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Grab and Gojek merger is a body blow for Sea

  • Reports suggests two ASEAN tech titans are about to merge

  • The deal could dilute Sea Ltd’s market position and end its status as the sole listed proxy for ASEAN e-commerce

  • We reiterate our Sell on Sea Ltd (45% downside)

Grab and Gojek merger is a body blow for Sea
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
3 December 2020
Published byTellimer Research

Two ASEAN tech titans – Grab and Gojekm, which both run ride-hailing, food delivery, e-commerce and payments platforms – have made progress in cementing a merger, according to Bloomberg.

The details of the deal – which has been championed by SoftBank, a major investor in Grab – are being hammered out, but the report suggests a likely scenario is that the Grab founder will become CEO of the combined entity. Gojek would run the combined entity in Indonesia; Grab executives would run it in Singapore. The two brands would operate concurrently.

Grab and Gojek
  1. The Gojek-Grab merger will be a game-changer for the ASEAN tech space, creating the platform for a dominant player along the lines of Alibaba in China and Amazon in the US. 

  2. The move, though, is a body blow for Sea Ltd. Sea is a gaming company that intends to become an e-commerce giant. However, at this stage in its development, the gaming business is subsidising the e-commerce platform. ShopeePay, Sea's payment platform, has one-tenth of the market share of the combined share of GoPay (Gojek’s payment arm)  and Ovo (Grab’s payment arm in Indonesia). This means that Sea’s foray into payments will face serious competitive pressure. The merged entity would have better scale economics and a larger platform.

  3. Following the merger (assuming it takes place), Sea will no longer be the only game in town for ASEAN e-commerce listings. We think its performance hitherto has partly been a consequence of its 'only game in town' status – its extravagant valuation can be attributed to its scarcity value.

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