At the start of 2021, the business world was abuzz with news of an upcoming merger between two of Indonesia’s largest startups - the ride hailing application company Gojek and the e-commerce companyTokopedia. The information published for the first time by Bloomberg News (5/1) immediately invited many opinions. Quoting those with knowledge of the matter, Bloomberg News said that the planned merger, which will create an entity with a valuation of about $18 billion, will pave the wayto an initial public offering (IPO).
The level of attention and excitement that has been generated around this news warrants a closer look at this potential development. The first question that arises is, why are the merger talks happening? Secondly, given that reports point toward a potential IDX listing for the merged entity, what should the Indonesian investor community need to consider?
Up until recently, Gojek was reportedly in talks with Grab for a potential merger. Those discussions supposedly hit an impasse, and not long after that,the Gojek-Tokopedia merger discussions emerged. This has given rise to speculation among some in the industry that Gojek urgently needs a merger. The reasons may be less clear - but what is known is that ride-hailing has always been a high cash-burn business, Indonesia’s economic recovery from the COVID-19 pandemic has been slow , and even before the pandemic, Gojek has not been able to expand significantly outside of their home base .
A merger would be the most viable path towards a quick IPO and capital injection. In which case Gojek may have found a kindred spirit in Tokopedia, who has been steadily losing market share to SEA Group’s Shopee.
In shopping malls across Jakarta, banners advertising ShopeePay far outnumber those from rival services. Shopee has invested heavily to increase its e-commerce and e-payments market share in Indonesia through an onslaught of promotions. And it’s working. According to an iPrice survey, Tokopedia lost its market leadership to Shopee in the fourth quarter of 2019, and has stayed in second place since. Tokopedia’s Appstore and Playstore rankings likewise lags behind Shopee. And like ride-hailing, e-commerce is notorious for being a high cash-burn business.
But a merger born out of necessity is not inherently bad news. Companies often pursue mergers for survival, and some have come out stronger as a result of stronger capabilities or a greater competitive advantage. The question is whether the Gojek-Tokopedia merger achieves that.
Limited Change to Competition Dynamics
Analysts such as Bhima Yudhistira believe that merger or not, fundamentally the competitive market doesn’t change. Tokopedia must continue to battle with Shopee and Lazada in the realm of e-commerce, while Gojek still has to compete with Grab on ride hailing and food delivery, as well as with ShopeePay, OVO, and LinkAja in digital payments. “The new entity will be like chasing multiple rabbits at the same time. That is not an ideal position to be in, particularly when neither Tokopedia, Gojek nor GoPay are currently leading in their respective industries,” said Bhima.
An August 2020 survey of Indonesian consumer by Ipsos found that ShopeePay had the highest penetration rate of any e-wallet in the country at 48%. ABI Research’s 2020 ride-hailing study found Grab to hold 63.5% of the Indonesian market.
“With neither home-market dominance and an unclear path toward regional expansion, the merger actually puts both companies in a position of having to fight multiple, very expensive battlefronts. Ride-hailing and e-commerce are high cash-burn industries. The difference is that Shopee can basically rely on Garena’s profits for a bottomless war chest,” said Bhima.
Synergies will take time to build
“The viability of a Gojek-Tokopedia merged entity will depend on the potential synergies and how quickly they can achieve them,” added Bhima.
Financial services could be a particular focus, bringing together the GoPay payments platform and Tokopedia's base of shoppers. GoPay may benefit from having Tokopedia as an e-commerce use case. But that will depend on how the existing commercial obligations between Tokopedia and OVO are worked out. Gojek and Tokopedia could benefit from data-sharing as well, but system integrations of this scale are highly complex and will take time. At the same time, both companies will also need to grapple with internal friction from management changes.
“Net-net, what is par for the course for most mergers, will be more challenging for Gojek and Tokopedia because they will need to continue fighting their battles at the same time. They will basically be building the plane as they fly,”said Bhima.
Given the added burdens and complexities as a consequence of the planned merger, will the new entity definitely generate the returns investors and many parties expect? With everything remaining speculation at this point, we will still need to wait and see. What’s clear is that this development deserves more critical analysis, and the Indonesia investor community would be wise not to get carried away by euforia. (FIN/*).
