Contending ASEAN tech giants Grab, GoTo, and Sea engage in fierce competition to maintain their luster in the market
In the bustling tech landscape of Southeast Asia, companies like Grab, Sea, and GoTo are facing increased scrutiny from investors. Analysts are closely watching these firms, with some expressing optimism about their potential for growth, but also identifying potential risks.
HSBC's Global Research unit sees Grab as a company with the potential for innovative products that could drive higher revenue growth in the future. However, they also caution that an increase in the cost of capital could pose a significant risk.
Meanwhile, Sea, another technology company in the region, has seen its share price double this year, but it is still 75% lower than its November 2021 peak. The focus of investors is shifting towards companies that can grow their addressable market profitably.
Jefferies' equity research unit views Sea as a distinct internet company in Southeast Asia, with competitive strengths in online games and online shopping. The company has experienced a turnaround in its fortunes, regularly reporting a profit since the last quarter of 2022.
However, the remaining on-demand business is under strong competition, according to Jianggan Li, CEO of Singapore-based consultancy Momentum Works. This competition is a challenge that Grab, in particular, is facing. The company has stuck with its 2024 guidance of between USD 250-270 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
CFO Peter Oey of Grab declined to speculate when the company might become profitable. Similarly, Indonesia-listed GoTo reported losses in the second quarter that shrank 42% year-on-year, but analysts say the company needs to do more than narrow losses to start making a profit.
Marcus Wolter, Director at corporate advisory law firm Caldwell, believes GoTo's challenge is to integrate business lines across e-commerce, ride-hailing, and financial services effectively for sustainable profits. GoTo needs to send a strong signal to investors about its financial viability, as stated by Jianggan Li.
The tech companies are not alone in facing these challenges. Fundraising activity in Southeast Asia has waned, with the total value of equity funding proceeds from Southeast Asian startup deals falling 36% year-on-year to USD 2.29 billion. Aurojyoti Bose, lead analyst at GlobalData, attributes this decline to macroeconomic challenges and geopolitical tensions affecting investor confidence.
Despite posting smaller losses in their April-June results, the share prices of Grab Holdings and GoTo have decreased. The New York Stock Exchange-listed company Sea, however, reported a net income of USD 79.9 million for the same period.
Interestingly, Sea expects its online shopping platform Shopee, the group's biggest business, to generate greater sales value this year than previously stated. This growth is a positive sign for the company and the broader Southeast Asian tech market.
As the tech landscape evolves, these companies will need to navigate these challenges and find ways to grow profitably. The market will be watching closely to see how they adapt and thrive in this dynamic environment.
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