It might not look like an auspicious moment for Indonesian super app GoTo to announce an initial public offering; its Southeast Asian rivals Grab and Sea, after all, have lost two-thirds of their market value.
But by focusing heavily on its domestic market, the region’s largest digital economy, GoTo hopes to attract new investors and realize what analysts are calling an “aggressive” valuation of close to USD 30 billion.
The company, whose offerings range from ride-hailing and food delivery to e-commerce and finance, this week set its much-anticipated IPO for April 4 on the Indonesia Stock Exchange. At the top end of a share price range of IDR 316 rupiah (USD 0.022) to IDR 346 (USD 0.024), it would be valued at USD 28.8 billion, which would make it the fourth-largest company listed on the exchange.
“Indonesia is the crown jewel of Southeast Asia,” Andre Soelistyo, CEO of GoTo, said at a news conference after the IPO announcement. “Whichever platforms that want to be part of the Southeast Asia journey, they have to have a very significant positioning in Indonesia, and we’re lucky and grateful that we actually started in this very fast-growing market.”
GoTo was formed last May through a merger between unicorns Gojek and Tokopedia, the biggest merger in Indonesia’s corporate history. Gojek was already a “super app,” a one-stop app that offers digital consumer services from ride-hailing to delivery to mobile payments, while Tokopedia has been Indonesia’s biggest homegrown e-commerce platform.
Pitching itself to investors, GoTo believes its ecosystem is unique. It combines the equivalents of famous US businesses Uber, DoorDash, and Amazon plus a fintech arm engaging in digital payments and digital banking. Singaporean super app Grab does not have an e-commerce unit like Tokopedia, while Sea, the other big Singaporean tech group, has only a tiny presence in ride-hailing.
Gojek and Tokopedia are deeply rooted in Indonesia’s economy, with millions of drivers and merchants using the platforms. According to GoTo’s IPO prospectus, it had 2.5 million registered drivers and 14 million registered merchants as of September. In addition, it employed about 8,100 permanent workers as of last July. Of the total, over 6,400 were working in Indonesia.
While GoTo noted in its IPO prospectus that it will “continue to strengthen its presence outside of Indonesia” and “plans to selectively expand into geographic areas with high growth potential in Southeast Asia and beyond,” the use of IPO proceeds points to a future in which the company’s preeminent focus will remain on Indonesia, its home market.
Of the IDR 17.9 trillion it is looking to raise, around 30% will be used across GoTo as a whole, another 30% by Tokopedia specifically, and 25% by GoPay, the company’s digital payments service. GoTo currently operates Gojek on-demand services in Singapore and Vietnam, but each of those locales will only be specifically allocated 5% of the IPO proceeds.
“Indonesia is growing quite fast and from a digitalization perspective, from a penetration perspective, still has significant room to grow,” Soelistyo said. “This is kind of the opportunity that we wanted to capture [with the IPO].”
Indonesia’s digital economy is Southeast Asia’s biggest. In 2021, its market size was USD 70 billion, more than twice the size of Thailand, which has the region’s second largest digital economy, according to a report by Google, Temasek, and Bain & Company. By 2025, Indonesia’s digital economy will grow to USD 146 billion, the report says, almost triple that of Vietnam, which is expected to displace Thailand by then.
But GoTo’s rivals have not overlooked Indonesia’s promising market. Grab, Sea, and many others in recent years have poured resources into the country. The competition further intensified when the COVID-19 pandemic began providing more opportunities for digital-based services.
Food delivery is a prime example. In 2020, Grab with a 53% share and Gojek with 47% dominated the food delivery market, according to research by Singaporean consultancy Momentum Works. In 2021, however, Sea entered the Indonesian market with aggressive marketing efforts. As a result, Grab’s share fell to 49% and Gojek’s to 43%.
Another three-way fight is taking place in banking. All three groups have recently invested in small local banks, aiming to offer online lending and other digital-based financial services.
GoTo recognizes the competitive environment. “Grab and its affiliates are one of the company’s main competitors for on-demand services and financial technology services,” it stated in the prospectus. “The company also competes with Sea for the e-commerce and financial technology services business segments.”
The competition has played a significant role in driving forward digitization in Indonesia, with customers lured to super apps through discounts and incentives that are paid for with cash raised from major investors. While the strategy has brought top-line growth in terms of gross merchandising value, it has also resulted in significant losses.
According to the prospectus, GoTo’s net loss for the first seven months of 2021 was about IDR 7.5 trillion (USD 530 million), versus revenue of IDR 2.5 trillion, meaning the company lost three times what it brought in. Grab and Sea also reported multibillion dollar net losses for the whole of 2021.
“Many companies in the current wave of consumer tech … seem to have weaker network economies and much higher operating costs than the previous generation of tech companies [such as Google and Facebook],” said Walter Theseira, associate professor of economics at Singapore University of Social Sciences. “This means that their route to profitability is challenging, since it is hard to defend your market position without spending a lot of money on customer and partner acquisition, and it may be difficult to pare down costs and increase margins without losing market share.”
The red ink was tolerated when the pandemic brought about an investment boom in tech stocks. But as that fades, investor attitudes might be changing. By indicating a series of interest rate rises, the US Federal Reserve has made loss-making technology stocks relatively less attractive versus other investments.
The market value of New York Stock Exchange-listed Sea last year reached USD 200 billion, by far the highest among Southeast Asia’s listed companies. The figure was at about USD 62 billion this week. Grab, which was listed on Nasdaq in December, has also slumped. From an implied valuation of about USD 40 billion at listing, it is now worth about USD 13 billion.
“The timing for this IPO is very challenging,” Jianggan Li, CEO of Momentum Works, told Nikkei Asia. “Institutional investors are extra cautious, especially when GoTo has a very aggressive valuation target. GoTo would probably need to appeal to other types of investors.”
Some believe that since GoTo is listing in Indonesia, it will be better shielded from the global market. “Of course, loss-making growth tech companies [are facing] selling pressure as investors take a more risk-off approach to markets, but in this case, it is a domestic IPO where there are less of these concerns,” said Angus Mackintosh, an analyst and founder of CrossASEAN Research.
Likewise, Lawrence Loh, a professor at the National University of Singapore Business School, noted that prices on the Indonesia Stock Exchange have been holding steady despite the globe’s recent downward trend. The commodities-heavy Jakarta Composite Index is up 5.4% year to date and has hit record highs. “GoTo’s IPO is likely to be received favorably as this takes place in the heart of the company’s natural market, Indonesia, in terms of both consumers and investors,” Loh said.
But going public will invite more investor scrutiny in regard to profitability, and this will be on top of the industry’s cutthroat competition. “There will be a competitive parity among the trio of biggest tech companies in that they will face the same pressures from shareholders to show profits even in the immediate sense,” Loh said.
Li of Momentum Works said GoTo, Grab, and Sea will need to demonstrate that they can improve margins and eventually turn a profit in their core businesses and to increase efficiency in their digital financial products. “Not all of these can be achieved effectively through organic growth,” Li said, “so the players might resort to acquiring well-executed, medium-sized startups with the cash they have.”
GoTo’s key strength is its focus on Indonesia, Li said, where “potentially synergies can be built with all the business units.” But he also noted Grab and Sea hold a lot of cash they can use to expand in Indonesia, a prospect that spells more cut-throat competition and more financial risks ahead for the super apps. “Realizing that synergy [enough] to make economic sense,” Li said, “will not be easy.”