GoTo, the Indonesian tech giant that owns ride-hailing and delivery service Go-Jek and e-commerce platform Tokopedia, had an eventful 2023. In June, there was a management shake-up, with Patrick Walujo replacing Andre Soelistyo as president director (Soelistyo now holds a position on the Board of Commissioners).
Then in December, GoTo reached a deal with TikTok, in which the video app will acquire 75 percent of Tokopedia. As part of that deal, GoTo ended 2023 as a much smaller company than when the year started, with total assets shrinking from $8.8 to $3.4 billion (based on the most recent exchange rate of 15,800 rupiah to the dollar).
Why was 2023 such a busy year for GoTo? One, since debuting on the Indonesia Stock Exchange in 2022 with a blockbuster IPO that valued the company at around $31 billion, GoTo has yet to make a profit. Soon after it went public, the stock price reached 388 rupiah per share, but then started dropping. At its current price, the company’s market valuation is somewhere around $5.3 billion.
GoTo needed to reassure investors in 2023 that it could turn things around. Not only was the CEO replaced, but the firm has been cutting costs. Staff layoffs have gotten the most attention in the press, but they’ve also aggressively slashed advertising expenses as well as customer incentives.
For instance, sales and marketing expenses were cut by $485 million, a 54 percent reduction year over year. Same with general administrative expenses, which were reduced by 55 percent, or $447 million. Overall, operating expenses across the board were over $1 billion lower than the previous year.
Meanwhile, revenue is up. Net revenue increased 30 percent from $718 million in 2022 to $936 million in 2023. With revenue going up, and costs going down, GoTo is getting closer to being a profitable company. On a cash basis, losses from operations narrowed by a lot last year from $1 billion to $274 million. If that trend continues, GoTo could have net positive cash flow from operations this year.
Despite this, GoTo is still showing big losses on its income statement. The firm’s net loss according to its income statement in 2023 was $5.7 billion. If GoTo is cutting costs and inching toward profitability, how come they took such a big loss last year?
That has to do with the way gains and losses are recorded on an income statement according to standard accounting practices. When Go-Jek merged with Tokopedia prior to the IPO, for accounting purposes Tokopedia’s book value was recorded on the balance sheet as something called goodwill. At the time, the goodwill from the transaction was valued at $5.9 billion.
This valuation was based on projections about rapid growth in Indonesia’s digital economy and Tokopedia’s leading place within the e-commerce industry. But now that we have a few years of hard data on earnings and market activity and so forth, that valuation may have been a bit high.
In 2023, GoTo’s e-commerce segment posted a net loss of $143 million. More worryingly, however, is that the value of transactions on Tokopedia is going in the wrong direction. Gross transaction value declined 9 percent in 2023, from $17.2 to $15.7 billion.
Every year that the market value of Tokopedia decreases, GoTo needs to book it as a loss in their income statement. Last year, for instance, GoTo took about a $700 million goodwill impairment. This is a problem because as GoTo moves toward profitability from its operations, as long as the goodwill from the merger remains on the balance sheet and the market value of Tokopedia declines, they will have to keep taking impairments.
This is where TikTok comes in. Last year the Indonesian government banned sales made through social media platforms, which is a major revenue stream for TikTok. Now TikTok is back, partnering with a local tech giant which will allow it to regain access to Indonesia’s e-commerce market while simultaneously helping GoTo with its goodwill problem and injecting Tokopedia with fresh capital.
TikTok agreed to pay $1.5 billion net, including a $1 billion promissory note, to acquire 75 percent of Tokopedia which will now become a joint venture with GoTo as the junior partner. Most importantly for GoTo, this means after taking a huge impairment in 2023 of around $5 billion, they can now move Tokopedia’s goodwill off the balance sheet.
It’s now up to TikTok, which has around 125 million active daily users in Indonesia, to take the lead on e-commerce. This is a tacit acknowledgment that the valuations applied to these tech companies in the heady early days of the unicorn boom have not really stood the test of time. It also means Indonesia’s grand experiment in creating a home-grown tech titan that straddled the digital economy from ride-hailing to e-commerce to financial services has come to an end for now.