SINGAPORE (Reuters Breakingviews) - Southeast Asia’s apps-for-everything will dominate in 2019. Cash is being lavished on Grab and Go-Jek, as they dabble in everything from ride-hailing to groceries. It’s a Chinese approach to luring and keeping consumers who are moving online fast.
The region from Myanmar to Indonesia is one of the world’s fastest-growing internet markets, with cheap smartphones, low connection costs and improving data speeds. On average, according to a 2018 study by Google and Singapore’s Temasek, Thai users spent almost five hours online daily - more than three times their Japanese counterparts.
That’s created more than 10 technology companies worth over $1 billion. Yet the bounty is unevenly spread: out of $24 billion pumped in over less than four years, according to Google’s report, two-thirds will have gone into just nine companies. This year alone, Grab, which bought Uber’s local business, says it will have received $3 billion, almost one quarter of its valuation. Go-Jek, valued at $9 billion to $10 billion, is not far behind.
The result will be a widening funding gap between the two ride-hailing groups in particular, and some 400 or so startups seeking cash. Investors flock to those bearing the SoftBank or Tencent seal of approval, but are less interested in the middle - companies that are neither wholly proven, nor cheap in a region where consultancy Bain cites the average deal valuation in 2017 at a punchy 13.5 times EBITDA.
Part of the reason is the transformation of Grab and Go-Jek into apps-for-everything, along the model of China’s Meituan Dianping, is to keep consumers coming back for payments, rides, massages and takeouts, among other things.
It’s not easy to do it all: Facebook and Google parent Alphabet have struggled. But funds have been less forthcoming in Southeast Asia than in China, which has a deeper pool of domestic capital. And for foreign investors in untested markets, big players, with manifold partners, are hard to resist. It is a tough region too, with a patchwork of different needs: even Alibaba has found its Midas touch lacking, forcing it to shake up management at its e-commerce unit Lazada in 2018.
Ongoing uncertainty in emerging markets will keep investors wary into 2019, and initial public offerings distant. That will feed the superapps.
- This is a Breakingviews prediction for 2019. To see more of our predictions, click reut.rs/2R6H5pG
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