It was reported last week that Southeast Asian ride-hailing and delivery giant Grab is looking to secure a $2 billion loan in order to acquire Indonesia’s GoTo. The deal, if it goes through, would value GoTo at around $7 billion and represent a major rewiring of the region’s consumer-facing tech sector. According to Bloomberg, Grab is reviewing GoTo’s accounts, which suggests that talks are reasonably advanced. GoTo has denied such talks are happening and said it doesn’t have a deal with anyone. It’s all very cloak and daggery. So what is going on?
First, a bit of background. Grab operates throughout Southeast Asia but is listed on the Nasdaq in the United States. It mainly does ride-hailing and deliveries, but has recently branched out into financial services and is backing one of the first big digital banks in Southeast Asia. The stock price cratered at the end of 2021, but has regained a little bit of value in recent months.
An important part of this story is that Grab has never been profitable. In 2024, Grab recorded a net loss for the year of $158 million. This may seem bad to the untrained eye, but it’s actually evidence of progress as Grab lost $485 million in 2023 and $1.7 billion in 2022. This means the losses are narrowing. There’s another important thing we should consider, which is that Grab’s net cashflow from operations in 2024 was $852 million.
GoTo is the parent company of Gojek, the ride-hailing super app that took Indonesia by storm starting around 2015. Gojek is an indispensable part of life for many people who live in cities in Indonesia and has been touted as something of a national success story. Gojek merged with Indonesian e-commerce platform Tokopedia in 2021 (that is where the moniker GoTo came from) and then went public on the local stock exchange in a blockbuster IPO that raised over $1 billion and gave the company a nearly $30 billion market valuation.
Like Grab, GoTo has never been profitable. But, also like Grab, the losses are narrowing. In 2024, GoTo posted a net loss of around $331 million (at current exchange rates). This seems bad. But to put it in perspective, this is the first year since 2020 that GoTo lost less than a billion dollars. In 2023, it took a write-down of over $5 billion, mostly because Tokopedia was not worth as much as people thought when the two companies merged. I explain how that went down here.
If we look at cash from operating activities, GoTo was at negative $38 million in 2024. Not great but a big improvement from more than $1 billion in negative operating cashflow in 2023. This is in large part from big spending cuts. Operating expenses decreased 28 percent from 2023 to 2024, which followed even bigger belt tightening of 40 percent from 2022 to 2023.
It’s pretty clear what is happening here. Tokopedia was dragging down GoTo’s bottom line, so they spun it off and are now slashing expenses in an attempt to eke out some profit. The question is why one ride-hailing and delivery app (Grab) wants to take on $2 billion in new debt to buy a regional competitor (GoTo) at a valuation of $7 billion when neither company has ever turned a profit?
Of the two, Grab is arguably in a stronger position. Not only is Grab generating hundreds of millions in net cash from operations, but there is a good chance they will reach profitability this year. Revenue at Grab increased 19 percent in 2024, compared to just 6 percent at GoTo. Grab is also more diversified. Their main markets are Singapore, Malaysia and Indonesia, but they also operate in the Philippines, Thailand and Vietnam. Those last three markets accounted for $745 million in revenue in 2024.
Meanwhile, Grab’s expansion in Indonesia is slowing. Revenue from Indonesian operations grew by only 6 percent in 2024. Average revenue growth in other markets was 24 percent. With profitability now in sight and slowing growth in the region’s biggest e-commerce market, it seems the easy play is for Grab to simply buy its main rival. But will regulators even approve such a deal?
I have my doubts. Not only would a merger of GoTo and Grab severely reduce competition for ride-hailing and food delivery services in the region, but GoTo is viewed by many in Indonesia as an important national project. Even if it never turns a profit, GoTo serves a very useful function in the Indonesian economy by boosting consumption and allowing small businesses to increase sales. Even as stories of secret discussions continue to leak, at some point, the logic of such a merger will run up against the fact that the Indonesian government probably does not want to see GoTo owned by a foreign company.