In an attempt to revive its online shopping operations that have been halted by regulators in the biggest economy in Southeast Asia, TikTok, a Chinese company, is investing $1.5 billion to acquire a majority stake in an e-commerce division of GoTo Gojek Tokopedia, an Indonesian company.
In an effort to safeguard users’ data and small businesses, Indonesia outlawed online shopping on social media platforms in October. As a result, TikTok was forced to shut down its e-commerce business, TikTok Shop.
The operator of the short video app, TikTok, entered a few markets earlier this year with the goal of taking advantage of its sizable user base and competing with rapidly expanding online retailers like Shein and PDD Holdings’ (PDD.O) Temu, whose rapid growth was aided by viral marketing on TikTok.
Following the announcement, shares of GoTo (GOTO.JK), a company that offers financial services, ride-hailing, and delivery, fell 8.3% as some investors cashed in on the stock’s recent surge due to hopes of a partnership with TikTok.
“We need to see what kind of market disruption will happen after this partnership,” said analyst Maximilianus Nico Demus at Pilarmas Investindo Sekuritas.
As per the agreement, TikTok will invest $840 million to purchase 75.01% of GoTo’s Tokopedia, the largest e-commerce platform in Indonesia, and integrate TikTok Shop’s Indonesia operations into the larger Tokopedia company.
“The strategic partnership will commence with a pilot period carried out in close consultation with and supervision by the relevant regulators,” the two firms said in a Monday statement.
More than 270 million people live in Indonesia, and many of them use social media regularly.
With 124 million users in Southeast Asia, TikTok—owned by China’s ByteDance—has been attempting to convert its sizable user base into a significant source of e-commerce revenue.
According to the companies, the deal will be completed by the first quarter of 2024, and Tokopedia will get a $1 billion promissory note from TikTok to help with working capital requirements.
“TikTok has committed to invest over $1.5 billion in the enlarged entity over time, to provide future funding required by the business, without additional dilution to GoTo,” they said.
Tokopedia faces competition in Indonesia’s e-commerce market from Chinese e-commerce behemoth Alibaba (9988.HK) and Singapore-based Sea (SE.N)’s Shopee.
Indonesia’s e-commerce market is expected to grow from $62 billion this year to approximately $160 billion by 2030, according to a report by Google, Singapore’s state investor Temasek Holdings, and consulting firm Bain & Co.