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Strategic stake in Blue Bird and partial shutdown of GoLife services can set Gojek on path to profitability, experts say

The Indonesian ride-hailing firm will reportedly buy a 5% stake in Indonesia’s biggest taxi operator Blue Bird.

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Gojek’s latest reportedly intention to buy a 5% stake in Indonesia’s biggest taxi operator Blue Bird, and the partial closure of the firm’s lifestyle division GoLife will help Gojek toward its path to profitability as investors are more focused in the company’s fundamental business sector, according to some analysts.

The Indonesian ride-hailing firm has announced on Wednesday the closure of most of its GoLife services due to a stagnant business performance after four years in operation. The firm will only keep two services in operation—GoClean and GoMassage—both accounting for over 90% of orders, while other services such as GoAuto or GoGlam will be canceled from its app from its separate app GoLife.

“It is difficult to reach sure the same good quality as a marketplace in the services industry. Due to the service quality inconsistency, I believe that many backdoor transaction occurred, because consumers stick to the individual provider, not the platform, so it could be better for Gojek to focus on the food delivery business and ride-hailing service, which would be more promising, rather than keep on spending cash on GoLife,” Raditya Pramana, partner at Venturra Discovery said.

Aldi Adrian Hartanto, general manager of investments at MDI Ventures, added that GoLife has been expected to shut down since it was spun from the platform. Most of the products couldn’t drive significant contribution on top and bottom line, therefore, GoLife products were less important compared to other core products such as GoRide, GoCar, GoPay, and GoFood, he said.

“Given the size and current focus of Gojek to reach profitability while maintaining top-line growth rate in revenue and key tractions, it is very much a natural progression for the company to refocus on businesses that can give material impact, while most of the GoLife products were too small to meet that expectation,” Hartanto said.

A deal that could help Gojek to dominate the Indonesian transportation sector 

According to Bloomberg, Gojek would pay about USD 30 million for a 5% stake in top local taxi operator PT Blue Bird, an agreement that will be built over an existing collaboration established in 2017, which allowed Gojeck to provide booking reservations for Blue Bird’s taxis on its app.

If Gojek will close the deal with Blue Bird, it will “cement and strengthen the partnership” with the taxi operator, analysts said.

“If they [Gojek and Blue Bird] don’t do this, their competitors are likely to swipe in and take over the partnership with better deal terms. Hence, it also opens an opportunity for Gojek to increase their stakes in Blue Bird as they are looking for a profitability path, and the conventional taxi business has been proven it can achieve a positive cash flow,” Hartanto said.

According to its financial report, Blue Bird booked a net profit of IDR 229,33 billion (USD 16,41 million) from January to September 2019,  down 31,47% from the same period last year where it made IDR 334.66 billion.

The consolidation between Gojek and Blue Bird also can help Gojek to dominate the market share in the transportation sector in Indonesia, Pramana said, as there are currently three big players, namely Gojek, Grab, and Blue Bird.

“It’s one of the ways to increase the market share, either taking the competitors’ share or consolidate with other players. I think Blue Bird is also a very strategic partner for Gojek. Not only they have been able to maintain strong brand equity through good quality of service of its fleet and its drivers, but also through its strong business fundamentals,” Pramana said.