Despite being widely regarded as a loss-making division, ride-hailing can emerge as a profitable business for Gojek, says the company’s head of transport.
Interestingly, this realization dawned on the company as it was trying to stay afloat amid the coronavirus crisis, which had dragged the utilization of Gojek drivers for transport services to an all-time low.
“What we’ve managed to prove over the last six to 12 months is that transport can generate profits and drive that profitability also for the rest of the platforms,” said Raditya Wibowo at the DealStreetAsia PE-VC Summit 2020.
Despite being Gojek’s core business, ride-hailing (comprising both two-wheel and four-wheel transportation) earlier did not typically feature in the unicorn’s pursuit of profitability.
The ride-hailing business model requires operators to keep both drivers and customers happy, which often means compromising the margins for operators themselves. Even as Gojek had begun with the ride-hailing business in 2009, it subsequently rolled out a bouquet of other adjacent services.
In 2018, co-founder and then-CEO Nadiem Makarim told Reuters that Gojek was poised to achieve profitability in all segments, except transportation. The following year, Makarim told Nikkei Asian Review that ride-hailing represents less than a quarter of the group’s overall gross merchandise value, much less than food and payment. The “base scenario” for Gojek, he added, was getting ride-hailing to merely break even. Making the business profitable, meanwhile, was an “optimistic scenario”.
At that time, Makarim’s thoughts may have also been influenced by the development surrounding ride-hailing in more advanced markets like the US. In 2019, Uber, a ride-hailing pioneer that grew to become the largest private tech company in the world, saw its shares price fall on its IPO debut after revealing considerable losses.
Wibowo during the recent session said he acknowledged the “narrative or preconception that transport will not make money”, adding that Gojek has in recent months proved it can, having claimed to have generated positive margins over the past year.
Without divulging too many details, Wibowo said Gojek made some “tweaks” during the pandemic, which helped it improve the efficiency of how it matches supply and demand in its marketplace.
“Yes, our top line or revenues are lower now, just because there’s less mobility in the market in general. But we are well-positioned to capture that wave of recovery as markets start reopening again as the pandemic situation evolves,” he said.
Compensating driver income
GoRide, Gojek’s ride hailing unit, is one of four Gojek-branded services that have achieved positive margin amid the pandemic, as claimed by Gojek in a recent announcement. The company said it recorded “stable topline growth” despite the COVID-19 crisis, clocking a 10 per cent year-on-year increase in gross transaction value (GTV) to $12 billion this year.
Of the four services, Gojek’s food delivery service, GoFood, is one that has seen notable uptick in demand and transactions. In September, Catherine Hindra Sutjahyo, head of GoFood, told reporters that the food ordering and delivery service saw a 20 per cent increase in transaction since the virus struck in March.
Speaking to the DealStreetAsia PE-VC Summit 2020 on Wednesday, Sutjahyo explained that one of the drivers of GoFood’s resilience during the COVID-19 pandemic, despite the economic downturn, is its increased value per order – more number of people are now ordering meals together, instead of doing it individually.
“For food delivery, people always look at the delivery price. When you order a bigger basket size, you can kind of amortize the delivery price in the cost of food,” she said.
While this means cheaper cost of food for customers, it also means less drivers are being utilized for deliveries of food.
Sutjahyo conceded that while an uptick in businesses like food delivery and logistic has enabled drivers to continue to earn an income during the pandemic-induced recession, it does not fully compensate for the significant drop in the demand for transport, which usually makes up the bulk of transactions and income for drivers at Gojek.
To help drivers make up for the losses, Wibowo and Sutjahyo said their teams have started to adopt measures for drivers to earn additional income from Gojek.
“We’ve actually launched a new feature (GoCek) in our driver app that basically lets them do other things to make more revenue. For example, drivers can validate GoFood merchants, or collect information on pickup points, or collect information on parking fees at different malls, and they actually get paid for doing these jobs for us,” he said.
From a company’s financial standpoint, Gojek said the continued growth of its gross transaction value, coupled with the positive margins clocked by its services represents a “significant milestone as it indicates a strong path to profitability”.
The development comes after the company made some tough pandemic-related decisions earlier in the year.
In June, Gojek announced it was laying off about 430 employees and shut down a number of its services, as part of “a long-term response to the COVID-19 pandemic”. The move came less than a month after Gojek had announced funding from US tech giants Facebook and Paypal, which brought the company’s Series F round to over $3 billion.