Southeast Asia's internet economy to be worth $100b in 2019

When Google and Temasek began their research program in 2016, regional GMV was expected to reach $200 billion in 2025. However, the pace of growth – specifically the speed of adoption, with the number of ride-hailing users and online shoppers rising fivefold and threefold, respectively, in the past four years – has prompted a reevaluation.

Faster growth has attracted more substantial capital flows. Internet companies – across travel, media, ride-hailing and food delivery, and e-commerce – raised $7.6 billion in the first half of 2019. Should this be matched in the second half, the annual total would surpass the record $14.1 billion deployed last year. In 2015, funding for internet economy companies was just $1.1 billion.

Two in every three dollars raised since 2016 has gone into e-commerce and ride-hailing, led by the likes of Tokopedia, Lazada, Bukalapak, Grab and Go-Jek. But the report noted that areas such as food delivery, music and video streaming, vacation rentals, and financial services have gained traction in recent years, while education and healthcare represent nascent opportunities.

In addition to bumper funding rounds for unicorns – of which there are now 11 in Southeast Asia's internet economy – approximately 70 companies valued at $100 million to $1 billion have raised $5 billion since 2016. The average Series B investment is now $16 million, compared to $8 million in 2016, while Series A rounds have doubled in size to $4 million.

Moreover, the funding gap between Series B and C has shifted to Series C and D. A total of $1 billion was deployed across 85 Series B rounds in 2018, up from $400 million for 50 rounds in 2016. Over the same period, the number of Series C and D investments rose from 11 to 31, with aggregate capital committed increasing from $900 million to $1.5 billion. However, $8.3 billion went into 11 rounds in the Series E and above segment, up from $900 million for two deals in 2016.

Southeast Asia is home to 360 million internet users, of which two-thirds are aged 15-64 and one quarter are 14 years and below. They spend half their time on social media and networking apps, 20% on video platforms, and 11% on gaming. The internet economy accounted for 3.7% of GDP in 2019, up from 1.3% in 2015, and it is expected to hit 8.5% by 2025.

Indonesia and Vietnam are the fastest-growing markets, with their internet economies expanding by 49% and 38%, respectively, over the past four years. By 2025, Indonesia's GMV is projected to be $133 billion, ahead of Thailand on $50 billion, Vietnam on $43 billion, and Singapore on $27 billion.

At the same time, activity is concentrated in urban areas. Seven metropolitan zones – Jakarta, Kuala Lumpur and Klang Valley, Manila, Singapore, Greater Bangkok, Hanoi and Ho Chi Minh City – are responsible for more than 50% of the internet economy despite accounting for just 15% of Southeast Asia's population. However, GMV in non-metro areas is expected to grow fourfold between 2019 and 2025, twice as fast as metro areas, as companies build out their service infrastructure.

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Other key trends identified in the report include a switch in focus among internet companies from acquiring new customers to driving engagement with a view to extending the amount of time spent on platforms and increasing consumption activity. Meanwhile, digital payments has reached an inflection point, with annual transactions expected to surpass $1 trillion by 2025, accounting for nearly one in every two dollars spent in the region.

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• Topics
• Southeast Asia
• Technology
• Consumer
• Early-stage
• Expansion
• TMT
• Google
• Temasek Holdings