Southeast Asia digital economy earns US$11 billion in 2024, e-commerce narrows losses

While the amount is just 12 % of the sector’s total revenues of US$89 billion, the gains underscore three years of steady double-digit growth in surpluses in a young industry better known for losses among start-ups and, sometimes, even big names.

Online media firms led the sector’s rise in profit margins over 2024 with a boom in video and music streaming, online gaming and exclusive video content, while travel portals widened profits for a second year after raising commissions and adding peripheral services such as guided trips and car rentals.

E-commerce, transport and food apps are still steeped in red but have narrowed losses through stronger marketing, new products and cutbacks on customer and drivers’ incentives.

The insights are from the ninth edition of an annual report by consultancy firm Bain & Company, Temasek and Google, and cover Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Collectively, these countries have a population of 612 million, almost double that of the US.

While revenue growth and investors’ funding for the industry both slowed from 2023, Mr Florian Hoppe, a partner in Vector, Bain’s digital delivery platform, and a senior member of Bain’s telecommunications, media and technology practices, maintains an earlier forecast that the region’s digital companies will meet US$295 billion in gross merchandise value (GMV) in 2025.

GMV, the total value of goods sold between customers or from e-commerce platforms, is one indicator of growth. It does not include fees and deductions such as coupons.

Speaking at a panel to explain the findings on Nov 5, Mr Hoppe said that he expects players in e-commerce and transport and food apps to continue trimming losses to reach profitability.

He said: “In general, we see all sectors doing really well right now, so, short of any kind of bigger macroeconomic event, we think the market is actually tracking a really nice direction for the region.”

The World Economic Forum projects Southeast Asia’s digital economy to reach US$1 trillion by 2030​​. That would be almost four times the US$263 billion in 2024 for GMV estimated by the panel’s report.

“The South-east Asia digital economy is rooted in robust macroeconomic fundamentals,” said Sapna Chadha, vice president for the region at Google Asia-Pacific.

The region’s gross domestic product (GDP) is expected to grow 4.5 % over the next three years, she said. That would match the growth in China and outpace most developed economies such as the US and European Union.

Except for Malaysia and Vietnam, inflation is also expected to ease in 2024 in four of the region’s six markets covered in the report.

Foreign direct investment rose 19 % and consumer expenditure grew by 8 % in the first three months of 2024 over the same period in 2023.

Google, which owns YouTube, pointed out that video commerce, such as live streamers selling products, has grown by more than four times over two years.

It is driving a resurgence in the e-commerce story, said Chadha. “Now, Southeast Asia shoppers turn to video before they buy. It’s clear we’re at a pivotal moment here.”

Digital finance is also growing, led by the rising adoption of QR codes and access to app-based credit solutions.

The panel expects continuing momentum as merchant acceptance expands, risk underwriting gets better, and more consumers move online for insurance and wealth services.

Across the region, venture funding has slid amid high interest rates, global tensions and two wars.

The report shows that Singapore’s digital economy’s GMV grew 13 % to US$29 billion in 2024, trailing behind the 15 % growth for the region and continuing a pace of slower growth.

Government data shows that, in 2023, Singapore’s digital economy accounted for 17.7 % of GDP and hired 208,300 workers.

It outsized the financial services and insurance sectors and matched the manufacturing sector, but still, its contribution of $113 billion was a cut from $115.9 billion in 2022.

But the outlook retains bright spots, said Mr Fock Wai Hoong, head of Southeast Asia at Temasek.

“In 2023, funding for companies – excluding the tech giants – was roughly US$7 billion. This exceeded the US$6 billion raised in 2019,” he said. “We see this as a healthy sign, a normalisation of the funding environment as Southeast Asia’s premier cohort of unicorns reach maturity.”

Examples in the cohort include Grab, Lazada, Tokopedia and Gojek.

There are also sparks of investor interest in software and sustainability tech, said Fock.

Scaling and cost management are leading more firms to show healthier bottom lines.

About 70 % of venture capital investors surveyed by the report said at least one in four of their investments are currently profitable or reaching profitability in the next 12 months.

The region is also shaping up its artificial intelligence (AI) story, with over US$30 billion committed in investments for AI infrastructure in the first half of 2024. About US$9 billion of this was for Singapore to build AI-ready data centres.

“It’s more than just taking all the existing racks and putting your racks in,” said Fock.

These AI-ready data centres have completely new requirements such as in cooling and power consumption.

Fock said: “You really have to build these new data centres, which I think is quite an exciting opportunity for Southeast Asia.”

Krist Boo

The Straits Times

Asia News Network