(Bloomberg) -- ByteDance Ltd.’s TikTok agreed to invest $1.5 billion in a joint venture with Indonesia’s GoTo Group that it will control, part of a pact that lets the Chinese company restart its shopping app in its biggest online-retail market.
The social media giant will combine its Indonesian TikTok Shop business with GoTo’s e-commerce unit Tokopedia, the companies said Monday. TikTok gets a 75% stake in that combination, which will run the shopping features of TikTok’s social media app in Indonesia. GoTo fell 20% in Jakarta, the most since its listing in 2022, on concerns it’s moving away from a potentially lucrative long-term business.
The deal is unusual for ByteDance, which is effectively taking over a prominent local online-commerce player in a major overseas market. The agreement, under which GoTo becomes a passive backer of the Tokopedia operation, allows ByteDance to restart its Indonesian business and comply with regulations introduced to halt its online-retail service just as it was gaining traction against Sea Ltd. and GoTo.
TikTok benefits “as it is taking over majority ownership and operational control of Tokopedia at almost no cost — only investments into the entity,” said Jianggan Li, founder of Singapore-based consultancy Momentum Works.
Read more: TikTok’s E-Commerce Ambitions Stall as Global Backlash Grows
GoTo shares plunged in Jakarta on investor concerns Indonesia’s largest internet company will now benefit less from the country’s rapidly growing e-commerce market. Yet GoTo is also limiting its exposure to money-losing Tokopedia, which will let it focus on other businesses such as digital financial services, Li said. The company’s biggest business is ride-hailing service Gojek.
“The market is now valuing GoTo’s e-commerce as an associate business only,” Nirgunan Tiruchelvam, the head of consumer and internet research at Aletheia Capital, said by phone. “Some investors also feel that the value of the remaining business, which is primarily Gojek, now looks too rich.”
The Indonesian government, which has sought to protect local contenders including tens of millions of its smaller enterprises, has signaled that it’s approving TikTok and GoTo’s new pact. As TikTok grew to become a major rival to Tokopedia and local commerce operators, Jakarta established regulations in September forcing social media players like TikTok to separate their payments services from content.
With the new deal, TikTok users in Indonesia can once again shop and pay for their purchases without leaving the super-popular video app, according to a message the company sent to merchants. That’s because the shopping component is now owned by a separate entity, Tokopedia. The shopping service will re-launch on Tuesday.
TikTok Shop is the fastest-growing feature for Beijing-based, closely held ByteDance, which is seeking new revenue sources beyond its popular social media service. It has targeted the online-shopping market of Indonesia, a country of 278 million, as a template for a global expansion from the US to Europe.
TikTok started the shopping feature in Indonesia in 2021 and its instant success encouraged it to expand into online retailing in other markets, including the US. This year, TikTok said it will invest billions of dollars in Indonesia and the broader Southeast Asian region.
As part of the deal, Tokopedia will pay $340 million to first acquire TikTok Shop’s Indonesia business. TikTok will then acquire its majority stake in the combined entity, with the transaction expected to be completed in the first quarter. Going forward, GoTo won’t be required to fund Tokopedia, and its 25% in the venture won’t be diluted by further funding by TikTok, the company said in a note to investors. GoTo was advised by Goldman Sachs Group Inc.
Chief Executive Officer Patrick Walujo, who took over in June, is trying to bring GoTo to profitability on an adjusted basis by the end of the year to show the ride-hailing and e-commerce company has long-term earnings potential. The managing partner of shareholder Northstar Group is continuing his predecessors’ campaign to reduce losses by slashing jobs, cutting promotions and tightening expense controls.
What Bloomberg Intelligence Says
The deal, expected to close in 1Q, means GoTo gives away most of its e-commerce potential but TikTok’s 125 million active users will probably boost GoTo’s logistics, payments and banking services, helping it cope with high cash burn and shaky liquidity.
-Nathan Naidu, analyst
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Indonesia is among the first countries in Southeast Asia to push back against TikTok. Following the Indonesia restrictions, nearby Malaysia said it is studying the possibility of regulating TikTok and its e-commerce operations. The social media giant is already facing possible bans and scrutiny in the likes of the US, Europe and India on national security concerns.
--With assistance from Dong Cao and Abhishek Vishnoi.
(Updates with comment from analyst in sixth paragraph.)
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