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Tech companies in Southeast Asia have been hit hard

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SINGAPORE

I Investors a year ago, were sick of Southeast Asia’s consumer tech giants. This year, they couldn’t write off quickly enough. Tech companies in the region are suffering. They have been hit by the same forces that have plunged global tech stocks by more than 20% this year. On top of that, soaring inflation and expectations of higher interest rates have eroded the appeal of companies that aim to grow fast now, with reliable profits only to come sometime in the future. Listen to the story.

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Southeast Asian giants not only have to deal with the problems plaguing global tech companies The drawbacks, but also face the “last in first out” problem. The region is not important in the allocation of many global portfolios, and investors who flooded in late in the boom may have lost interest. That’s further depressed valuations than the global slump. Sea, the largest publicly traded tech company in the region, is a case in point.

Sea’s market cap is now $36 billion, down from $200 billion at the end of last year. The company’s shares fell sharply again after releasing quarterly results on Aug. 16. Revenue, mainly generated by its e-commerce subsidiary Shopee and its video game unit Garena, grew slower than expected, rising 29% year over year to $2.9 billion. Global tech companies have been punished by investors for failing to generate reliable income, who are now single-mindedly focused on cash generation. Sea’s second-quarter free cash flow was negative $607 million, the largest negative number on record.

The sea is not alone. Grab, a Singapore-based super-app offering delivery, ride-hailing, financial services and more, went public in December. Its shares have since plummeted. The valuation of Indonesian e-commerce company Bukalapak, which also went public last year, has fallen by two-thirds in the past 12 months. GoTo, the Indonesian holding company that owns the company after Gojek and Tokopedia merged in 2021, avoided a slump, but its shares have languished in recent months.

Grab’s second quarter results will be released by Economists release, the August 30 launch of GoTo may have brought better news, but Sea’s recent experience suggests that The three companies’ ambitious plans in payments and financial technology require heavy investment and years of growth, and are not for impatient investors.

In the gloom, there are some reasons to cheer. Steven Holden of Copley Fund Research noted that fund allocations to emerging market equities in the region have increased slightly this year as fund managers have been looking for alternatives to Russian equities. China’s crackdown on its tech companies has also left investors looking for other places to park their money.

Venture capital activity slowed but not collapsed, except for public companies. Funds focused on the region raised $8.3 billion this year as of Aug. 22, compared with $13.2 billion for all of last year, according to data provider Preqin. The total investment in vc transactions this year reached $10.7 billion, which has exceeded the previous two years- 2018 and 2021. Continued interest in small private companies is good news for Southeast Asia, but not so much for the pain of large public companies. ■

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This article appears in the business section of the print edition under the heading “Tropical Depression”

from the 27th August 2022 edition

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