Growing pains for Grab and Sea amid profit push

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Hello reader,

Like millions of people across Southeast Asia, I probably use Grab, Shopee, or a similar platform at least once a week.

I’m no shopping addict, nor am I incapable of making my own food or driving myself somewhere, but these services are just so convenient for life in a big city. They’re certainly a far cry from anything I could have imagined growing up in the middle of nowhere in Northern Ireland.

My own use of these platforms has definitely led to a bit of confirmation bias, as I was surprised when I read in today’s featured story that overall market penetration is still relatively low. As the article explores, Grab et al. still have room for steady growth, but boosting revenue may be tough.

Today we look at:

• Southeast Asian tech titans’ push for profit, but it may not be plain sailing
• Beijing moving its driverless car policy into high gear
• Other newsy highlights such as Singapore’s Validus Group scooping up US$17.57 million in funding and SK Group eyeing a US$56 billion investment in AI.

Premium summary

Grab and Sea contend with the revenue ceiling

Image credit: Timmy Loen

Southeast Asia’s tech standard bearers like Grab and Sea Group are set for steady growth, but rising prices could get in the way of their profitability push, according to analysts.

While the overall market size for ecommerce, food delivery, and ride-hailing is expected to grow, customers are becoming more price conscious.

• Bigger pie: The region’s swelling middle class and behavioral shifts are driving growth in gross merchandise value, analysts say. Of the estimated 200 million households in the region, only 20% to 30% actively use an ecommerce or food delivery platform, according to Jonathan Woo, senior research analyst at Phillip Securities Research. That leaves plenty of room for tech firms to increase market penetration.
• Pinching pennies: However, inflation is a significant concern for consumers, which may make it hard for platforms to boost their revenue. A Maybank Research survey of consumers found that 53% of respondents don’t get food deliveries due to their costliness, while 75% said they were cutting back due to price hikes. A key revenue driver for a food delivery platform is its take rate, or the commissions charged for services, and Woo says increasing these figures for food delivery will be tough in this context.
• Is ecommerce the answer?: With monetization in food delivery likely capped, tech giants could turn to ecommerce for profit. As the ecommerce market consolidates, however, platforms are still eyeing higher take rates. TikTok Shop’s aggressive entry and subsequent merger with Tokopedia shook up Indonesia, pushing Shopee to double its sales and marketing spending to keep pace.

Read more: SEA’s tech titans face revenue ceiling despite steady growth

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