SINGAPORE (June 26): With the rapid proliferation of 4G LTE networks across the Southeast Asia region, the gig economy is seeing a boom, driven primarily by ride-hailing apps Grab and GoJek.
Also referred to as “super apps” due to the many other features apart from ride-hailing available within the apps, the duo are also the region’s the region’s first “unicorns”, with Grab valued at US$14 billion and Go-Jek at around US$10 billion in March 2020. Go-Jek, however, is in the midst of a Series F financing round, which has already attracted over US$3 billion in funding by early-June 2020
Both companies started off providing ride-hailing services, which still represents the majority of revenues for both in 2019. But now have diversified into other horizontals, including food delivery, digital payments, video streaming, hotel bookings, household care, and even massages on-demand.
“However, we anticipate some changes in their business models following the Covid-19 pandemic, which has already affected almost every industry globally,” says Fitch Solutions in a Thursday report.
“We expect both companies to gradually exit non-core, low-margin services over the coming years, and refocus resources into three core businesses: ride hailing, food/grocery delivery and payments,” it adds.
Meanwhile, segments such as hotel booking, ticketing services, on-demand massages and household care services could likely be promoted less aggressively or fall by the wayside in the future, especially with social distancing measures put in place.
At the same time, lack of scale, razor-thin margins, coupled with high levels of marketing expenses have weighed on profitability in these segments.
Already, GoJek has shuttered its GoLife service in June, which offers household cleaning and massage services, as well as its arm which operates physical food stalls. It also laid of 9% of its workforce. Grab has also recently let go of 5% of its employees, sunset “non-core projects” and consolidate functions to increase efficiency.
“Sustained pressures could force the two companies to further retrench and reorganise,” says Fitch.
On the other hand, Fitch expects the spotlight to be on financial services and that the duo will be key contenders in the financial services segment given that they possess a strong competitive advantage in terms of access to consumer spending and commuting data.
Both GrabPay and GoPay were introduced to process consumer payments for ride-hailing services, but have rapidly expanded to point-of-sale (POS) and online payments. Both companies have also begun offering ride insurance for its drivers and passengers, travel insurance, and business loans for small-to-medium enterprises (SMEs).
In June 2020, Facebook and PayPal contribute to GoJek’s most recent round of financing, with reports suggesting that the investment is strategic; the duo are looking to develop GoJek’s payments business further. Grab is also vying for one of two Singapore digital banking licences set to be allocated by the Monetary Authority of Singapore (MAS) in H220, and has partnered with telco Singtel for its bid.
Despite rapid growth, both companies were unprofitable in 2019 as they battled the price war and offered numerous discounts to users. Hence going forward, Fitch expects Grab and Gojek to scale back on subsidies and discounts in order to become profitable, especially so as investor funding could potentially slow amidst weaker global economic activity.
Furthermore, both companies will need to diversify themselves on infrastructure and services in order to be competitive toward the long run. “Rather than focusing on marketing campaigns, we believe that both Grab and GoJek will look at developing new infrastructure, such as autonomous vehicles (AVs), in order to reduce operational expenditure,” says Fitch.
There has also been talks that Grab and GoJek may merge. But Fitch sees this move as unlikely to occur. Although it may seem viable from a commercial perspective, it would result in a single, dominant player across multiple service segments - a scenario which would likely entail antitrust scrutiny.
