News of a US$18 billion merger between Indonesia’s largest tech startups—Gojek and Tokopedia—shows Southeast Asia’s tech industry is continuing on its path to make a global impact and transform the regional economy.
On May 17, Indonesian startups Gojek and Tokopedia officially announced a much-anticipated merger to form one of Southeast Asia’s largest tech companies.
Tokopedia, a fast-rising e-commerce giant, and Gojek, a ride hailing app that expanded into digital payments and other services, will form a new company called GoTo Group. The merger is valued at around US$18 billion and may be the largest deal ever between two Asian internet media companies. It is also likely Indonesia’s largest business deal to date.
The merger is the latest in a series of moves by Southeast Asian startups that put the region’s tech industry on track to make an increasingly large regional and global impact. With some countries in the region having fared relatively well during the pandemic, tech startups are serving as a conduit for Southeast Asia to increase the region’s influence in the global economy. Singapore-based ride hailing app Grab and Indonesia’s Traveloka and Bukalapak have all announced plans to go public.
Singapore’s Sea Group, the region’s largest tech company, went public in the US in 2017 and has been the second-best performing stock in the world—behind Tesla—since the start of 2020. Sea’s e-commerce arm Shopee has grown rapidly during the pandemic and the company says its revenue may double in 2021, from US$2.2 billion to $4.5-4.7 billion.
Grab, one of Southeast Asia’s largest tech startups and a major competitor of Gojek, announced plans in April to go public in the US via a merger with a special purpose acquisition company, or SPAC—a company established specifically to raise funds through an IPO and purchase an existing company. With an estimated market value of US$40 billion, the deal is the world’s largest SPAC merger to date and is the “talk of the town on Wall Street”, according to Jason Davis, associate professor at INSEAD.
GoTo Group’s new president, Patrick Cao, said the company will work towards an IPO later this year, aiming for a dual listing in Indonesia and the US. “We think it’s the right time, given our size, scale and the maturity of our teams, infrastructure, systems and processes, to be a listed company,” said Cao, who currently serves as president of Tokopedia.
As mergers and IPOs continue to bring in capital, the staying power of these tech startups may come down to how well they are able to integrate their business models into the region’s economy. Though fintech startups regularly point to the benefits of “financial inclusion”, the jobs created by ride hailing, delivery and e-commerce apps offer much more tangible benefits to economies struggling under the impacts of COVID-19. The microeconomics of job growth may matter far more than winning dominance as the region’s preferred “super app”.
Gojek and Tokopedia set for growth
Gojek and Tokopedia saw a combined 1.8 billion transactions in 2020 and GoTo Group’s transactions will account for over 2% of Indonesia’s GDP, according to the company. The new GoTo Group umbrella will include the existing businesses of Gojek and Tokopedia as well as GoTo Financial, a new brand that combines the two companies’ financial and vendor services.
Gojek co-CEO Andre Soelistyo will become GoTo Group CEO and head GoTo Financial, with Cao as GoTo Group president. Current CEO of Tokopedia William Tanuwijaya will continue in the same role, as will Gojek co-CEO Kevin Aluwi.
“Gojek drivers will deliver even more Tokopedia packages, merchant partners of all sizes will benefit from strengthened business solutions and we will use our combined scale to increase financial inclusion in an emerging region with untapped growth potential,” said Soelistyo.
Both companies already have close ties with investors and tech firms around the world; both have backing from Google and Temasek, a massive Singaporean sovereign wealth fund. Tokopedia’s largest shareholders are SoftBank and Alibaba and Gojek has received investments from Facebook and PayPal.
Southeast Asia’s tech boom continues despite reality check on the horizon
Announcements of growth and expansion aside, the region’s tech industry may eventually face a slowdown as investments slow and startups may not measure up to expectations.
Grab, like many startups, has yet to turn a profit and doesn’t expect to until 2023—the company has lost over US$10 billion to date, despite seeing revenues jump by 70% in 2020. This isn’t likely to limit access to capital however, as Sea group saw its share prices jump 395% in 2020 even though it has also never turned a profit. Grab’s SPAC deal is also facing challenges, as its SPAC partner, Altimeter Growth, has recently seen its share prices drop significantly.
The region’s startup economy as a whole is also likely to face a reality check as some of today’s valuations turn out to be significant overestimates. Tech “unicorns”—startups valued at over US$1 billion—are regularly overvalued. According to one study by Stanford researchers in 2017, one in ten unicorn companies in Silicon Valley was overvalued by at least 100%.
As Southeast Asia’s tech startups gain global prominence, their performance on the market will depend mostly on their performance at the micro level, from megacity to megacity across the region. If companies can offer sustainable jobs and inclusive growth—by paying delivery drivers a living wage, for example—they may prove they really are worth as much as investors hope they are.