Southeast Asia’s biggest technology stars are fighting to retain their sparkle in the eyes of fickle investors, as pressure mounts to demonstrate profitability now that trimming fat off their businesses appears insufficient.
The cautious mood, heightened by geopolitical tensions and a fragile macroeconomic environment, is also affecting startups looking for capital. Fundraising in the region fell by one-third year-on-year in the first half of 2024.
Shares in Singapore’s Grab Holdings and Indonesia’s GoTo are down 2% and almost 40% this year, respectively, despite posting smaller losses in their April-June results. Meanwhile, Grab’s local peer Sea has seen its share price double this year but is still more than 75% lower than its November 2021 peak.
“Investors still deeply value companies that can grow their addressable market profitably,” Ranjan Sharma, who oversees Southeast Asian tech equity research at JPMorgan, told Nikkei Asia. “Companies are facing more stringent scrutiny on their investments and claims of profitable growth and market opportunity.”
Grab, Sea, and GoTo, regarded as tech champions in the ten-member ASEAN, have met “divergent market reactions” that highlight differing investor perceptions of their prospects, said David Materazzi, CEO of trading software provider Galileo FX.
“Sea … is viewed as having a more robust and scalable business model, which, despite challenges, appears closer to achieving sustainable profitability,” Materazzi told Nikkei. “Grab and GoTo, however, are seen as being on more precarious ground, with their current strategies not yet convincing the market of their ability to generate consistent profits.”
Grab reported that its operating loss shrank 68% in the second quarter, on an annualized basis, to USD 56 million. Offering services from food delivery to ride-hailing via its superapp, the Nasdaq-listed group has stuck with its 2024 guidance of between USD 250–270 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
But CFO Peter Oey declined to speculate when the company might become profitable.
“We haven’t given guidance as to when we will do that,” Oey told Nikkei after Grab’s second-quarter results were reported. “In due time, we’ll give some more guidance around the timing of our net profit—net income perspective—but our focus now is to improve the dollar-EBITDA.”
Analysts from HSBC’s Global Research unit, however, believe the company has a knack for “innovative products” like ride-sharing schemes and subscription plans for its business arms that can “fuel higher revenue growth in the future,” although risks linger.
“[A key downside risk is an] increase in cost of capital as Grab is a high duration stock and its valuation is quite sensitive to changes in cost of capital,” the analysts wrote in a research note.
Indonesia-listed GoTo, which, like Grab, offers a competing superapp platform with similar services, said losses in the second quarter shrank 42% year-on-year.
Analysts say GoTo has to do more than narrow losses, and that the company needs to become more competitive and improve its fundamentals to start making money.
“This set of results shows that the remaining on-demand business is still under strong competition,” Jianggan Li, CEO of Singapore-based consultancy Momentum Works, told Nikkei. “GoTo still needs to send a strong signal to investors about its financial viability.”
GoTo’s challenge, according to Marcus Wolter, Director at corporate advisory law firm Caldwell, is to integrate business lines across e-commerce, ride-hailing, and financial services effectively as a precursor to sustainable profits.
“The market may be skeptical about GoTo’s ability to achieve synergy between these operations, especially given the competitive pressures in Indonesia,” Wolter told Nikkei.
In contrast, Singapore’s Sea, which operates e-commerce and gaming businesses, has experienced a turnaround in its fortunes after regularly reporting a profit since the last quarter of 2022.
The New York Stock Exchange-listed company’s net income for April-June was USD 79.9 million.
It expects online shopping platform Shopee—the group’s biggest business—to generate greater sales value this year than previously stated, in March.
“Sea, in our view, is a distinct internet company in Southeast Asia, with competitive strengths in online games and online shopping,” Jefferies’ equity research unit noted in a report after the company released its second quarter results. “Its online shopping platform, Shopee, is well-known and is enjoying fast growth, with a ramp-up in monetization and operating efficiency.”
The way Sea, Grab, and GoTo have been assessed on their prospects for profitability highlights skepticism over ASEAN startups that chase capital but fall short in cash-generating results.
Fundraising activity in Southeast Asia has waned as institutional backers remain picky about betting on unproven businesses. A DealStreetAsia report on the first six months of this year showed the total value of equity funding proceeds from Southeast Asian startup deals fell 36% year-on-year to USD 2.29 billion—the lowest in over five years.
Analytics company GlobalData highlighted that, in the Asia Pacific, venture capital deals with disclosed funding rounds declined 16.5% year-on-year in the first half, reflecting ASEAN’s downturn.
“Macroeconomic challenges and geopolitical tensions seem to have had an impact on investor confidence,” Aurojyoti Bose, lead analyst at GlobalData, said in a note this month, pointing out that “most of the funding rounds announced in the region registered a decline in volume.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.