COVID-battered Traveloka may still be the best-poised Indonesian unicorn for IPO flight

When the Indonesian transport ministry recently announced that it would lift the restriction on maximum occupancy rate on airline flights, albeit only temporarily, it was the kind of respite that Traveloka had been waiting for.

The country’s online travel unicorn, which offers accommodation and transport reservations, as well as experiences and activities, has arguably received some of the worst battering COVID-19 has laid on a scaling business. By its own admission, Traveloka has seen the lowest business rate since inception when the virus broke, forcing it to subsequently cut over 100 jobs and see its affiliate budget hotel startup, Airy Rooms, close operations.

Despite the odds, Traveloka is only “a click” away from becoming profitable, according to longtime backer Willson Cuaca, making it well-positioned to take the leap of faith to become a public company.

Cuaca, whose VC firm East Ventures also owns shares in other IPO-bound unicorns Tokopedia, Gojek, and Grab, says Traveloka has been making groundwork for an IPO since as early as 2017 and is therefore arguably as ready, if not more, as its peers to sell its shares in the public market.

This has not changed in spite of the pandemic. In fact, the COVID-19 crisis has seen Traveloka increase efficiency levels, Cuaca said, which bodes well for the company’s bottom line.

“As of now, they are only burning low single-digit million USD quarterly. With a simple click, Traveloka will be profitable immediately,” he said. 

According to an industry observer, when Traveloka says that they can be profitable, it is not just to do with travel coming back in key markets like Indonesia and Vietnam. It is more to do with their financial services and lifestyle business doing really well during the pandemic.

“They have diversified significantly from being just a travel play. If they do an IPO or a SPAC, they are not going to be pitching as a travel play, but as a diversified consumer internet company,” the person added.

In the midst of the pandemic in July, Traveloka managed to raise a much-needed injection of capital in a $250-million round led by an undisclosed global financial institution, believed to be Qatar Investment Authority (QIA), and joined by existing investors, including EV Growth. The round helped Traveloka pull through a difficult period.

Road to recovery

All Traveloka needs is for the travel industry in its markets to recover to at least 50% of pre-COVID levels, Cuaca had previously explained.  

This, it seems, could come in the not-too-distant-future.

Traveloka co-founder Albert said in a media interaction last month that its transactions in Vietnam reached 100% pre-pandemic levels in July, while Thailand has seen a recovery rate of 75%. Similarly, Traveloka chief strategy officer Joydeep Chakraborty said at DealStreetAsia’s Asia PE-VC Summit (in November 2020) that markets like Indonesia and Malaysia are slowly following their neighbours’ lead. The driver of much of the recovery, he said, has been domestic travel.

“So on the back of these trajectories, we have seen a decent recovery to date and it continues to be heavily domestic, but that works in our favour, because I think as a business, we are much more exposed to domestic travel,” he had added. 

Traveloka said it could not comment when DealStreetAsia asked for its outlook for 2021. However, one of its OTA peers, PegiPegi, which Traveloka acquired in 2018, was more openly optimistic about the travel industry in 2021.

“We predict that domestic travel will recover more quickly and the trend of staycations will increase. Some of the factors that will make the public trust again for travelling are the awareness of the public to apply strict health protocols recommended by the government so that the spread of COVID-19 can increase, vaccines are starting to be distributed, and the application of health protocols in tourist attractions and hotels,” said PegiPegi brand marketing manager Shella Dellina, as quoted on the company’s website.

Data by Indonesia’s Central Statistics Agency (BPS) seems to back PegiPegi’s prediction on staycations in particular. The hotel occupancy rate in Indonesia, the data shows, has been steadily climbing back to the pre-Covid level after seeing a huge slide from 49.22% to 32.24% in March 2020. As of November 2020, the occupancy rate has risen to 40.14%.

When it comes to cross-border travel, however, BPS data indicates that there may still be a long and arduous journey ahead for players in the travel industry. Since April, the monthly number of foreign tourists into Indonesia hovered around the 150,000-mark, a far cry from the over 1.2 million figure recorded at the start of the year, just before the virus hit.

More than just travel

While travel, both domestic and overseas, make up the bulk of Traveloka’s business, it is not, by any means, the only egg in the company’s basket. Traveloka has developed other business lines that have not only served as consolation amid a gloomy period but could also drag the company out of the dark going forward.

In July 2019, the company launched  Xperience to reposition itself as a travel and lifestyle platform. The feature is expected to drive a more frequent usage of the Traveloka app by enabling users to find various lifestyle and entertainment categories in Southeast Asia, ranging from tickets for attractions, travel tours, massage and spa, beauty service, film tickets to music and sports tickets.

In an interview with Nikkei Asian Review in September 2019, Traveloka Group Operations president Henry Hendrawan said he expects the expansion to lifestyle to reduce the company’s reliance on cheap deals and set it up for an IPO.

Another promising business, which may not be as apparent, is Traveloka’s fintech play. 

The company’s initial venture into financial services was a half-hushed one. According to company filings seen by DealStreetAsia, Traveloka acquired local digital payment company Dimo Pay in 2018 for $20 million. Following the transaction, as stated in the filing, Traveloka was expected to offer more variety in payment options to customers both online and offline.

Traveloka’s current exclusive e-wallet option on its app is Uangku, a sister company of Dimo Pay – both operating under the same holding company, Sinar Mas Group.  

Traveloka did not immediately respond to our query on the matter.

A more public move in its fintech ploy was the launch of Traveloka PayLater also in 2018, which allows customers to make payments through installments in the future with options of 1–12 months. 

The company initially teamed up with local lending startup Danamas, also a Sinar Mas company, to roll out the service, but has now also partnered with a host of other financial institutions, including state-owned lender BRI, with whom Traveloka has launched a co-branded physical credit card. Last year, the startup established a similar partnership with another state-owned lender Bank Mandiri.

