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Indonesian tech firms seek profitability as digital economy grows
Of the five Indonesian start-ups valued at over $1 billion, not one has recorded a profit.
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recent report forecasts that the Indonesian digital economy will be worth more than US$120 billion within five years, stoking hopes that the country’s biggest start-ups may eventually turn a profit.
According to the e-Conomy SEA 2020 report by Google, Singapore state investor Temasek Holdings and business consultancy Bain & Co., Indonesia’s gross merchandise value (GMV) from the digital sphere is projected to grow by 11 percent year-on-year (yoy) this year to $44 billion. The figure is expected to reach $124 billion by 2025, making up a large portion of Southeast Asia’s projected $310 billion GMV that year.
The report noted that while business in the digital sphere continued to grow, investors remained “cautiously optimistic” and were “doing fewer deals at more attractive valuations”.
Investment in Indonesia’s internet sector increased to $2.8 billion in the first half of this year, from $1.8 billion in the same period last year, the report found.
“Where the goal of years prior has been ‘blitzscaling’, investors are now looking for sustainable, profitable growth,” the report noted. “Blitzscaling” refers to the quick expansion of a service as it becomes more popular.
Five Indonesian start-ups are valued at more than $1 billion: ride-hailing company Gojek, travel booking firm Traveloka, e-commerce outlets Bukalapak and Tokopedia and e-wallet provider OVO. Despite their significant funding and soaring GMV, not one has recorded a profit.
The study suggested that mature and consolidated start-ups in the transportation, food and e-commerce sectors would likely not continue to obtain record fundraising. They would instead shift toward profit.
“Growth in prior years has been heavily fueled by subsidies. With the sector severely disrupted this year and investors becoming more selective, transport and food platforms have had to rebalance aggressively towards sustainable economics and cut down on investment in non-core businesses,” the report stated.
The report noted that the health crisis had had a negative impact on Indonesia’s digital transportation and food services, with the GMV expected to shrink by 18 percent yoy to $5 billion this year, as people were less mobile during the pandemic.
Gojek co-CEO Andre Soelistyo said on Thursday that the company’s four core businesses, on-demand transportation services GoRide and GoCar, goods delivery service GoSend and food delivery service GoFood, had all recorded operational profits, enabling them to expand self-funding.
“We are more confident in our business sustainability going forward. Profitability means we can make more internal investments to drive our innovations and rely less on external fundraising,” he told reporters at a virtual press conference marking Gojek’s 10th anniversary.
Andre said that Gojek’s annualized gross transaction value (GTV) across its platforms was US$12 billion, up 10 percent from the previous year.
Bukalapak president Teddy Oetomo announced in September that the company was planning to limit its “cash burning” strategy and increase its monetization and revenue to reach profitability in the future. The company reported that it had increased its earnings before interest depreciation and amortization (EBITDA) by 60 percent from the fourth quarter of 2018 to the second quarter of this year.
The report noted that e-commerce remained the main growth driver in Indonesia’s digital economy, growing at 54 percent yoy, with GMV forecast to reach $32 billion this year.
Traveloka president Hendry Hendrawan claimed the company was on its way to profitability as domestic travel demand was recovering in Indonesia, despite the fact that the company had booked almost no growth in the early months of the pandemic.
The announcement was made after Traveloka raised $250 million in capital to provide a buffer against the impacts of the COVID-19 pandemic.
The report forecast that Indonesia’s online travel sector would contract 68 percent to $3 billion this year.
“Start-ups should maintain this positive trajectory in the internet economy by practicing financial discipline to survive the recession and beyond,” said venture capital firm East Ventures cofounder and managing partner Willson Cuaca in a statement on Tuesday.
He went on to say that under normal circumstances, start-ups could have a “growth-at-all-cost” mindset, and making mistakes was permissible provided they recovered quickly. However, he said, companies should aim for measured growth during a crisis.
“During these times, the margin of error is very thin. Start-ups cannot make mistakes because a simple mistake could be fatal. Basically, when the tide is low, you do not want to be caught naked,” Willson added.
BRI Ventures CEO Nicko Widjaja echoed Willson’s statement, noting that the pandemic had forced the venture capital firms to focus on start-ups that could survive and carve a path to sustainable growth.
“But we really can’t have a conversation about this without addressing how to build a healthier landscape in which start-ups can exit. This means a well-defined path to an initial public offering,” he said in a statement on Wednesday.
He added that start-ups that went public could benefit from lower taxes, a lower cost of capital and better governance.
