Will Indonesian tech giant GoTo, backed by Richard Li, buck downtrend faced by Grab and Sea?

Indonesia's biggest tech firm GoTo Group's successful market debut earlier this week has lifted spirits in a flagging global IPO market, but analysts caution that the euphoria too could fade.

The company is backed by Hong Kong billionaire Richard Li Tzar-kai, Softbank Group's Vision fund, Alibaba Group Holdings' Taobao China, Google, Sequoia and Temasek Holdings, among others. Alibaba is the owner of the Post.

It was formed by a merger of two home-grown Indonesian firms - GoJek, which provided on-demand services from rides to payments and e-commerce leader Tokopedia.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

Li, the son of Hong Kong's richest man Li Ka-shing, has a US$900 million stake in GoTo Group. He invested in Tokopedia in 2017, one of his first major bets in Southeast Asia to grow his empire.

GoTo, which mainly focuses on serving the Indonesian market, raised US$1.1 billion with shares priced at 338 rupiah, making it Asia's largest and the world's fifth-largest IPO this year. Around 300,000 retail and institutional investors participated in the market debut, the highest number ever to take part in an IPO on the Indonesian Stock Exchange.

GoTo's debut was stronger than those of its competitors, namely Singapore-based ride-hailing app Grab, which was listed on the Nasdaq in December after completing a merger through Altimeter Growth Corp, a special purpose acquisition company (SPAC). The shares of Grab fell sharply by over 20 per cent on its first day of trading - and its shares have now plunged by over 50 per cent since the start of the year.

Another competitor, NYSE-listed gaming and e-commerce giant Sea Ltd, also headquartered in Singapore, has also languished at the stock market, with its stock price more than halved since the start of the year. Both Grab and Sea, which focus on Southeast Asia, have lost around US$71 billion combined at the markets so far this year.

"Listing locally, in the home market, has a benefit because the investors here understand. They walk out in the street, they look out their window, and they see a Gojek helmet. On Wall Street, [the investors'] only taste of the company is through an analytical report that somebody gives them," said Vinnie Lauria, founding partner at Southeast Asia focused-venture capital firm Golden Gate Ventures in Singapore, which is a small shareholder at GoTo.

"But I do think it'd be too soon to say this is hands down a better job for GoTo," said Lauria, though he added that for a local listing, GoTo's debut clearly came out ahead of Grab and Sea. He now expects GoTo to pursue a dual listing in the US.

Local retail investors - who count themselves as among the legion of GoTo's fans - have voiced out their sense of pride at buying into the future of two household names. GoTo's constituent companies started out small - Gojek was originally a 20-fleet motorcycle taxi-booking operation in 2010. Now, Gojek's drivers, clad in green and black jackets, are easily found in Indonesia's big and lower-tier cities.

The company's co-founder and former chief executive, Nadiem Makarim, is currently Indonesia's education minister, underlining Gojek's significant clout in Jakarta.

Tokopedia, which started in 2009, was co-founded by William Tanuwijaya, an Indonesian-Chinese entrepreneur with a rural background who used to work night shifts at an internet cafe to pay for his college tuition. The 40-year-old drew inspiration from the likes of Facebook's Mark Zuckerberg and Alibaba's Jack Ma to get his business off the ground.

More than a decade on, both firms boast over 2.5 million registered driver partners and over 14 million merchants on their platforms, whose combined ecosystem contributed to 2 per cent of Indonesia's US$1.1 trillion economy, the company claimed.

Indonesia's leader Joko Widodo praised GoTo's move to give shares worth about US$21.6 million to millions of its drivers earlier this week. "I hope the GoTo IPO will motivate Indonesian youth to give new energy for the leap of our country's economic development," he said.

GoTo is now Indonesia's third-most valuable listed company behind Bank Central Asia and Bank Rakyat Indonesia, and is expected to inspire other listings.

"I think GoTo's sheer size means it contributes significantly to the index of Indonesian stocks. Index-tracking funds will need to add GoTo under their portfolio, which gives a boost to the price. Besides, many investors are genuinely excited about the public listing of a giant home-grown internet champion," said Jianggan Li, founder and chief executive at Singapore-based venture building and consultancy firm Momentum Works.

While the e-commerce sector is led by several unicorns - or companies valued at above US$1 billion - Southeast Asia's largest digital economy still offers plenty of room for growth as online spending is expected to rise to US$146 billion in 2025, a jump from US$70 billion in 2021.

Still, GoTo's fortunes can't be determined by its first week. E-commerce firm Bukalapak, Indonesia's largest listing when it debuted last year and raised US$1.5 billion, has seen its stock fall by 60 per cent since last August.

Geopolitical dynamics and global economic developments are also likely to have an impact on the stocks' movement in the near future, Li said.

"Bukalapak had a challenge that it was only the fourth-largest player in a highly competitive market. Grab and Sea for the last four months have been under the perfect storm of inflation, interest-rate hike and macro geopolitical uncertainties," Li said.

On Tuesday, the second day of trading, GoTo's stocks fell as much as 3.14 per cent after initially rising as much as 15.7 per cent earlier in the day.

GoTo is also not profitable yet and reported a net loss equivalent to US$806 million for the first nine months last year.

Analysts predict that GoTo's main challenge following their IPO is to overcome investors' scepticism about its business model. Singapore-based fintech-focused consulting firm Kapronasia said in an analysts' note last week that the "struggles" of super-app firms could not simply be put down to poor sentiment around the Russian invasion or high inflation.

"The problem lies in their business models, which seek to create one-size-fits-all solutions that users do not necessarily want, and that are built upon questionable foundations," it wrote. "How much time do people spend in a ride-hailing and food-delivery app? Where is the link from those services to banking?"

The consultancy firm noted that Gojek's acquisition of a small Indonesian bank, Bank Jago, in 2020 could help it be "a stronger digibanking player" than Grab and Sea, particularly in home market Indonesia.

"With its laser focus on Indonesia, GoTo probably will have an advantage over competitors that are spread too thin elsewhere," Kapronasia said. "Grab is going to have to devote considerable resources to its operations in Vietnam, the Philippines, Singapore, Malaysia and Thailand, while Sea operates in all of those markets plus Brazil, India and Europe."

GoTo in a statement describing how it would use IPO proceedings, added that it was aiming to expand to Singapore and Vietnam.

Li of Momentum Works said GoTo would need to avoid burning too much cash to subsidise its ride-hailing and food-delivery businesses.

"With the current level of competition in both on-demand and e-commerce segments, profit for all companies involved will probably take a while to realise. That said, the current capital market sentiment will force all the players to be more rational in their spending, and more aggressive in improving efficiency," he said.

It also remains to be seen if Indonesian retail investors will stick around and support GoTo. Lauria of Golden Gate Ventures said investors in Southeast Asia were not used to doing so but should take heed of the fortunes of tech's biggest names now.

"In technology, it's all about high growth. What could be not profitable now, in two or three years, could be a massively huge business," he said. "Amazon was not profitable for 12 years but it clearly is now generating tons of money. Apple had really, really bad decades, but clearly it's a really strong company now."

This article originally appeared on the South China Morning Post (SCMP).

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.