Indonesian tech giant GoTo — formed from the merger of unicorns Gojek and Tokopedia last week — is said to be seeking a valuation of up to $40 billion for its IPO, planned for end-2021.
The target valuation, however, is much more than the sum of its parts — Gojek was valued at $10.5 billion in 2019 and Tokopedia at $7.5 billion in 2020 based on independent estimates that took into account past fundraisings. Sources privy to the matter told DealStreetAsia that GoTo’s current valuation is around $25-30 billion.
This raises the question: Is GoTo going overboard by seeking a $40 billion valuation in its IPO?
To be sure, the figure is only a fraction of NYSE-listed Sea Ltd’s market capitalisation of $133.21 billion on May 24, and is at par with Grab’s $39.6 billion valuation when it announced a merger with Altimeter SPAC in mid-April.
However, at least on the face of it, Sea and Grab are more formidable players.
Sea-owned Shopee was perched on top of Indonesia’s e-commerce market in 2020, according to an iPrice survey. Shopee was also the most downloaded shopping app last year in five markets in the region — Singapore, Malaysia, Thailand, Vietnam, and the Philippines — according to iPrice. Shopee is also present in Taiwan, Brazil, and Mexico.
Meanwhile, Tokopedia is present only in Indonesia where it stood second in terms of average monthly website visits in 2020, according to iPrice.
In payments, too, Sea Ltd.’s ShopeePay had the highest penetration (48%) among e-wallets in Indonesia last year, according to a study by Ipsos. Next in line were Tokopedia- and Grab-backed OVO with a market penetration of 46%, Gojek’s GoPay (35%), DANA (26%), and LinkAja (16%), according to the report.
In food delivery, Grab is the regional leader. It accounted for almost half of Southeast Asia’s $11.9 billion food delivery gross merchandise value (GMV) in 2020, according to Momentum Works’ research. It was followed by Foodpanda, which operates in Singapore, Malaysia, Thailand, and the Philippines with a GMV of $2.52 billion. Gojek, which has close to 50% market share in Indonesia was third in the region.
Grab and Sea also have a wider regional footprint, compared to GoTo.
The battle, though, is ongoing and a clear winner has yet to emerge. Gojek and Tokopedia are looking to throw their combined weight at Sea and Grab in a three-way battle for supremacy in Southeast Asia’s tech space.
Poised to take off
“A strong market position, under-penetrated segments, and the ability to cross-sell to a large customer base at low CAC [customer acquisition costs] via this merger will allow GoTo to rapidly gain scale while keeping a tab on costs. Hence, these can help it to minimise churn and retain customers,” said Roshan Raj, partner at Redseer Management Consulting.
While Gojek and Tokopedia will be run independently, Andre Soelistyo, the head of the GoTo group, emphasised that the merger will allow the two companies to gain more insights and data that will go into building better products. “We will be able to use all that knowledge and insights to create better rewards, promotions, offerings, and services that will be unique to our users. In the future, things like shared loyalty, and shared rewards will make this the largest loyalty network for our users,” said Soelistyo.
Moreover, GoTo Financial will become an integrated payments and financial services offering. User behaviour can be assessed from sister platforms within GoTo and loans can be offered based on the risk profile of customers and their requirements.
Access to big data will help influence Indonesia’s household consumption. Patrick Cao, GoTo’s president, said the group expects to cover about two-thirds of Indonesian household consumption eventually. “If you look at our regional peers, they excel in one use case or another. For example, on-demand mobility or e-commerce. The coverage and engagement are not nearly as deep, nor is it as well connected to the theme of household consumption,” said Cao.
GoTo also has the advantage of having the region’s largest market, Indonesia, as its home turf. “GoTo can win in the local market [Indonesia], even though it’s difficult to win at the regional level,” said an analyst on the condition of anonymity.
According to Google, Temasek, and Bain & Co’s recent study, Indonesia’s GMV was $44 billion in 2020, almost half of Southeast Asia’s combined market. This is poised to reach $124 billion by 2025. More than 60 million Indonesians will join the ‘consumption class’ — individuals with over $3,500 in annual revenue.
Going forward, food delivery and financial services will likely be the most promising businesses for GoTo. “Investors are comparing Gojek’s food delivery business outlook to [Chinese giant] Meituan’s $100 billion business. Food delivery is a promising sector. Shopee has also entered the food delivery business,” said the analyst quoted above. “Financial services like lending are also attractive as GoTo has a large ecosystem and Indonesia has the fourth-largest unbanked population in the world,” the analyst added.
Meanwhile, e-commerce is a difficult vertical to be in as it involves a lot of cash burn. Yet, the added value of e-commerce will aid customer retention, which will help in becoming a superapp, said the analyst.
GoTo’s $40 billion valuation takes into account its ride-hailing business, e-commerce vertical, and financial services.
Challenges and profitability
By pursuing an IPO, GoTo will be looking for ammunition to compete with Grab and Sea. However, the biggest challenge right now is timing. “Many big tech firms are looking at IPOs, including Grab and Bukalapak,” said the analyst quoted above.
Investors will also be keenly looking at what upcoming products GoTo will bring to the ecosystem. “The two companies would need to think through what’s the best way to bring their respective users into a combined ‘ecosystem’ of services. Are they going to become a comprehensive ‘superapp’ or keep the two apps separate? Will they share some of their services in the back end?” said Allesandro Cannarsi, partner at Bain & Company.
IPO investors will also wait for the group to present a clear strategy for achieving profitability. The guidance on growth and profitability metrics will help investors make a more informed view, Redseer’s Raj said.
“It’s no secret that the Indonesian internet ecosystem is still burning cash — so it’s going to be important that GoTo finds its path to profitability. The scale will help, but it’ll be important that GoTo has a clear strategy to reduce reliance on subsidies to grow,” Cannarsi added.
Sea Ltd, which was listed on the New York Stock Exchange (NYSE) in 2017, has yet to turn a profit. The company reported a net loss of $422 million for the first quarter of this year, widening its loss from $281 million a year earlier as spending on marketing and manpower grew.
However, Sea’s loss has not deterred investors enamoured of tech stocks. Now worth nearly $219 per share, Sea’s stock price has risen fivefold since the start of 2020. In the earnings call last Tuesday, Sea group chief corporate officer Yanjun Wang downplayed the impact of the Gojek-Tokopedia merger, highlighting the NYSE-listed company’s hold over “three of the largest consumer internet opportunities in high-growth regions” – online gaming, e-commerce, and financial services.
For Gojek and Tokopedia, a merger made more sense than clashing with Grab and Sea Ltd, but it is still unproven in markets outside Indonesia. GoTo has said it will continue to focus on the fast and emerging markets in the region where Gojek already operates, including Vietnam, Singapore, and Thailand.
Yet, will investors be willing to wait until that happens? The first signal will come when the merged entity raises a pre-IPO round later this year, as mentioned by Cao during the merger announcement.
Can investors in the IPO, too, be lured by the promise of Gojek riders delivering Tokopedia packages to customers who pay with GoTo Financial? The answer is in the making.