For south-east Asia’s so-called superapps and their investors, life is suddenly looking a lot less super.
Singapore-based Grab and Indonesia’s GoTo spent much of the past decade in a dash to bundle consumer services from ride hailing to food delivery into a single app. Global investors pumped in money, betting on strong growth from the region’s tech-savvy consumers in the wake of China’s experience with superapps and a boost from pandemic-inspired demand for digital services.
But Nasdaq-listed Grab and Jakarta-listed GoTo have been forced into a retreat over the past 12 months, shedding thousands of jobs and cutting back marginal business units. Their share prices are more than 60 per cent below their listing price.
Rising interest rates are ending an era of cheap funding and forcing the cash-burning companies into a reality check on whether their business models will lead to profits, analysts said.
“Covid gave GoTo and Grab supernormal growth,” said Angus Mackintosh, founder of CrossASEAN Research. “It accelerated their take-up. They still have a superapp model but have had to pare it back a lot. They cannot go out in the same aggressive fashion they used to. They have to make a profit.”
Grab and GoTo, south-east Asia’s biggest start-ups before their listings, took inspiration from the grandfather of superapps, Tencent’s WeChat. The Chinese app is the world’s most popular, with more than a billion users, and combines messaging, online payments, ecommerce, video conferencing, video games, photo sharing and a host of other functions.
WeChat’s success gave birth to a similar revolution in the region from South Korea to Indonesia, where consumers suddenly gained access to services previously unavailable to them, including lending for millions of poorer consumers with patchy access to regular bank services.
SoftBank, KKR, Temasek, Warburg Pincus, Microsoft, Google and Tencent were among the backers of GoTo and Grab.
The frenzy culminated in the blockbuster listing of Grab through a record $40bn merger with a special purpose acquisition company in New York in 2021, a tie-up between ride-hailing group Gojek and Indonesian ecommerce group Tokopedia and the subsequent public listing of the merged company GoTo in Jakarta in 2022 with a valuation of $32bn.
Now the model — which relied on enticing customers with expensive subsidised perks such as free delivery, discounts and gifts to dominate markets from Thailand to the Philippines — faces a reckoning. In addition to laying off 11 per cent of its workforce, or more than 1,000 people, last month, Grab also cut its cloud-kitchen business, rolled back subsidies in areas such as food delivery and is spending less time on expansion into units such as entertainment.
Grab founder Anthony Tan said the job cuts were not a “shortcut” to profitability. He said the Singapore-based company was on track to break even by the end of the year on an adjusted earnings basis.
But with that has come much slower growth and fewer transactions by customers.
Grab reported a smaller quarterly loss of $244mn in the first three months of 2023. However, gross merchandise value, or sales volumes, eked out 3 per cent growth, compared with 24 per cent for all of 2022 and 11 per cent year-on-year growth in the final quarter of last year.
GoTo also reported narrowing losses in the first quarter of this year with a net loss of Rp3.9tn ($260mn). Its growth also slowed, with gross transaction value up only 6 per cent to Rp149tn for the first quarter compared with the previous year. That compared with 33 per cent growth for all of 2022 and 18 per cent year-on-year growth in the final quarter of last year.
“Slower growth is driven by the conscious decision we have made to weed out low-quality, subsidy-driven transactions as we calibrate our business for a future in which every user can be profitable,” the company said in a statement.
GoTo has also done several rounds of job cuts and scrapped several on-demand business lines such as GoClean and GoMassage, which brought cleaners and masseurs to customers’ doorstep.
Last month the Indonesian group appointed Patrick Walujo, a nationally known corporate figure and long-time investor in the business, as chief executive in a move some investors said could bring more restructuring.
“He is the consummate Indonesian businessman, and he is not a sentimental guy,” said one investor. “If there are difficult decisions to be made or deals to be done, he will do it.”
Shane Chesson, founding partner of Openspace, a venture capital fund manager and early investor in Gojek, said the superapp model still “makes sense” for capturing customers’ daily activity. “Companies have refocused on essentials and dropped the more frivolous services. Expectations around constant discounts being doled out to consumers have also been moderated,” said Chesson.
One Grab executive, who wished to remain anonymous, said while the company had become “more streamlined”, it still believed it could offer multiple services and be profitable along the lines of Uber, which offers food delivery and mobility services. The San Francisco-based company, which is an investor in Grab, in May reported record first-quarter adjusted earnings before interest, taxes, depreciation and amortisation.
Others have doubts on whether south-east Asian superapps can bring investors consistent profits. While GoTo and Grab claim there is ample opportunity because market penetration is still low in south-east Asia, they have far more competition.
Well-financed Chinese rivals such as ByteDance-owned TikTok Shop have crowded into ecommerce in the past 12 months. Another fast-growing competitor with multiple businesses is Tencent-backed Sea, the operator of online commerce platform Shopee. It has moved into food delivery and is also competing hard in financial services, an area in which Grab and GoTo hope to grow.
Still, some said GoTo and Grab might be spread too thinly.
“These companies still offer a lot more services on a single app than an Uber does and have a lot of competition,” said one global investor who decided not to invest in what was then Gojek in 2019. “I don’t think the superapp model has matured enough yet to offer a sustainable future. It is still a choice between growth or profitability. You can’t have both.”