On Monday, GoTo and TikTok disclosed a "supportive joint venture" in Indonesia to benefit micro, small and medium-sized enterprises."The deal could lead to a dilemma for Shopee since it is struggling to secure profitability," noted Kai Wang, senior equity analyst at Morningstar in a Monday note.Sea's shares closed 5.33% lower at $37.87 on Monday.
Analysts have remarked that the new "mutually beneficial strategic partnership" between GoTo and TikTok in Indonesia may prove troublesome for Shopee, the e-commerce arm of the Southeast Asian tech giant Sea Limited. On Monday, the merger between the Indonesian ride-hailing company Gojek and the country's e-commerce platform Tokopedia was finalized; this partnership may result in increased pressure on Shopee to remain profitable. Kai Wang from Morningstar commented on the situation, suggesting that Shopee is struggling to maintain profitability. Sea Limited's U.S.-listed stocks fell over 5% on Monday in response to their recent Q3 results, which included a net loss of $143.9 million in comparison to the net income of $331 million reported in the previous quarter, with much of the shift in earnings attributed to their emphasis on growth instead of profit.
On Monday, Tokopedia and TikTok Shop Indonesia announced that their businesses would be merged into an expanded Tokopedia entity, in which TikTok would hold a 75.01% controlling stake. Additionally, TikTok will invest $1.5 billion into the new entity; according to a joint statement, the shopping functions within TikTok's app in Indonesia will be managed by the expanded entity.
Venugopal Garre, the managing director at Bernstein, voiced his opinion on CNBC's "Street Signs Asia" Tuesday, noting that this announcement was both interesting and worrying for the e-commerce and consumer tech space in Southeast Asia. He went on to explain that Tokopedia and GoTo had essentially given up their direct presence in e-commerce by transferring the majority of their shares to TikTok, a move which the market did not look kindly on.
It is worth noting that the deal comes shortly after Indonesia banned social media e-commerce in October, resulting in the suspension of TikTok's e-commerce service, TikTok Shop.
Jianggan Li of Southeast Asian tech research firm Momentum Works has named the GoTo-TikTok deal a "masterstroke." In his Monday analysis, Li remarked that TikTok Shop will gain full operational control, legitimacy of conducting ecommerce, and some useful local partners.
Without the weaponry of e-commerce offerings, operations and resources, Shopee will be unlikely to make headway against TikTok Shop. In order to make progress, a well thought-out strategy is essential; and this may not be achieved by simply concentrating on ecommerce. Indonesia accounts for the most significant TikTok user base in Southeast Asia, with 125 million users according to the company.Morningstar's Wang drew attention to Sea's strategy of prioritizing expansion over profits in light of the escalated rivalry from names such as TikTok and Lazada in SE Asia. Wang went on to say that "due to livestreaming e-commerce gaining more prevalence on social sites like Kuaishou and TikTok than on conventional e-commerce sites recently, it is anticipated that there will be a growth in Sea's running costs." CNBC contacted Shopee, but received no response.
GoTo's Jakarta-listed shares saw an increase of over 3% on Tuesday, trading at 89 Indonesian rupiah, following its vast 20% drop the previous day. Wang commented that the decline in the shares can be linked to the market's lack of satisfaction as the result of selling its e-commerce business and realizing that it will no longer remain the majority shareholder. Garre of Bernstein added that the large decrease was expected, citing investors' disappointment about the announcement.
On Monday, Morningstar raised its price objective for GoTo to 78 rupiah from 63 rupiah. According to Wang, this appreciation reflects the company's ability to now avoid major cash losses from Tokopedia and become profitable by 2025, rather than 2027 as previously forecast. Furthermore, operating and corporate costs related to the e-commerce business are no longer included in the model. As a result, GoTo is in a better position to reach profitability.
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