Southeast Asia’s digital economy posted $11 billion in profit this year, nearly trebling from $4 billion in 2022, driven by innovative revenue models, targeted incentives, and tighter commissions, according to the e-Conomy SEA 2024 report by Google, Temasek, and Bain & Co.
“After years of investment and development, key players in the region’s digital economy have progressed towards profitability while maintaining double-digit growth for GMV and revenue,” the report said.
The report, “Profits on the Rise, Harnessing SEA’s Advantage”, marks the first time that Google, Temasek, and Bain & Co focused on profit metrics in the digital landscape.
A DealStreetAsia DATA VANTAGE analysis of 922 venture-backed companies recently revealed that 16.8% of the sampled companies reported a positive net income in their latest financial year. Among these, over half, or 8.9% of the total sample, turned to profit after securing a loss in their previous financial year.
The region’s digital economy is projected to reach $263 billion in gross merchandise value (GMV) in 2024, a 15% year-on-year increase, while revenue is expected to hit $89 billion after growing 14% this year.
The annual report examines the trends and insights in the five mainstay digital sectors in Southeast Asia — e-commerce, travel, food and transport, online media, and digital financial services. It covers Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
The Southeast Asian digital economy, observed Sapna Chadha, Vice President for Southeast Asia and South Asia Frontier at Google, is rooted in robust macroeconomic fundamentals. The region’s GDP is expected to grow by 4.5% over the next three years, with inflation cooling in four of the six markets, foreign direct investment (FDI) remaining high, and consumer spending continuing to grow.
The report further highlights Southeast Asia’s emerging role as a global hub for AI innovation and adoption, with the region attracting over $30 billion in AI infrastructure investments in the first six months of this year alone.
Additionally, there is increasing consumer interest in exploring and adopting AI solutions, with searches for AI growing by 11 times in just four years, the report added.
“To fully harness the transformative potential of Generative AI, businesses must advance beyond experimentation and invest in foundational elements — aligning AI initiatives with core business objectives to address real-world problems,” said Florian Hoppe, partner at Bain & Company.
E-commerce reboots
The growth of video commerce has reaccelerated e-commerce in the region, with GMV expected to reach $159 billion this year. According to the report, video commerce now constitutes 20% of e-commerce GMV, up from less than 5% in 2022.
The growth in GMV is fuelled by incumbents reinvesting to defend their market share as international players enter the region to drive disruption. These activities will lead to a 13% year-on-year revenue growth in 2024 to $35 billion, per the report.
Food delivery is also gaining momentum, with revenue expected to grow 5.4% year on year to $1.7 billion, while GMV is forecasted to increase 7% to $19 billion. The growth is driven by new monetisation pathways, such as in-app advertisements and subscriptions.
“Platforms are testing new recipes for future profitability, such as improving visibility on restaurant selection pages while tapping on AI to optimise their operations,” according to the report.
Revenue in the transport sector is also projected to grow by 36% to $1.5 billion on the back of rebounding demand and pricing. The sector’s GMV is expected to increase by 18% to $9 billion.
Online travel, on the other hand, is projected to see gross travel bookings touch $46 billion this year, a 21% increase from a year earlier, while online media is expected to see an 11% year-on-year GMV growth to $30 billion.
Digital financial services are also experiencing rapid growth, the report said. The sector’s revenue is expected to increase by 22%, from $22 billion in 2022 to $33 billion in 2024, with digital payments and lending accounting for over 90% of the total revenue.
Singapore on a roll
The report further highlights how Singapore’s digital economy has demonstrated remarkable resilience. For this year, the city-state’s digital economy is projected to reach $29 billion in GMV, up 13% from a year earlier.
E-commerce, alone, rebounded from $8 billion GMV in 2023 to $9 billion in 2024 while online media and travel have posted double-digit growth on the back of, among others, pro-business policies.
“Singapore’s digital economy thrives on government support, investor confidence, and AI Innovation,” said Chadha.
Additionally, the city-state ranks among the top 10 countries globally in interest in artificial intelligence (AI)-related topics, with sectors like education, marketing, and travel driving AI search interest.
To meet the AI demand, investments are growing in Singapore. According to the report, investments to build AI-ready data centres in Singapore reached $9 billion, second to Malaysia, where $15 billion was invested.
Investors remain confident
Southeast Asia’s funding landscape remains subdued, but investors continue to be cautiously optimistic about the region’s digital economy in the long-term, according to the report.
“It is interesting to note that private funding — excluding investments in key Southeast Asian tech giants such as Grab, Gojek, and Tokopedia — has actually returned to pre-pandemic levels in 2023. We view this as a healthy sign, signalling the normalisation of the funding environment as Southeast Asia’s digital economy matures,” said Fock Wai Hoong, Head of Southeast Asia at Temasek.
Late-stage private funding — specifically Series D and beyond — has remained challenged, continuing to see sequential declines in deployment. It decreased by 93% to $100 million from $800 million in the second half of 2023.
On the other hand, early-stage activity — specifically seed and Series A — is beginning to recover, with approximately $900 million in funding recorded in the first half of 2024, reflecting a 2% increase from the second half of 2023. Additionally, Series C has experienced deal value growth for the first time since the second half of last year.
Meanwhile, growth-stage funding — comprising Series B and C — totalled around $400 million in the first half of 2024, marking a 19% increase from the second half of 2023.
“And we believe this slight improvement reflects the ongoing innovation and entrepreneurship across the region, as well as a keener focus on business fundamentals from an early stage,” said Hoong.
The top combined markets for investors continue to be Vietnam, Indonesia, and Singapore. From a sector perspective, investors are prioritising innovation in new verticals such as software services, healthcare, and AI. This trend aligns with broader themes of rapid digitisation, the rise of the middle-income class, and increasing healthcare needs across the region.
Dependable exit was one of the four enablers identified last year to revitalise the region’s funding landscape. The other three — realistic entry valuations, proven monetisation models, and a clear path to profitability — have already been achieved.
Steps, he added, are being taken to improve the exit environment. “For the region to demonstrate robust exit pathways, it requires optionality across both private and public markets,” added Hoong.
In the private markets, companies with sustainable operating and financial models will be better positioned, as demonstrated by the narrowing of bid-ask spreads in the secondary market.
In the public markets, he observed some early cooperation and integration between regional exchanges, such as the Singapore Stock Exchange and the Stock Exchange of Thailand, for depository receipts, which aim to drive and improve liquidity; and regulators working to enhance listing processes, such as Malaysia’s Securities Commission.
