GOTO – Announces Tokopedia’s takeover by TikTok

GOTO – Announces Tokopedia’s takeover by TikTok GOTO's Tokopedia and ByteDance's TikTok Shop have formally announced combination of their e-commerce business under existing entity of Tokopedia. The transaction is valued at USD1.5bn or IDR23.4 tn, allowing TikTok Shop Indonesia to be controlling stakeholder of Tokopedia with a stake at 75.01%, while GOTO will hold a 24.99% of Tokopedia stake. Despite GOTO’s minority stake over Tokopedia, the agreement excludes dilution of stake by TikTok’s future funding. However, due to its minority stake, Tokopedia will consequentially no longer be consolidated under GOTO, along with goodwill writing off. Furthermore, the shopping feature on Indonesia's TikTok app will be operated under the enlarged entity, which is also part of the deal also includes Tokopedia acquisition TikTok Shop Indonesia business valued at USD340mn on top of USD1.5bn commitment. The overall transaction is expected to close in 1Q24. (Source: Company, KBVS Research) Comment: GOTO's share price plunged c.20% as market reacted negatively on the deal formalization. Market reaction is understandable due to valuation and profit taking. Tokopedia value of acquisition is deemed to be undervalued. Meanwhile, we think that the groundbreaking deal could overall be positive for GOTO, especially for profitability standpoint, as it will still enjoy revenue stream from the platform, while diverting Tokopedia funding to TikTok, thus lowering risks. Tokopedia has a slim gross/net take rate at c. 3/2%, indicating lower monetization due to stiff competition. Therefore, with the collaboration, it should be able to seize more market share, while further executing cost efficiency. On the other hand, GOTO may potentially lose Tokopedia’s GTV that contributes c. 40% of overall GTV, though it should increase GOTO’s overall take rate and accelerate profitability.