Facebook/Gojek: Desperate Catch-up or a Formidable Player?
Facebook and Paypal announced on June 3rd the investment of undisclosed amounts into Gojek, the Indonesian ride-hailing, delivery and payment company. This is Facebook's second investment in Emerging Markets in six weeks, after paying $5.7bn for a 10% stake in Indian Telco, Jio. We believe that this is a continuation of a trend that will continue as cash-rich Developed Market companies seize opportunities in Emerging Market due to depressed valuations brought about by COVID-19. Discussions between Facebook and Gojek were already reported on Bloomberg back in August 2019. Heightened uncertainty in the current environment is pushing buyers and sellers to meet in the middle, and we expect more deals to be completed in the coming months.
These types of deals make strategic sense as they highlight that EMs are establishing their own trends that big DM tech companies like Facebook had been too slow to capture. They now need to acquire to catch up.
Facebook catching up on Emerging Trends
This trend came first to our attention two years ago during an immersion study in Indonesia. We spoke to Lea, amongst others, a 27-year-old e-commerce entrepreneur. Her story illustrates Facebook’s missed opportunity. She lived with her parents in Jakarta. A few years before, she would have dressed in western clothes when she worked as an architect. She decided to leave and to become an entrepreneur, following her passion to redefine Islamic fashion.
She advertised on Instagram, shared payment details over WhatsApp, and then shipped using Gojek motorcycles. This was a simple e-commerce model. Facebook brought consumers and their attention spans to the table, as well as a means of communicating with them. Gojek handled the motorcycle logistics – it now has 1 million riders. While Gojek already had GoPay for payments, that part of the transaction seemed to be leaking out of the system – we found that payments were generally made through online banking.
At the time, we though that it would be natural move for WhatsApp into this space since it already handled the communication of the payment details. But this never materialised.
Emerging Markets are often relatively unstructured and need managements who know how to manage through that chaos and are quick to adapt to emergent opportunities. Gojek is a prime example of this. It started in 2009, combining motocycle courier and ride hailing, something especially relevant to Indonesia due to the vast number of 2-wheelers, as well as their ability to dodge through Jakarta’s notorious traffic jams. Food and grocery delivery became a major driver. During our Immersions study, we spoke to consumers who would order their Starbucks coffee for delivery by a Gojek rider, adding about 40¢ to the cost, but avoiding the traffic.
Facebook is facing pressure from TikTok, especially among younger people who find it more engaging than Facebook, with its greater inclusiveness that speaks to people’s values. Meanwhile, Libra, Facebook’s digital currency project, and a massive collective action with many prominent companies and an Emerging Market, is being regulated to oblivion. In the absence of Libra, we think that Facebook is having to scramble together a replacement EM strategy, and is resorting to making acquisitions in markets adjacent to its core business in order not to lose relevance in EMs.
By stitching together of various elements, Facebook's customer reach and communication and Gojek's payment and logistics, could create an end-to-end e-commerce company. But it would face formidable competition from existing players such as Lazada (owned by Alibaba), Tokpedia (Alibaba has an investment), and Shopee (owned by Sea Group). Over the longer term, Facebook/Gojek could even have an edge if the small stores from which Gojek makes deliveries can be integrated as warehouses and distribution nodes into a local logistics network. This would be similar to the Facebook/Jio strategy in India.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Trinetra Investment Management LLP and are subject to revision over time. Trinetra is authorised and regulated by the Financial Conduct Authority in the United Kingdom.