A battle fought in 70 AD is replaying in the tropics. Grab Holdings, GoTo Gojek Tokopedia and Sea are battling for the holy grail — Asean’s super app. Last year, I wrote that the battle for the Asean super app was unusual.
A super app is a digital one-stop shop. The three parties want to become like Alibaba Group Holding in China. Consumers would go to a single source to hail a ride, order a meal or get a loan.
Most battles in business or in the trenches involve two parties. The Ukrainians defying the Russians in Mariupol is an example.
The Asean battle is rare. There are three parties at each other’s throat, not two. This may be the first such event since the siege of Jerusalem in 70 AD.
Investors in the stock market may have forgotten that conflict. Jerusalem was then held by the Judeans. The Romans wanted to regain control of the holy city. They attacked the city by trying to scale its walls.
But that was not the only battle. Inside the walls of Jerusalem, the Judeans were fighting a revolt of the Zealots. It was a savage war of shifting alliances. The Zealots initially teamed up with the Judeans against the Romans. Later, the Romans allied with the Zealots.
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The three sides stabbed each other in the back. In the end, the Romans won because they had the most arms.
Digital finance
It has been two millennia since that war ended. But, the battle for Asean may turn out to be similar.
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Grab is the ride-hailing and food delivery giant. GoTo is challenging Grab. In e-commerce, Sea is battling with GoTo for dominance. All three players are investing heavily in digital finance. Digital finance is a fancy term for a simple pleasure. It involves paying bills or getting an insurance plan through your smartphone.
Cash is like ammunition in the Asean super app fight. The party with the deepest pockets may prevail, like the Romans in 70 AD.
In fact, the last six months has changed the Asean landscape. Cash has become a prized commodity. The cash tap has dried up.
GoTo was listed in Indonesia last month. It followed Grab’s Nasdaq listing in December last year. Sea was listed in 2017.
Disaster has struck the emerging market tech space in the last six months. Grab has lost 83% of its value. Sea has done worse with an 85% drop. GoTo raised US$1.2 billion ($1.7 billion) in one of Indonesia’s biggest IPOs. But the stock has now lost 39% of its value.
The US Federal Reserve’s interest hike has changed the perception towards emerging-market tech. Higher interest rates means that investors are no longer patiently waiting for tech companies to generate cash. All three players are unlikely to be cashflow-positive until FY2024. Profits may take even longer.
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Grab and Sea were clever. They raised funding during the height of Covid in 2021. Their valuations were five times the current level. At the top of the market, they issued equity. Sea raised US$6 billion in an equity issue in December 2020.
The devastation in emerging-market tech means that new financing is tough. Those that have raised money are on a strong footing.
Sea has US$5.7 billion of net cash in its kitty. Its cash burn from e-commerce has averaged US$1 billion in the last three years. That could worsen as the battle intensifies. It would need to spend on advertising, as well as under-cutting GoTo. Its gaming business is weak as it depends on a single game, Free Fire.
Grab has US$6.8 billion in net cash. Its annual cash burn is about US$1 billion, but this could fall. This means that it could fund seven years of cash burn.
GoTo has a net cash position of US$2 billion. Despite the IPO sell-off, GoTo is priced at 28x FY2022 EV/Sales, which more than six times Grab’s figure. At the current cash burn, GoTo may run out of money in FY2024.
GoTo is on the weakest footing among the three. They resemble the Zealots in 70 AD. The Zealots were high on rhetoric but low on arms.
Grab is the favourite to emerge as the super app. The Romans won as they were the only ones who had iron spears. Investors should bet on the firepower of the green giant.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column
