Since its IPO in 2022, Egypt-founded and Dubai-based mass transit app Swvl has weathered many headwinds. The startup went public on Nasdaq through a special purpose acquisition company (SPAC) merger at a time when blank check firms fell out of favor amid market volatility. The startup saw its share price tumble to below USD 1.00, prompting Nasdaq to send it delisting warnings and Swvl to implement a reverse stock split. The startup, which had been investing aggressively into expansions in Europe and Latin America, also went on a cost-cutting spree and shifted its business model to become profitable within a year.

The reverse stock split worked for its share price: Reverse stock splits reduce the number of shares in circulation, boosting the share price. Swvl’s 1-for-25 reverse split merged 25 ordinary shares into a single share. Its share price has risen 838.9% over the past six months.

It also pursued new investments, agreeing to sell USD 20 mn-worth of new shares in 2022 to an institutional investor in a private placement.

And the restructuring and cost-cutting strategy boosted profitability. The Nasdaq-listed startup turned to the black in 2023, with a net income of USD 3.1 mn, bouncing back from the USD 123.6 mn in net loss in 2022.

We spoke with Mostafa Kandil (LinkedIn), CEO and founder of Swvl, to learn more about Swvl’s turnaround, the strategies it implemented to turn to profitability, and its upcoming expansion plans.

Edited excerpts from our conversation:

Covid-19 and the Russia-Ukraine war hit the startup hard: Swvl lost over 90% of its business due to pandemic-related disruptions, Kandil said. To add salt to the wound, one of its largest investors — an American investor — had huge exposure to Russia and was forced to dump Swvl shares when the Russia-Ukraine war hit. “This had nothing to do with our performance, because everything that we promised, we were delivering on,” Kandil said, adding that they were even “over-delivering.”

The IPO didn’t go exactly as planned: By the time the Securities and Exchange Commission approved Swvl’s SPAC merger — which took eight months — the war had hit and market volatility had been at its peak, Kandil said. The transaction saw an 85% redemption rate, “which means we only received 15% [of the proceeds] we expected to receive,” former CFO Youssef Salem told Enterprise previously.

Plus: Emerging markets, which were Swvl’s largest markets, saw economic headwinds + currency depreciation: “The average currency basket of the markets we had a foothold in was devalued by 60%,” Kandil said.

That is when the layoffs came in. “We realized we needed to be profitable with significantly lower funding than anticipated from the SPAC merger,” Kandil said. The company exited several markets by selling off a number of its subsidiaries and laying off 50% of its global workforce as part of its portfolio optimization strategy.

Dire times call for drastic action: “The company let go of offices and the management team had to take pay cuts,” he added. Some markets it decided to exit indefinitely while others would see operations paused and potentially resumed later, he said.

“We had to exit from countries like Kenya, where we did not see potential to get to 40% margins, the purchasing power was small, and there was constant depreciation of the currency,” he explained. The startup also took the difficult decision of shutting down in Pakistan. “There were constant currency devaluations, the country's outlook was unstable, and we did not foresee an opportunity to get into really high margins there, which was our primary focus,” he said.

Now, its focus is purely on MENA and developed markets. “With the market here [in the region] being cashflow positive, we decided to use the MENA market as a launchpad to other geographies, which we are doing today,” Kandil said. “Our plan is to expand in developed markets like North America and Europe,” he said, adding the GCC to his list.

ICYMI- Before the startup was hit with headwinds, Swvl had expanded into Europe with its acquisition of Barcelona-based mobility platform Shotl. It also took a controlling stake in transit company Viapool, which operates in Argentina and Chile, as well as Mexico’s Urbvan Mobility, and entered Central Europe with its acquisition of German company Door2Door.

The startup had already shrunk its operations in the UAE earlier since it was “very efficient and did not have room for us,” he said, but Kandil said it now plans to expand existing contracts and see more returns from its UAE business.

Its shift towards B2B and B2G also helped: Swvl had initially launched with a B2C business model, but B2B and B2G now comprise over 78% of its business, Kandil said. “The reason for this shift was that we realized our users are taking two daily commutes mostly to work or to school and back home,” he explained. “Our thought process was, what if we do not spend on marketing or retaining users, but rather focus on signing up the entities’ users for commutes instead of onboarding person by person, [and achieve] a better customer lifetime value to customer acquisition cost ratio,” he said. This shift proved very successful, Kandil added.

Swvl now has a diverse portfolio spanning schools, universities, corporates, factories, call centers, and warehouses. Neither one of its industries make up more 20% of its total revenues, Kandil explained,

Swvl’s plan for this year is to reinvest in the business and continue to be cashflow positive in the markets where it operates, Kandil said. “In 2024, we plan to be slightly profitable, while reinvesting in building the team, building sales, and developing the product,” he said. The startup is planning expansions in the Gulf, US, and Europe, and is looking at ways to fund them, he added. “Investors are not expecting Swvl to make meaningful profits at the current scale, but expectations are to scale up while maintaining profitability,” he said.

2025 could be the year Swvl reaps the benefits of its efforts: “We do not expect to post high income gains in 2024 but by 2025 the results should pay off, as we expand and grow the business more,” he said.

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