Strategy Note /

GoTo's IPO is pricey but don't rule it out

  • The GoTo IPO is the biggest since the start of the war in Ukraine

  • The pricing of the IPO seems extravagant and the delay suggests that the performance could be lukewarm

  • However, foreigners have been restricted from the IPO and it could become a core index holding for them after listing

GoTo's IPO is pricey but don't rule it out
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
6 April 2022
Published byTellimer Research

The US$1bn GoTo IPO is the largest issue since the start of the war in Ukraine and the largest in Indonesia's history. It is a litmus test for capital markets, particularly EM Tech.

The IPO is now due to take place on 11 April and the issue has been priced at IDR338 per share, The basic terms are as follows:

Issuance Terms

The issue is for a maximum of 40.6bn Series A shares, equivalent to 3.43% of its enlarged capital at IDR338 per share. The plan would net the company IDR13.72 trillion (US$0.96 billion).

We have serious concerns about the pricing of this IPO:

1) GoTo has been priced 21% higher than Grab's valuation in terms of EV/GMV.

EV/Sales Multiple

2) GoTo has been priced 4.5 times higher than Grab's valuation in terms of EV/Sales.

EV/Sales Multiple

3) Bukalapak, the most recent high-profile Indonesian tech IPO, has lost 58% of its value since its listing in late 2021. GoTo's pricing seems to have followed the same extravagant methodology, which is potentially detrimental to investors.

However, the issue could still be a success, despite the fundamentals suggesting otherwise. The following reasons support the idea that it could rally on listing:

1) The GoTo IPO is likely to become a core index holding in Indonesia. The free float will be 57%, which would make it a liquid security.

2) Foreigners were excluded from the IPO. This means that foreign investors could accumulate the stock after the IPO, purely to get exposure to a core holding.

3) It is one of very few Indonesian tech IPOs. Indonesia's investors have been starved of tech exposure, which could increase the scarcity value.

4) CGS-CIMB, one of Southeast Asia's largest brokers, has been engaged as the stabilising agent for the IPO. CGS-CIMB will keep 6.1 billion shares, which may be used to stabilise GoTo's share price and contain any slump.

5) GoTo has much more stringent lock-up terms than the ill-fated Bukalapak IPO. GoTo's investors include Abu Dhabi Investment Authority (ADIA), Google, SoftBank Group, Temasek, Tencent and Fidelity International.

The Pre-IPO Series A is subject to a lock-up of 8 months, and this represents 90% of the enlarged capital.

The Series B investors are bound by a 2-year lock-up period. This represents 4% of the enlarged capital.

6) Over 600,000 GoTo drivers have been given shares in the GoTo IPO. The issue of shares to gig workers is a rare event in emerging markets. Drivers who registered between 2010 and 2016 will get 4,000 GoTo shares (US$94). The total issued to drivers will amount to US$20mn. This will create a depth of liquidity for the stock.