Analysts appear optimistic about Indonesian unicorn Tokopedia’s plans for an initial public offering (IPO) and dual listing, concurring that the plans make sense for the company.
Entering its second decade, Indonesia’s largest e-commerce site Tokopedia is reportedly in talks for pre-IPO funding, Bloomberg reported last week.
According to the report, Tokopedia is considering a dual stock market listing in Jakarta and an undecided location. The report quoted the company saying that it wants its customers and sellers to become shareholders.
Tokopedia’s co-founder and CEO William Tanuwijaya recently expressed his interest in exploring IPO possibilities, although he didn’t indicate an exact timeline for this plan. During his panel at the Tech in Asia Conference 2019, Tanuwijaya also said that his company aims to achieve profitability next year. He believes that Tokopedia has been showing positive growth and is ready to break even in 2020.
Sebastian Tobing, head of research at Trimegah Securities, believes that a company must show a clear path to profitability before committing to going public. He is confident that Tokopedia’s direction is promising.
“Looking at the company’s track record, I think Tokopedia will be profitable in one or two years after breaking even. Its growth has been very positive, the marketplace competition in Indonesia is maturing and I believe that Tokopedia is the leader in this sector,” Tobing told KrASIA.
Etta Rusdiana Putra, an analyst at Kresna Sekuritas, said a dual listing is much better for Tokopedia. If the company only lists in Indonesia, it will have limited investors, he said. Meanwhile, if it lists on international stock exchanges, the investor pool will be bigger. In addition, international investors are more well-versed with the digital industry, he pointed out.
He noted that dual listings are not new for Indonesian companies, naming Telkom Indonesia as an example. The telco is listed on the New York Stock Exchange and Indonesia Stock Exchange.
“The market capitalization in Indonesia is still small compared to the US market, so the foreign institutions that can enter the Indonesia market are limited. Moreover, the transactions per day in Indonesia’s stock market only amount to IDR 8 trillion [USD 568 billion],” Putra explained.
Tobing also shared this view. “Let’s take for example, SEA Group, the parent company of Shoppee and Garena, which went public on the New York Stock Exchange. It’s considered the best reference for technology IPOs. I think investors there are already very comfortable with giant tech companies. They are familiar with such companies’ metrics so that it is easier to educate investors,” he added.
As there are currently few large-scale public companies in Indonesia, especially ones from the technology and digital sectors, the level of investor confidence is not as great as in the US. Therefore, a dual listing could also inspire local investors to be more bullish about the company.
The Indonesian government, through its IT minister Rudiantara, has encouraged unicorn companies to go public at home before they hit “decacorn” status, so that these firms can absorb capital from domestic retail investors. Meanwhile, companies with valuations above USD 10 billion are advised to have more than one listing because the public offering of the shares are too large and cannot be absorbed by local investors alone, Rudiantara told Indonesian media.
According to Mevira Munindra, country head of operations and consulting at IDC Indonesia, government expectations for unicorn companies to go public is understandable as it would attract local investors to contribute to the capital markets, thereby boosting growth in the digital economy. However, before deciding to become part of the stock market, the company has to be fully prepared to avoid failure. She cited the example of WeWork that failed to go public.
“Moreover, several other tech companies, such as Uber and Lyft, had a hard time when their IPOs debuted. The risk for tech companies is that their business models may not be 100% tested and proven in the market. Therefore, it is better to consider all scenarios related to operating models and business models, including good corporate governance,” Munindra told KrASIA.
Commenting on Tokopedia’s case, Munindra believes that the company will sustainably impact micro and small medium entrepreneurs and business growth going forward. “Tokopedia is one of the companies with a strong brand in Indonesian minds. Tokopedia is no longer considered an e-commerce company only, but also a digital ecosystem enabler, which has worked closely with stakeholders in both digital and non-digital markets.”
In line with the Indonesian government expectations, Tobing also believes that if unicorn companies go public, they will positively impact the country’s digital economy.
“In terms of revenue, the digital economy is growing rapidly, it is even the fastest-growing industry in Indonesia. The good thing about IPOs is that the public will have a chance to be a part of this momentum and benefit from unicorn tech companies’ development so that we will be able to grow together,” he said.
Moreover, Tobing is optimistic that Tokopedia will be able to debut on the stock market successfully, and this would attract other unicorn companies and even mid-sized tech companies to follow suit, boosting the Indonesian digital economy in the long run.
Tokopedia currently has 90 million active monthly users. Its gross merchandise value (GMV) reached USD 5.1 billion in 2018, and it is expected to more than triple to USD 15.6 billion this year, according to a recent report by the University of Indonesia’s economic and social research institute. This figure is equivalent to 1.5% of the Indonesian economy, indicating the strength of Tokopedia’s influence.
Moreover, the unicorn is expected to contribute USD 12 billion to the country’s economy in 2019, the report said. Apart from contributing to total transaction value, Tokopedia is expected to create a number of jobs, raise seller income, and create broader economic equality throughout the archipelago.
According to data from analytics firm CB Insights, Tokopedia’s valuation stood at an estimated USD 7 billion in December 2018, making it the second most valuable startup in Indonesia after Gojek. With the company’s growing GMV and increasing number of sellers, it would be unsurprising if Tokopedia became the second decacorn in the country, the firm said.
When contacted by KrASIA, Tokopedia spokesperson Nuraini Razak said, “Every big company like Tokopedia surely has an ambition to list on the stock exchange. However, we can’t share more details about the IPO plans.”
