Disrupted by Covid-19, will South-east Asia's super apps join forces?

– Super apps explore inorganic growth options

– Gojek in talks with e-commerce company Tokopedia over $18bn merger

– Grab reported to be preparing for a public listing in the US

– Food delivery and financial services increasingly important segments

After a year of external expansion and internal reorganisation due to Covid-19, South-east Asia’s super apps appear to be looking towards mergers and public listings as a strategy for future development.

In early January international media reported that Indonesian ride-hailing and payments giant Gojek was in advanced talks about merging with local e-commerce company Tokopedia, in a deal estimated to be worth $18bn.

Any potential merger between the two would be significant for Indonesia. The two local unicorns could create a digital powerhouse, with integrated services ranging from ride-hailing to digital payments, e-commerce and delivery.

A tie-up would also create numerous synergies, such as Gojek’s fleet being able to serve Tokopedia’s online shopping orders. However, there is also some overlap in the digital payments space, where Gojek’s GoPay platform competes with Ovo, which is 35% owned by Tokopedia, although there is speculation that Tokopedia may look to sell its stake in Ovo.

The news was followed by separate reports in late January that Grab, Gojek’s biggest competitor in South-east Asia, had selected investment banks Morgan Stanley and JP Morgan to help work on an initial public offering (IPO) in the US, set to take place in the second half of the year.

The Singapore-headquartered company, which operates ride-hailing, food delivery, e-payment and insurance services in around 400 cities across eight South-east Asian countries, is valued at around $16bn. Its IPO is expected to raise at least $2bn, which would make it the largest overseas share offering by a South-east Asian company.

Increased competition

The latest reports of mergers and stock exchange listings come as the region's super apps continue to adjust to the market disruption created by the pandemic. 

Before speculation of a tie-up with Tokopedia, in December it was reported that Gojek was in talks about a potential merger with its biggest rival, Grab.

Such attempts appear to have been triggered by increased competition in key segments.

For example, while Tokopedia has long been the leading e-commerce player in Indonesia, in recent times it has fallen behind Shopee, owned by Singaporean internet company Sea, in terms of market share in its home country.

Meanwhile, while Grab maintained its status as the number-one food delivery brand in South-east Asia in 2020, with a gross merchandise value of $5.9bn, and Gojek was third with $2bn, other international players such as Foodpanda and Deliveroo increased their presence and advertising in the region throughout the year.

This trend towards mergers and acquisitions has not been restricted to South-east Asia or emerging markets, with Uber announcing in July that it had acquired Postmates, the fourth-largest food delivery service in the US, for $2.65bn.

The move highlighted how critical food delivery services have become during the pandemic. For example, Uber’s first quarter results showed that, while demand for its ride-hailing service was down by 80% year-on-year, bookings on its UberEats platform were up by more than 50%. On a similar note, in South-east Asia Grab’s two-year-old food delivery platform overtook its established ride-hailing service as the company’s main business line.

South-east Asia's super apps also sought to consolidate their offerings throughout 2020 by closing services that were low-profit or that struggled to adapt to social distancing measures.

Gojek announced in June that it would lay off 9% of its workforce and close GoLife, which offers household cleaning and on-demand massage services, and GoFood Festivals, the arm that operates physical food halls. Meanwhile, Grab made 360 employees redundant – around 5% of its workforce – and announced that it would close some “non-core projects”.

Despite this realignment and consolidation, the two super apps were among the few companies to record positive results throughout 2020.

Grab officials said the company’s revenue jumped by 70% last year, while Gojek recorded a 10% increase in its annualised gross transaction value (GTV), supported by a five-fold increase in GTV for its grocery service and an 80% spike in registered customers using its GoFood restaurant delivery service.

Move towards financial services

While food delivery services have become central to the business models of super apps, financial services have emerged as a key growth driver moving forward.

After introducing GoPay and GrabPay to process payments for ride-hailing bookings, both Gojek and Grab have rapidly expanded their financial services into point-of-sale and online payments, as well as ride insurance, travel insurance, and business loans for small and medium-sized enterprises.

To this end, in April last year Gojek acquired Indonesian payments start-up Moka in a deal estimated to be worth $130m, followed by the purchase of a 22% stake in local operator Bank Jago for $159m.

Meanwhile, Facebook and PayPal were among the high-profile companies to participate in Gojek’s Series F round of financing last June, which raised around $3bn.

As for Grab, in August last year the company upgraded its customer-focused financial products, launching new microfinance initiatives, loans, health insurance and a pay-later programme.

This was followed in November by a $100m investment in Indonesian fintech platform LinkAja, while the company’s financial arm, Grab Financial, raised $300m in a Series A funding round earlier this month.

In a further example of the increased emphasis placed on financial services, in December Grab – in partnership with Singaporean telco Singtel – was one of four entities granted a licence to run a digital bank in Singapore.