Friday, September 30, 2022
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Southeast Asian tech companies take a beating

meInvestors could not Enough of Southeast Asian consumer tech giants a year ago. This year, they haven’t been able to unplug fast enough. Tech companies across the region are suffering. They have been hit by the same forces that have sent global tech stocks down more than 20% this year. On top of this, rising inflation and the expectation of higher interest rates have diminished the appeal of companies looking for rapid growth today with dependable earnings that will only come in the future.

The Southeast Asian giants not only have to deal with the ills that plague tech companies around the world, they also face a “last in, first out” problem. The region is not a big part of many global portfolios’ allocation, and investors who flocked to the later stages of the boom may have lost their appetite. This has pushed valuations down beyond the global decline. Sea, the largest publicly traded technology company in the region, is a good example.

Sea’s market cap is now $36 billion, down from more than $200 billion at the end of last year. The company’s share price posted another sharp drop after it released quarterly results on August 16. Revenue, generated mainly by Shopee, its e-commerce subsidiary, and Garena, its video game division, grew more slowly than expected, up 29% year-on-year to $2.9 billion. Tech companies around the world are being punished for their inability to generate reliable income from investors who are now monomaniacally focused on generating cash. Sea’s free cash flow in the second quarter was minus $607 million, the largest negative figure on record.

The sea is not alone in its struggles. Grab, a Singaporean super app that offers deliveries, financial services and more, went public in December. Its shares have since fallen. Bukalapak, an Indonesian e-commerce company that also listed last year, has seen its valuation drop by two-thirds in the last 12 months. GoTo, the Indonesian holding company that owned Gojek and Tokopedia after their merger in 2021, avoided defeat but its shares have languished in recent months.

Grab’s second quarter results, to be released after The Economist is published, and GoTo, launched on August 30, could bring better news, but Sea’s recent experience shows that the three companies’ ambitious financial technology and payment plans, which require large investments and many years to grow, are not suit impatient investors.

Amid the gloom there are some reasons to rejoice. Emerging-market equity fund allocations to the region have risen slightly this year, notes Steven Holden of Copley Fund Research, as fund managers have sought alternatives to Russian stocks. China’s crackdown on its tech companies also leaves investors looking for other places to park their money.

Beyond publicly traded companies, venture capital activity has slowed but not collapsed. Capital raised for region-focused funds this year was $8.3 billion on Aug. 22, compared with $13.2 billion for all of last year, according to Preqin, a data provider. The amount invested in vc This year’s deals total $10.7 billion, already more than the total for all but two previous years: 2018 and 2021. Sustained interest in smaller private companies is good news for Southeast Asia, but it does little for the pain of the largest publicly traded companies. .

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