SINGAPORE (Reuters) – In front of an outdoor restaurant in Jakarta, orange-clad delivery drivers from Southeast Asia (SE.N) technology group Sea Ltd wait for orders alongside market-leading green-jacketed riders. Gojek and Grab, in what has become the latest battleground for control of technology in Southeast Asia.
The humble noodle restaurant signed up for Seafood startup ShopeeFood a month ago, but “immediately, there were orders every day,” said restaurant manager MA Rasyid.
Through the success of its cash-generating gaming business, US-listed Sea has invested heavily in its e-commerce brand Shopee and successfully acquired Lazada from Alibaba and other competitors in recent years. Its share price has increased fivefold over the past year, giving the company a market capitalization of $111 billion.
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Singapore-based Sea now operates food delivery and financial services in Indonesia, the world’s fourth most populous country, posing a new threat to regional competitors including taxis, delivery, Grab’s rhino and GoJek.
At stake is a slice of the more than 400 million internet users in Southeast Asia’s digital economy, which is estimated to triple to reach $309 billion by 2025, according to a study by Google, Temasek, Bain & Company.
Tech giants including Tencent (0700.HK), a major investor in Sea, Alibaba (9988.HK), Google (GOOGL.O) and Softbank Group Corp. (9984.T) are big supporters of Southeast Asia’s internet champions.
Sources say Sea’s massive expansion is one of the main sources driving merger discussions between Gojek and e-commerce platform Tokopedia. The two Indonesian companies aim to create an $18 billion energy hub to battle regional leader Ghorab for riding services.
Meanwhile, Grab and other players, including travel app Traveloka and Indonesian e-commerce unicorn Bukalapak, are scrambling for public listings, hoping to ride the battles of Sea’s stock rally while defending their land, according to Reuters interviews with more than a dozen people.
“The sea is like Thanos, huge and powerful, capable of destroying half the world, or in this case half of the startup,” joked Wilson Kwaka, co-founder of East Ventures and one of Tokopedia’s early backers group into the powerful villain of the Marvel movie series.
“Like the Avengers, companies need to band together if they are to ensure their survival and win the war.”
Criticism is king
Sea’s stock rally reflects a dearth of options for investors seeking exposure to Southeast Asia’s booming internet sector. It went public in 2017 and raised about $7 billion in stock and debt sales, with lead investor Tencent now owning about 20% of the stock.
Bankers and executives familiar with the matter say that investor appetite, combined with the need to raise money to match C’s strength, is forcing competitors to seek public listings as quickly as possible.
Sources say the Gojek-Tokopedia merger, which is likely to be completed within weeks, will be followed by a listing in Jakarta in the second half of 2021, and then a massive initial public offering in the US targeted for 2022.
The sources said that Grab and Traveloka, for their part, are looking to speed up the process by merging with special purpose acquisition firms. Bukalapak is planning the same thing, after the 2021 Jakarta IPO.
“The market is very welcoming of tech stocks. It’s an opportunity for Grab if they are ready for it,” said Jixun Foo, managing partner at GGV Capital, which has invested in Grab.
Sea’s success is credited to the online gaming business Garena, whose title Free Fire of 2017 has become the most downloaded game in the world over the past two years.
It’s using Garena’s cash to replicate its success in e-commerce, food delivery, and financial services.
The Shopee division started in 2015 as a platform for local sellers and quickly gained traction with many merchants regionally. It has now overtaken both Lazada as the best e-commerce player in the region and Tokopedia as a leader in Indonesia, thanks in part to innovations like adding social features to its service.
Gojek and Grab, who have followed merger talks back with each other for years, believe they can stave off Sea’s transition into food delivery thanks to good logistics and early advantages.
But they could be hard-pressed to match Sea’s subsidies: In Vietnam, a sea-owned food delivery service is now quietly dominating the sector, according to a January report from consultancy Momentum Works.
In Indonesia, ShopeeFood is wooing sellers by promoting its 80 million user base and promising to support steep discounts.
The next showdown will be in financial services.
Sea has bought Indonesian lender BKE and appointed a veteran peer-to-peer platform expert in China to head its “SeaMoney” banking effort.
“SeaMoney could become an Ant Financial in Southeast Asia,” said Daniel Jacobs, managing partner at emerging markets hedge fund Quora, a Sea contributor.
“After paying, they have the vision and the will to grow in the vicinity, from ‘buy now, pay later’ on the customer side to trade credit and all kinds of financial services.”
But Tokopedia and Grab, both of which are part of Indonesian payment app OVO, have similar ambitions. Sea and Grab are set to compete in Singapore, where both won coveted digital banking licenses in December.
Grab has the backing of several investors including the SoftBank Group and Mitsubishi UFJ Financial Group (8306.T).
“This is going to be a battle of the giants,” said Patrick Walugo, co-founder of Indonesian private equity firm Northstar Group and investor in Gojek.
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(Additional reporting by Fanny Botkin and Anshumman Daga in Singapore) Additional reporting by Aradhana Aravindan; Editing by Jonathan Webber and Kim Coogle
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