Singapore-based superapp Grab on Thursday moved forward the deadline for its delivery businesses—from food and groceries to parcels—to break even as the loss-making company continues its push to turn profitable amid greater scrutiny from investors.
The company had originally set the deadline for the end of 2023. Grab now expects food deliveries to break even on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the first of 2023, while overall deliveries are expected to break even on adjusted EBITDA in the second quarter of 2023.
Those new dates move up the timetable by one and two quarters, respectively, on the back of lower fixed costs and tapering of its heavy incentives.
The outlook came as the Nasdaq-listed company on Thursday reported a USD 572 million loss for the April to June quarter, narrowing 29% from a USD 801 million loss in the same period a year ago. Revenue totaled a record USD 321 million, up 79%, with strong demand from both its delivery and ride-hailing businesses.
As of late Thursday morning in New York, Grab’s stock price was down about 13%.
“We are confident we can meet the challenges ahead,” CEO Anthony Tan said in an earnings call. “We’ll continue to grow our revenue sustainably, improve our margin profile and accelerate our path to profitability.”
As a way to achieve this, Grab said it would focus more on “high quality” customers, who are less sensitive to incentives and use the service with higher frequencies. Tan warned, however, that “this will come with a trade-off,” which he described as slower transaction growth.
The company revised down the estimate of its annual gross merchandise value — the total value of transactions made through Grab’s platform — to 21% year-on-year, at the low end, from the previous 30%.
On the food delivery business, Tan noted that demand is softening as Southeast Asian economies start to reopen and will “continue to soften” with more people eating out.
Grab, Southeast Asia’s largest ride-hailing and delivery company, went public in December 2021, becoming one of the region’s most valuable tech companies. As the company marks its 10th anniversary this year, spending by customers on the platform is increasing but has yet to turn profitable.
Even as a market leader, Grab’s share price has been underperforming against competitors. Most notably, Indonesian rival GoTo‘s shares are only down around 4% since its listing in Jakarta in April, while Grab has shed over 60% of its value. Grab’s market value of around USD 12 billion is less than half that of GoTo.
Since this year, Grab has been tapering heavy incentives to attract drivers and customers. For the three months to June, partner incentives were up 23% to USD 212 million, while consumer incentives rose 28% to USD 311 million. Though still significant, the growth rates have notably slowed down from previous quarters.
“We expect our incentive levels to continue to taper down as we accelerate our path to profitability,” said Chief Financial Officer Peter Oey.
Still, the business environment for Grab could get more challenging, especially with higher risks in its food delivery business. The Singaporean government, in which the market accounts for about half of Grab’s overall revenue, is preparing to urge platforms of the so-called “gig economy” to ensure more security for workers, who are not hired full time.
While deliverers have flexible working conditions, additional benefits would entail higher labor costs for companies like Grab. With rival operators Foodpanda and Deliveroo, Grab set up an association group last week aimed at establishing an industry code of practice and guidelines.