The much-awaited debut of GoTo, the combination of ride-hailing app Gojek and e-commerce firm PT Tokopedia, offers investors a stark choice. Base your bet on near-term metrics like valuation and growth, or take a longer view of Indonesia’s growing middle class and digital economy.
On the numbers alone, GoTo’s initial public offering looks expensive. Subtract the estimated $4 billion cash war chest from an expected debut market capitalization of $28.2 billion, and the mobility, e-commerce and financial services firm is on track for an enterprise value of around 10 times sales, based on a $2.4 billion revenue forecast for 2022 by Bloomberg Intelligence analyst Nathan Naidu. By comparison, e-commerce peers like Alibaba Group Holding Ltd. and Sea Ltd. average 2.6-times, while ride-hailing and delivery companies including Grab Holdings Ltd. and Uber Technologies Inc. sit at around 2.5-times.
It’s worth looking at the circumstances behind such an optimistic price. GoTo is a local hero, heralding a new era for the sprawling archipelago of 17,000 islands. Indonesia’s population of 273 million is mostly young, increasingly connected, and eagerly embracing the convenience economy on their smartphones. Upon its stock-market listing in Jakarta, GoTo will be the country’s fourth-largest publicly traded company behind two banks and a state-owned telco. But just about 4% of its shares are on offer, with staff, drivers, merchants and app users all being invited to join the share sale — a smart way to drive up demand while rewarding key stakeholders. In the end, the IPO priced at 338 rupiah. That’s above the midpoint of GoTo’s 316 rupiah to 346 rupiah target range, but certainly not a home run. More importantly, the issue size has been pruned to 40.6 billion primary shares, falling short of the 48 billion it had originally planned to offer. That said, it’s impressive that GoTo President Patrick Cao and CEO Andre Soelistyo could even pull off an IPO. Singapore-based rivals Grab and Sea have suffered massive selloffs in recent months as investors reassess their growth potential amid widening losses. Russia’s invasion of Ukraine has further clouded the outlook for a global economy mired in supply shortages and high inflation, while a fraying relationship between China and the West shows globalization in retreat.
Like all companies in the mobility business, GoTo has been racked by Covid-19. After more than doubling in one year to 7.5 trillion rupiah ($522 million), gross revenue from on-demand services stalled in 2020. Growth of 22% in the first seven months of 2021 was encouraging, since it partially includes the effects of Indonesia’s social-distancing restrictions imposed in early July to deal with a deadly wave of delta infections. Still, if it weren’t for the $90 million revenue cushion from e-commerce during the same period, adjusted Ebitda(1) might have shown a bigger loss than the $340 million reported in the IPO prospectus. Financial technology services — the third leg of operations — brought in 73% higher transaction volumes from the year-earlier period, but a smaller fraction of it got 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 got into ride-hailing, aiming to turn their platforms into Southeast Asian versions of China’s WeChat — superapps offering a wide range of services.
GoTo’s proposition is similar. Unlike its global peers, the company has a multi-use fleet that can deliver food, people and e-commerce products all with the one vehicle. (Grab says it also has a shared fleet.) But there are important differences. For one, the logistics of any single transaction may not be enough to sustain earnings. So the Jakarta-based company is betting that a user brought onto its superapp to buy dinner will stay there to book a ride across town, or purchase products online for home delivery. And once customers get used to the idea of paying for everything online, they could be persuaded to try out new offerings via their GoPay digital wallets.
The ultimate prize is in purchase and payments data that would help apps to score customers’ creditworthiness and offer third-party financial services, including loans. Globally, however, e-commerce platforms like Latin America’s MercadoLibre Inc. and Alibaba’s Taobao in China have made a bigger success of financial services than ride-hailing firms such as Uber or Lyft Inc.
GoTo’s pitch is that having Tokopedia’s e-commerce tacked onto its Gojek fleet allows it greater behavioral insights to correctly price loans to consumers and merchants. 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 firm like India’s Paytm, whose shares are down 71% since its disastrous IPO last year. While both Grab and Sea have won virtual banking licenses in Singapore, the city-state’s mature financial services market is more competitive than GoTo’s home turf of Indonesia.
On the flipside, though, the minutiae may not matter that much. Investors looking to buy into macroeconomic themes have few options that are as attractive as Indonesia. Adjusted for inflation, Southeast Asia’s largest economy is just about back to where it was before the pandemic, but it’s picking up speed — the tourist hub of Bali has reopened. Besides, in a world of rising energy and food prices, the coal- and palm-oil exporting nation is set to enjoy superior terms of trade with the rest of the world. If that helps sustain the 15% jump in the rupiah over the last two years — the biggest gain of any Asian currency against the dollar — local purchasing power gets a boost. To that, add Indonesia’s rapid digitization and GoTo shoots to the top of investors’ lists. As long as management controls cash burn, and doesn’t fall afoul of regulators, growth may continue and steady profits eventually roll in. Whether that packet of future earnings justifies paying a steep premium now is a question of risk tolerance.
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(Corrects the seventh paragraph to clarify the nature of Grab’s fleet.)
(1) Earnings before interest, taxes, depreciation and amortization.
This column does not necessarily reflect the opinion of the editorial board or 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 beat at Bloomberg News.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
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