GoTo is an expensive ride, but it’s going somewhere
It is worth considering the circumstances behind such an optimistic price. GoTo is a local hero, heralding a new era for the vast archipelago of 17,000 islands. Indonesia’s population of 273 million is predominantly young, increasingly connected and eagerly embracing the convenience economy on their smartphones. When it goes public in Jakarta, GoTo will be the country’s fourth-largest listed company behind two banks and a state-owned telecom company. But barely 4% of its shares are on offer, with staff, drivers, traders and app users all invited to join in the sale of shares – a smart way to increase demand while rewarding main stakeholders. Ultimately, the IPO priced at Rs 338. That’s above the midpoint of GoTo’s Rs316 to Rs346 target range, but certainly not a home run. More importantly, the size of the issue was reduced to 40.6 billion primary shares, below the 48 billion it had originally planned to offer. That said, it’s impressive that GoTo Chairman Patrick Cao and CEO Andre Soelistyo were even able to pull off an IPO. Singapore-based rivals Grab and Sea have suffered a sell-off in recent months as investors reassess their growth potential amid mounting losses. Russia’s invasion of Ukraine has further clouded prospects of a global economy mired in supply shortages and high inflation, while a frayed relationship between China and the West shows globalization is slipping back .
Like all companies in the mobility sector, GoTo has been shaken by the Covid-19. After more than doubling in a year to 7.5 trillion rupees ($522 million), gross revenue from on-demand services stagnated in 2020. The 22% growth in the first seven months of 2021 was encouraging, because it partly incorporates the effects of the Indonesian social crisis. – the distancing restrictions imposed in early July to deal with a deadly wave of delta infections. Yet without the $90 million revenue cushion from e-commerce over the same period, Adjusted Ebitda(1) could have shown a larger loss than the $340 million reported in the IPO. in stock exchange. Fintech services – the third stage of operations – generated 73% higher transaction volumes compared to the prior year period, but a smaller fraction of these were converted into revenue.
The struggle for GoTo is to convince investors that its business model is fundamentally different from Grab, which sports a similar green logo and has been its fiercest rival from the start. Gojek co-founder Nadiem Makarim and Grab co-founder Anthony Tan were friends at Harvard Business School. Both have gone into carpooling, aiming to turn their platforms into South Asian versions of WeChat in China – superapps offering a wide range of services.
GoTo’s proposal is similar, but different. Unlike Grab, it has a versatile fleet that can deliver food, people, and e-commerce goods with a single vehicle. Few peers in the world can say the same. Still, the logistics of a single transaction may not be enough to sustain profits. So the Jakarta-based company is betting that a user brought to its super app to buy dinner will stay there to book a ride across town or buy goods online for home delivery. And once customers get used to the idea of paying for everything online, they might be persuaded to try new offers through their GoPay digital wallets.
The ultimate prize is purchase and payment data that would help apps assess customer creditworthiness and offer third-party financial services, including loans. Globally, however, e-commerce platforms like MercadoLibre Inc. in Latin America and Alibaba’s Taobao in China have made financial services more successful than ride-sharing companies like Uber or Lyft Inc.
GoTo’s argument is that adding Tokopedia e-commerce to its Gojek fleet allows it to better understand behaviors to properly assess consumer and merchant loans. Investors who buy into this thesis may decide that its fintech business alone is worth paying higher multiples than Grab or Sea, as well as an online payments company like India’s Paytm, whose shares have fallen 71 % since its disastrous IPO last year. While both Grab and Sea have obtained virtual banking licenses in Singapore, the city-state’s mature financial services market is more competitive than Indonesia’s GoTo territory.
On the other hand, however, the details may not matter that much. Investors looking to invest in macro themes have few options as attractive as Indonesia. Adjusted for inflation, Southeast Asia’s biggest economy is roughly back to pre-pandemic levels, but it’s accelerating – Bali’s tourist hub has reopened. Moreover, in a world of rising energy and food prices, the coal and palm oil exporting nation stands to benefit from superior terms of trade with the rest of the world. If that helps sustain the rupiah’s 15% jump over the past two years – the biggest gain of any Asian currency against the dollar – local purchasing power is boosted. To this, add Indonesia’s rapid digitization and GoTo shoots top the list of investors. As long as management controls cash burn and does not clash with regulators, growth can continue and steady profits will eventually arrive. Whether this bundle of future earnings justifies paying a high premium now is a matter of risk tolerance.
More from Bloomberg Opinion:
• Money runs out as Southeast Asian giants go from strength to strength: Mukherjee and Culpan
• Tech companies have found a way out of China: Tim Culpan
• Indonesia has put an authoritarian regime behind it, right? : Daniel Moss
(1) Earnings before interest, taxes, depreciation and amortization.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Tim Culpan is a technology columnist for Bloomberg Opinion. Based in Taipei, he writes about Asian and global businesses and trends. He previously covered the Bloomberg News beat.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He was previously a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.