A few months ago, GoTo sold a whopping 75.01% stake in its e-commerce division, Tokopedia, to TikTok for over $1.5 billion! TikTok planned to invest another $1.5 billion into the expanded Tokopedia, with $500 million paid right away. This move lets TikTok relaunch its e-commerce business, TikTok Shop, in Indonesia after a government ban shut it down. But, you know, that’s not the whole story. Why exactly did GoTo sell Tokopedia to TikTok?
Stick around, and you’ll find out!
(A) Reasons: Why did GoTo sell Tokopedia to TikTok?
You might be wondering why GoTo decided to sell a huge 75.01% stake in its e-commerce division, Tokopedia, to TikTok for over $1.5 billion. Well, the reasons are quite interesting and multifaceted. Let’s go into the details-
(A.1) Tokopedia’s Market Share was Declining
First off, do you know how businesses need to keep growing to stay competitive? Well, Tokopedia’s market share had been on a downslide. This was mainly because GoTo had cut down on incentives to customers in a bid to achieve profitability. Fewer incentives meant fewer customers, especially among price-conscious shoppers.
To put it in perspective, Tokopedia’s estimated gross merchandise value (GMV) for 2023 was $15.6 billion. Now, this might sound like a lot, but it was actually lower than TikTok Shop’s $6 billion GMV in Indonesia. Plus, Tokopedia had only 18 million monthly active users, a steep drop from the 100 million it once boasted.
(A.2) Intense Competition in the Indonesian E-Commerce Market
Guess what? The Indonesian e-commerce market is fiercely competitive. GoTo was up against big foreign companies with deep pockets and significant funding. Competing in such an environment requires massive investments, and GoTo was either unable or unwilling to pump in the necessary funds to keep Tokopedia afloat.
(A.3) Cutting Losses to Reach Profitability
Another key reason for the sale was to cut losses. Tokopedia was a loss-making venture for GoTo, burning through cash at a rate that was unsustainable. By selling Tokopedia, GoTo could better manage its risks and allocate resources more efficiently. This move allowed GoTo to aim for profitability sooner, targeting 2025 instead of 2027.
You see, not having to cover Tokopedia’s heavy cash burn meant GoTo could focus on its more profitable on-demand and fintech businesses. This strategic shift was crucial for the company’s financial health.
(A.4) Enabling TikTok to Restart E-Commerce in Indonesia
Here comes an interesting twist- the deal also allowed TikTok to restart its e-commerce operations in Indonesia. TikTok Shop had been shut down due to a government ban on social commerce. But with this new arrangement, TikTok committed to investing over $1.5 billion into the expanded Tokopedia entity, with $500 million paid immediately. This investment provided the necessary boost for Tokopedia to revitalize its market presence.
(A.5) Benefits for GoTo
Selling Tokopedia brought several benefits for GoTo. For one, GoTo retained a 24.99% stake in Tokopedia, ensuring it still had a significant interest in the business. Plus, GoTo secured a steady revenue stream from Tokopedia through e-commerce service fees based on the combined entity’s GMV.
Moreover, this deal helped GoTo achieve positive adjusted EBITDA by Q4 2024, setting the stage for sustained profitability. With Tokopedia’s revitalized market presence and TikTok’s investment, GoTo could focus more on its core strengths in the on-demand and fintech sectors.
(B) Key Advantages
To sum up, here’s a quick rundown of the instant benefits GoTo received from this deal-
- Revitalized Tokopedia: TikTok’s investment and resources breathed new life into Tokopedia.
- Steady Revenue Stream: GoTo received ongoing service fees from the Tokopedia joint venture.
- Focussed Growth: Freed from Tokopedia’s losses, GoTo could concentrate on its profitable on-demand and fintech businesses.
- Profitability Goals: The deal accelerated GoTo’s path to achieving positive adjusted EBITDA by Q4 2024.
- Support for MSMEs: The deal aimed to drive growth for Indonesian micro, small, and medium enterprises (MSMEs), which was crucial for gaining government approval.
Note: Do you know how the US is desperately trying to ban TikTok? Now folks wonder how this ban will impact the tech giants. For more information, visit our article on the impact of the TikTok ban on the tech industry.
(C) Final Words
Hence, by offloading Tokopedia, GoTo not only managed to secure a stronger financial footing but also positioned itself for future growth in its core areas of strength.
Now, you’re all caught up on the reasons behind this major business move. Keep an eye out for how this unfolds in the dynamic world of e-commerce!
