Success of GoTo’s upcoming IPO hinges on finding the right valuation

After Bukalapak’s initial public offering (IPO) in Indonesia last August, and superapp Grab’s Nasdaq listing in early December, the next big milestone for Southeast Asia’s big tech would be the market debut of GoTo. And its unique offering of services across online consumer touch points bodes well for its prospects.

GoTo — formed from the merger of ride-hailing giant Gojek and e-commerce marketplace Tokopedia in May last year —  is looking to raise about $1 billion from its IPO on the Indonesia Stock Exchange (IDX), according to a recent Bloomberg report.

The company is expected to list in the first quarter of 2022 as PT GoTo Gojek Tokopedia, according to the report, which added that the company has picked PT Mandiri Sekuritas and PT Indo Premier Sekuritas as underwriters.

The hype notwithstanding, the success of the IPO, largely hinges on GoTo finding the right valuation, say analysts DealStreetAsia spoke to. Given the wider turmoil in tech stocks, the company may not be able to get away by overpricing its shares.

“Given the fall in the stock prices of Bukalapak and Grab, GoTo must pay attention to its valuation — it shouldn’t be overpriced,” said Nailul Huda, a digital economy researcher at the Institute for Development of Economics and Finance (INDEF).

Shares of Bukalapak and Grab are down around 55% and 40%, respectively, from their debut — likely a consequence of overvaluation, as DealStreetAsia had reported earlier.

Other tech companies, too, are believed to be paying the price of inflated valuations. In March 2021, food delivery firm Deliveroo, for instance, offered shares at 3.90 pounds apiece in its London IPO, valuing the firm at around 7.6 billion pounds. On Jan. 7, its shares closed at 1.97 pounds apiece, valuing the company at around 3.6 billion pounds.

“GoTo’s valuation should consider a mix of factors such as the valuation of peers like DoorDash in the food delivery sector, Amazon in e-commerce, and PayPal or Stripe in payments,” said an industry expert requesting anonymity.

Post the first close of its pre-IPO round in November, DealStreetAsia had estimated GoTo’s valuation at over $25 billion, based on regulatory filings.

“In the local market, GoTo will likely IPO at a valuation of around $25-30 billion, as Gojek’s GMV was 30-40% below Grab’s GMV [Grab had sought a valuation of $40 billion]. However, it is possible to raise this up to $40 billion when GoTo lists in the US market in less than a year after the IDX listing,” added the industry expert.

“GoTo has a unique position in Indonesia — Southeast Asia’s largest market. A valuation of around $25-30 billion is quite fair, as the company continues to diversify,” said another analyst, who requested not to be identified. The analyst said the company is expected to aim for a valuation of $30-35 billion in its IPO.

GoTo expects to benefit from the diversification and economies of scale brought about by the merger, which would not have been possible had Gojek and Tokopedia remained individual players.

“I think the combination allows us to improve on unit economics. Every dollar of marketing and promotion can be used to grow multiple businesses,” Patrick Cao, president, GoTo, had said at the Asia PE-VC Summit organised by DealStreetAsia last September. “It [the merger] has helped us to compete with others in Indonesia and also in other markets, including Singapore and Vietnam,” added Cao.

The GoTo combine includes ride-hailing, e-commerce, and financial services that enjoy a huge home market advantage.

Yet, whether retail investors are convinced of the benefits of the merger remains to be seen. After all, competition is high across verticals.

What may ultimately help to raise GoTo’s blended valuation over Grab and Bukalapak is the e-commerce vertical. “The wild card in terms of valuation for GoTo is what EV/sales multiple can be ascribed to Tokopedia. It should command a valuation close to Sea Ltd, which trades at 11.3 times its FY2022 EV/sales ratio,” said Angus Mackintosh, consulting editor, DealStreetAsia.

Tokopedia has over 11 million merchants, according to its website.

The promise of fintech and food delivery

Some analysts also see an interesting proposition in GoTo’s financial services business.

GoTo has integrated Bank Jago and the digital wallet GoPay as the main payment option for Tokopedia customers. “GoPay and Bank Jago have created a strong ecosystem. Bank Jago has collaborated with many fintech and tech players and is integrated into the Gojek app. Yet, the competition is tough as other tech players, too, have invested in digital banks,” said Huda.

Bank Jago, which is already offering digital banking through the Gojek app, has a current market capitalisation of $18 billion and is forecast to be profitable in FY2022, according to Mackintosh.

The food delivery business is also attractive for Gojek. “Food delivery is promising as it provides more cash in the form of merchant fees, delivery fees, and platform fees. The sector is a cash cow for Gojek,” said a source.

According to the “e-conomy SEA 2021” report by Google, Temasek, and Bain & Co, food delivery in Southeast Asia has seen a substantial rise in adoption. “While SE Asia’s internet economy was resilient in 2020, a resurgence in 2021 has propelled the region upwards to $170 billion in Gross Merchandise Volume (GMV). e-Commerce, food delivery, and digital financial services remain primary growth drivers and we expect the internet economy to reach around $360 billion by 2025,” the report stated.

Usage frequency and spending on digital services mostly increased in 2021, with basic essentials — groceries and food delivery — seeing the most striking surges, the report added.

Food delivery saw the most substantial increase in adoption and has quickly become the most penetrated service.

In Indonesia alone, the transport and food sector is estimated to reach $6.9 billion in GMV in 2021, the second-highest sector after e-commerce. The transport and food sector will be estimated to swing up to $16.8 billion in 2025. 

Competition to cap valuation

While the future of the internet economy is promising, GoTo may have to contend with rivals, who are also forging partnerships in Indonesia. This may limit its ability to command an exorbitant valuation. 

For instance, Grab is looking for synergies with the Emtek Group, Bukalapak, and other conglomerates. Most recently, Grab, Bukalapak, automobile marketplace Carro, and the Salim Group invested in digital lender Allo Bank, which is owned by the media conglomerate, CT Corp. Grab had also previously onboarded Mitra Bukalapak (small agents and kiosks) to the GrabMart service.

Meanwhile, Sea Ltd. has partnered with taxi operator Blue Bird for ride-hailing services in Indonesia. 

Although Tokopedia has higher penetration in the country, Grab and Sea-owned Shopee are strong challengers. 

“Large companies are building their digital ecosystem with tech companies. Grab and Bukalapak investing in Allo Bank, for instance, means competition for Gojek-backed Bank Jago,” said Huda.

This could bear on investors’ minds as they watch GoTo’s IPO pricing. “Valuation is always key and given the pullback in tech stocks, it will be even more so. It remains to be seen whether listing in Indonesia will go well for GoTo. Given the strength of the brand, it should have a natural advantage,” said Mackintosh.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.