of details including which divisions it may affect or how it could alter long-term growth. However, Grab indicated that layoffs were across the entire business. Two key points management emphasized were: 1. The layoffs are not related to instant short-term profitability and are instead to drive maintainable long-term growth. 2. The headcount reduction was not driven by its previous goal to reach companywide breakeven by the end of 2023, and that the company would have reached the target regardless. In addition, the decision was not influenced by any external pressure as management re-emphasized that it is to achieve long-term economic viability.

The internal memo indicated that there will be severance payments and benefits, including a goodwill payment and extended medical insurance, and therefore, we expect some nonrecurring charges toward Grab’s results in the next quarter. The severance package appears to be related to and will benefit more office workers rather than contract workers. Thus, we believe this could result in a reduction in corporate headquarters costs which we forecast to be about USD 860 million, or 38% of sales, in 2023. Assuming a 10% reduction in corporate costs for the long term, we estimate a 6%-8% increase to our fair value estimate. However, given the lack of specifics, we are not incorporating the layoff effects into our model yet.

Grab indicated that it will provide greater details on the layoff in its second-quarter 2023 earnings call.