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Home»Finance»Southeast Asian Tech Giants Poised for Profitability in 2024
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Southeast Asian Tech Giants Poised for Profitability in 2024

April 3, 2024No Comments4 Mins Read
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Southeast Asian Tech Giants Poised for Profitability in 2024
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Last week I wrote about how Indonesian tech giant GoTo is inching toward profitability by, among other things, selling 75 percent of its e-commerce operation to TikTok and aggressively cutting costs. GoTo might even post a net profit this year, which would represent quite a turnaround from recent years where losses have gone into the 10 digits. And they are not alone. Regional competitors, like Grab, are also moving closer to profitability. Sea Limited, which owns e-commerce platform Shopee, actually became profitable for the first time in 2023.

How can we explain this shift in Southeast Asian tech? For one, many of the region’s biggest unicorns (Sea, Grab, GoTo) went public in the last few years. Before these firms went public, they were mainly funded by large injections of venture capital from big investment funds with billions of dollars under management. That meant the early focus for Grab, Go-Jek, Tokopedia, and Shopee was to expand their market share in Southeast Asia’s booming digital economy as fast as possible, even if it meant operating at a loss.

But once a firm goes public, they become more accountable to shareholders. And shareholders won’t necessarily hold onto a stock forever in the face of billion dollar losses year after year. So after the wave of big tech IPOs the pressure intensified to pivot away from growth at all costs and toward profitability. And that is the phase major tech firms in the region now appear to be in, with most of them looking to get more efficient by reducing costs and boosting revenue.

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Take ride-hailing and delivery firm Grab, which still operated at a net loss in 2023, but a narrower loss of $485 million compared to $1.7 billion in 2022. Like GoTo, Grab has been trying to get to profitability by cutting costs and reducing consumer and driver incentives. They have also been experimenting with changes to their fee structure in some markets. So far it seems to be working. Revenue was up from $1.4 to $2.4 billion year over year and if they maintain this course Grab could soon be in the black.

Sea, which is the biggest of Southeast Asia’s tech titans and was also the first one to go public on the Nasdaq back in 2017, has already beat its rivals to profitability by posting net income of $163 million in 2023. Just one year earlier, Sea posted a loss of $1.66 billion. Like its regional peers, this turnaround was accomplished through reductions in operating expenses, including a 21 percent decrease in general administrative costs and a 15 percent decrease in sales and marketing costs. Operating expenses across the board were down 16 percent in 2023.

But Sea is also more diversified than Grab or GoTo. They have digital gaming, digital finance and e-commerce operations, with deliveries being only a small part of their business model. Digital entertainment, long Sea’s most profitable segment, has seen earnings and market share fall in recent years. Nevertheless, it’s still a good earner bringing in nearly $1.2 billion in net operating income last year. Sea’s digital financial services also brought in net income of $490 million in 2023.

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Meanwhile, revenue at Shopee was up 23.5 percent year over year while losses in the e-commerce segment were $550 million in 2023, down considerably compared to $2 billion in 2022. This is at least in part because Shopee has been raising fees and commissions for merchants.

If this trajectory continues and all of Sea’s operations across digital gaming, finance and e-commerce start delivering profits in 2024 or 2025, the company might finally begin living up to the hype that justified its sky high valuation a few years back. And while they face a bit of a steeper climb, GoTo and Grab might not be too far behind.

Asian Giants poised Profitability Southeast Tech
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