Q-Series: The next two billion in India and ASEAN are going digital – Who wins?

COVID is fast-tracking Internet monetisation of "N2B" (the next two billion people going digital) in India and ASEAN. This change in behaviour from simply "using Internet" to "transacting on Internet" should provide a range of investment opportunities as a US$800bn-1.1trn total available market (TAM) and US$70-145bn revenue opportunity opens up by 2025e. Utilising UBS Evidence Lab and collaborating with 20 UBS analysts globally, this report takes a deep dive to examine the current state of play across seven major Internet verticals and considers investment implications and opportunities.

UBS estimates N2B Internet TAM of $830bn by 2025e, revenue of $125bn

We build a bottom-up interactive model for seven major verticals (e-commerce, food delivery, ride on demand, OTT and mobile gaming, online education, online travel and Fintech) for the seven countries. We run scenarios around competition and regulation, taking into account different income and geographical split of population. Our scenarios points towards Internet TAM of US$800bn-US$1.1trn by 2025e, which would be about half of Internet TAM in US and China today. Using a range of take-rates, we estimate revenue of US$70-145bn, which compares with revenue of cUS$600bn and cUS$200bn for the top-4 US and Chinese Internet companies respectively.

UBS Evidence Lab shows digitization picking pace, but with unique differences

Results of UBS Evidence Lab survey of 3600 respondents across N2B shows digital adoption is accelerating across the region but with some notable differences:

1. Use of internet for online purchases increased 30-50% across categories due to COVID and majority of this boost should be retained;
2. India, Thailand and Malaysia lead the region in digital adoption while Philippines lags, but the impact of COVID was most significant in Philippines and Malaysia;
   
3. Indian tier 2 cities have the same level of digital adoption as Tier 1 cities, whereas ASEAN countries have a 5-15% gap, with most pronounced gap in Vietnam and Philippines;
   
4. Despite intense competition, market shares are concentrating towards top 2-3 platforms particularly in ride on demand and food delivery, while online groceries and OTT media remain highly fragmented; and
   
5. by countries we see heavy market share concentration towards top-2 platforms in Philippines and Malaysia, while Vietnam remains the most fragmented market.