Tokopedia neatly channels Indonesia's potential

[HONG KONG] Tokopedia is in demand. The company last valued at about US$7.5 billion is the number two online shopping site in Indonesia behind US$100 billion Singapore-based rival Sea. But the smaller rival stands out for its single focus on one of the world's fastest rebounding and digitalising economies. No wonder it's emerging as a hot target.

The Indonesian company co-founded and led by William Tanuwijaya sells affordable everyday products to over 100 million monthly active users. It was approached by a blank-cheque, so-called special purpose acquisition company, backed by technology investor Peter Thiel, Reuters reported in December.

Now Tokopedia is in advanced talks to merge with ride-hailing and payments company Gojek to create an Indonesian Internet giant ahead of a potential dual listing in Jakarta and New York, according to Reuters. Bloomberg reported the news earlier on Tuesday. The pair have common investors, including Temasek, and the combined entity would be worth about US$18 billion.

The flurry of interest puts a spotlight on Tokopedia's potential. It lags Sea's Shopee in Indonesia by monthly Web visits and app store rankings, according to third quarter data from iPrice, but ranks ahead of Alibaba-owned Lazada. And it channels other exciting trends. The number of digital consumers is growing significantly faster in Indonesia than in neighbouring countries. E-commerce gross merchandise value grew 54 per cent year on year to US$32 billion in 2020, according to a report co-authored by Google. By contrast, Sea has online retail and gaming operations spanning South-east Asia.

Tokopedia is also set to ride a strong economic recovery.

Indonesia's gross domestic product will log one of the biggest percentage improvements behind China and South Korea in the two-year period to the fourth quarter of 2021, according to forecasts by the Organisation for Economic Co-operation and Development.

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A combination with Gojek, a larger sprawling entity covering everything from food delivery to ride hailing to payments, would expand the combined group's offering. It would also face less regulatory scrutiny than a mooted merger between directly competing Gojek and Singapore-based Grab.

But Gojek also has operations across South-east Asia where the recovery may be more uneven, so combining with it could dilute Tokopedia's focus on Indonesia, and perhaps one of its biggest attractions. Either way, the future for Tokopedia looks rich.

Ride-hailing and payments company Gojek is in advanced talks to merge with e-commerce site Tokopedia to create an Indonesian Internet giant with a valuation of about US$18 billion, ahead of a planned initial public offering of the combined entity, Reuters reported on Jan 5. Bloomberg reported the news earlier in the day.

In December, Reuters, citing sources, reported Tokopedia was considering a dual listing in the US and Indonesia worth at least US$1 billion in 2021 and that it had received a merger approach from blank-cheque acquisition firm backed by technology investor Peter Thiel.

The company has yet to decide how it plans to go public, and a listing via a special purpose acquisition company was also a potential option, a Tokopedia spokesperson said in an emailed statement to Breakingviews before the Gojek news emerged. The company has appointed Morgan Stanley and Citi as advisers.

REUTERS