COPYRIGHT © ANTARA News Megapolitan 2021
The level of attention and excitement that has been generated around this news warrants a closer look at this potential development. The first question that arises is, why are the merger talks happening? Secondly, given that reports point toward a potential IDX listing for the merged entity, what should the Indonesian investor community need to consider?
Up until recently, Gojek was reportedly in talks with Grab for a potential merger. Those discussions supposedly hit an impasse, and not long after that,the Gojek-Tokopedia merger discussions emerged. This has given rise to speculation among some in the industry that Gojek urgently needs a merger. The reasons may be less clear - but what is known is that ride-hailing has always been a high cash-burn business, Indonesia’s economic recovery from the COVID-19 pandemic has been slow , and even before the pandemic, Gojek has not been able to expand significantly outside of their home base .
A merger would be the most viable path towards a quick IPO and capital injection. In which case Gojek may have found a kindred spirit in Tokopedia, who has been steadily losing market share to SEA Group’s Shopee.
In shopping malls across Jakarta, banners advertising ShopeePay far outnumber those from rival services. Shopee has invested heavily to increase its e-commerce and e-payments market share in Indonesia through an onslaught of promotions. And it’s working. According to an iPrice survey, Tokopedia lost its market leadership to Shopee in the fourth quarter of 2019, and has stayed in second place since. Tokopedia’s Appstore and Playstore rankings likewise lags behind Shopee. And like ride-hailing, e-commerce is notorious for being a high cash-burn business.
But a merger born out of necessity is not inherently bad news. Companies often pursue mergers for survival, and some have come out stronger as a result of stronger capabilities or a greater competitive advantage. The question is whether the Gojek-Tokopedia merger achieves that.
Limited Change to Competition Dynamics
Analysts such as Bhima Yudhistira believe that merger or not, fundamentally the competitive market doesn’t change. Tokopedia must continue to battle with Shopee and Lazada in the realm of e-commerce, while Gojek still has to compete with Grab on ride hailing and food delivery, as well as with ShopeePay, OVO, and LinkAja in digital payments. “The new entity will be like chasing multiple rabbits at the same time. That is not an ideal position to be in, particularly when neither Tokopedia, Gojek nor GoPay are currently leading in their respective industries,” said Bhima.
An August 2020 survey of Indonesian consumer by Ipsos found that ShopeePay had the highest penetration rate of any e-wallet in the country at 48%. ABI Research’s 2020 ride-hailing study found Grab to hold 63.5% of the Indonesian market.
“With neither home-market dominance and an unclear path toward regional expansion, the merger actually puts both companies in a position of having to fight multiple, very expensive battlefronts. Ride-hailing and e-commerce are high cash-burn industries. The difference is that Shopee can basically rely on Garena’s profits for a bottomless war chest,” said Bhima.
Synergies will take time to build
“The viability of a Gojek-Tokopedia merged entity will depend on the potential synergies and how quickly they can achieve them,” added Bhima.
Financial services could be a particular focus, bringing together the GoPay payments platform and Tokopedia's base of shoppers. GoPay may benefit from having Tokopedia as an e-commerce use case. But that will depend on how the existing commercial obligations between Tokopedia and OVO are worked out. Gojek and Tokopedia could benefit from data-sharing as well, but system integrations of this scale are highly complex and will take time. At the same time, both companies will also need to grapple with internal friction from management changes.
“Net-net, what is par for the course for most mergers, will be more challenging for Gojek and Tokopedia because they will need to continue fighting their battles at the same time. They will basically be building the plane as they fly,”said Bhima.
Given the added burdens and complexities as a consequence of the planned merger, will the new entity definitely generate the returns investors and many parties expect? With everything remaining speculation at this point, we will still need to wait and see. What’s clear is that this development deserves more critical analysis, and the Indonesia investor community would be wise not to get carried away by euforia. (FIN/*).
Editor : M. Tohamaksun
COPYRIGHT © ANTARA News Megapolitan 2021