The executive quoted above pointed out that buy now, pay later” (BNPL) offers were being rolled out by all unicorns, including the likes of Grab, and added that Traveloka had a headstart on this popular fintech trend for the Indonesian market.

Hendrawan told Reuters in 2019 that he expected Traveloka’s fintech play to be a $1-billion business in the space of two years. Late last year, Chakraborty said that the pandemic has seen Traveloka’s financial services come to the fore.

“While we were kind of constrained with the large part of our business really being super slow, but there are certain pockets where, for example, we have a financial service business…showing pretty interesting possibilities,” he said.

Expanding fintech play

DealStreetAsia has learnt that Traveloka is expanding its fintech play both in Indonesia and in other markets in SEA such as Thailand. The company is looking to buy or pick up a stake in a bank in Indonesia with the aim to turn the local lender into a digital bank.

Indonesia’s local banks have seen increased demand from startups, including unicorns and fintech players, who are seeking a bigger play in the country’s financial services space. This portal had recently reported that Singapore-based internet major Sea Ltd has acquired Indonesia’s Bank Kesejahteraan Ekonomi (Bank BKE), and other deals in this space include Ant Financial-backed Akulaku acquiring Yudha Bhakti and ride-hailing decacorn Gojek increasing its ownership in Bank Jago from 4.14% earlier to 22.16% in December 2020, to double down on GoPay.

“A digital bank strategy needs a captive audience. Traveloka has a healthy and active captive audience – from hundreds of thousands of hotels and restaurants on their network, who they see as SME partners. The data on these SMEs will also enable Traveloka to work with banks and other institutions to provide services to these partners,” explained an executive aware of the company’s strategy.

It is also learnt that Traveloka is set to announce a joint venture with a leading bank in Thailand as it seeks to extend the financial services offerings outside Indonesia. This deal is set to serve as a proxy for a digi-bank play in Thailand, which is among the company’s largest markets outside its home base. Industry executives tracking the company said it is set to announce another insurance foray in Indonesia soon.

Customers can already buy health and life insurance plans on the Traveloa platform, and in October 2020, it had also launched shariah-based health insurance coverage (Bebas Handal) in partnership with FWD to cater to its Muslim customers.

Traveloka did not comment on its expansion plans, and DealStreetAsia has been unable to add more details on these deals.

Additionally, industry executives aware of the development said the company is set to expand offerings under its food directory, Traveloka Eats, and is looking at emulating China’s Tencent-backed Meituan-Dianping, which is widely considered as the leader in the domestic food scene there.

“Traveloka Eats will soon expand to food & restaurant reviews & bookings and in-store dining services. Zomato’s exit from Indonesia has opened up this space for existing or new players to tap into,” the executive quoted above added.

Traveloka did not comment on its expansion plans, and DealStreetAsia has been unable to add more details on these deals.

Poised for public market

Even if the recovery for Traveloka does not go as smoothly as hoped this year, a 2021 IPO could still be an exciting possibility for the company, as the US hospitality startup Airbnb’s market outing has proved.

Like Traveloka, Airbnb was hit hard by the pandemic, after it revealed its IPO plans earlier. The company saw its revenue decline 72% during the COVID-19 outbreak, leading to 1,800 layoffs in May.

Despite still showing massive annual losses, Airbnb decided to press ahead with its IPO on Nasdaq. On its debut listing on December 10, Airbnb shares ended the day up more than 112%, giving the company a market cap of about $86.5 billion, more than double the valuation it initially sought.

“We are quite encouraged by their S1 filing and the fact that they’re getting a positive reaction so far. So we have been looking forward to a successful listing, and that kind of builds towards our momentum as well when we become ready,” Chakraborty said of Airbnb’s IPO.

While Traveloka may be sailing in the same ship as Airbnb was about a year ago, some may argue that the Indonesian unicorn faces a distinctly different challenge (and probably a more difficult one), given its heavy reliance on cross-border travel. 

However, a look at Airbnb’s fellow Nasdaq-listed peer, Make My Trip, which shares a more similar business model to Traveloka, shows that the US public market has warmed to the prospect of a revival by an Asian travel tech company.

After incurring an adjusted loss of $21.3 million and $12.9 million in the first and second quarter of last year, respectively, the Indian travel giant saw its share price jump by 6.75% on November 17 following news of a second vaccine hitting the US market. 

Traveloka has made its desire to IPO very clear, and, in a statement to Reuters, said that it was also considering a SPAC deal as an option, after being approached by a few of the shell companies.

While Traveloka is one of a few Indonesian unicorns that have been tipped to hit the public market within the next couple of years, the eight-year-old company is the only one with an established regional presence.

Apart from the organic expansion of its Traveloka brand into seven countries, it has also acquired three direct competitors in three different markets – PegiPegi in Indonesia, Mytour in Vietnam, and TravelBook in the Philippines – from Japanese firm Recruit Holdings for $66.8 million. 

This along with its investments in Indonesian insurtech platform Pasarpolis, Singapore events solution startup Pouchnation and Vietnamese POS startup Kiotviet, contributes to the $5-6 billion valuation it is reportedly seeking in an IPO.

Traveloka, which has raised over $900 million in funding to date and profitability on the horizon, is undoubtedly the leader in the region, as no other OTA platform has come close to scaling to its size, offerings and reach.

All this would make for a great story for the public market, even with the pandemic not completely out of sight. 

“What investors really look for is ‘growth at scale’ – companies which enjoy market leadership status, have attractive margins compared to their peers and probably also first mover advantage. Those types of companies tend to be received very favourably,” said NYSE’s Head of Asia-Pacific Capital Markets, Delano Musafer.

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.