Why Swiggy is laying off its 400 employees ahead of the 2024 IPO?

The Swiggy layoffs practice is not new.

This is the second time Swiggy has been laid off within one year. Swiggy had let go of 380 employees same time last year to shut down its meat marketplace and prune the remaining costs.

During that time, multiple tech companies worldwide were restructuring their firms, given the macroeconomic conditions, and the advent of the new normal. But Swiggy took a harder hit on its finances, as its losses widened.

So, to cut down additional expenses and costs, in January 2023, it had to lay off around 10% of its staff. 

Source

For the year ended 2022, Swiggy reported a loss of INR 3,629 Cr. But in March 2023, CEO Majety confirmed that they had turned profitable

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The real reason why layoffs are happening again

Though Swiggy hasn’t officially confirmed it yet, reports suggest that this year’s lay-off move is a cost-cutting measure to improve Swiggy share price & company’s financials ahead of its Initial Public Offering.

It is being heard that there is a lot of pressure on CEO Sriharsha Majety, from Swiggy’s investors Prosus, and SoftBank to show some profitability before it files for an IPO. 

• Financial challenge: Swiggy’s layoff responds to fiscal pressure and low profitability ahead of IPO. It also has pressure from its investors like Softbank and Prosus to show some profitability before the listing.
• Competitive stress: Zomato’s 60% market share intensifies competition for Swiggy.
• Strategic focus: Despite slow growth, the CEO sees potential in grocery retail. Layoffs enable Swiggy to redirect resources toward Swiggy Instamart’s growth.
• Industry trend: Layoffs align with a broader tech sector restructuring for growth, and adaptation to the “new normal”.

How this layoff is going to affect Swiggy

The Swiggy restructuring began in the Bengaluru branch in December’23 and is still ongoing. They are going to carry this off in phases over a few weeks to make sure that the process is smooth.

This layoff has affected all the departments, but the tech and customer support teams have taken the biggest blow. Not even sparring the high salary positions.

This layoff will also help them cut back costs for reshaping their focus towards Swiggy Instamart. Even though the company’s overall growth has seen a slow turn, its grocery retail segment will be one of the key growth drivers in the future. 

Tech Layoffs are a common practice before an IPO launch.

If we analyze other pre-IPO companies, they usually follow the same practice. 

Even Flipkart is preparing for an IPO later this year. It stopped hiring in Jan 2023 and now planning to lay off 1100-1500 employees (5-7% employees) based on their performance. 

Cutting cost create a positive cost sentiment in the eyes of investors. Employee cost is the biggest chunk of cost in service-based companies. When reduced, it creates an immediate positive investor sentiment as their wealth will increase.

Big tech players like Microsoft, Google, Xerox, and Amazon are making similar moves. 

Look at these numbers to understand this better:

Source

This shows that it is an industry-wide effort to adapt and optimize operations for sustained growth in changing business dynamics. 

Should you invest in Swiggy before its IPO?

The food delivery platform was the fastest unicorn in India, entering the billion-dollar club in just 4 years of operations.It is not yet listed but will be listed in 2024 with high hopes of a rising share price due its level of operations and cost-cutting.

With Stockify, you can invest in unlisted Swiggy stock even before its IPO launch. Our trading platform offers research and trading facilities to invest in unlisted shares. Know more about Swiggy share price NSE through Stockify and plan your hassle-free investment journey.

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References:

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9.  Lay offs data -https://layoffs.fyi/