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Hi readers,
If you believe that markets are efficient, then GoTo’s price-to-sales valuation of 85x compared to Grab’s 14x means that the market sees more value in the Indonesian super app as opposed to its Singapore-based peer.
GoTo’s valuation isn’t just outsized compared to Grab’s. The firm is also valued higher than Bukalapak (which has a price-to-sales ratio of 14x), Sea (4x), and PropertyGuru (11x).
It also isn’t a matter of where it is listed or its target audience. Like GoTo, Bukalapak is also listed in Indonesia and is focused on the local market. Of course, GoTo can claim market leadership in its categories, whereas Bukalapak has a tougher sell with its mitra business, which isn’t as easy to understand.
I analyzed possible reasons for this anomaly in a recent piece.
There are many ways to value a company. The price-to-sales ratio is commonly used for firms that aren’t profitable, but the method provides no more than a rough estimate of value. There can be differences in how companies account for revenue.
A sum-of-the-parts or discounted cash flow valuation approach may help us better understand the drivers of value for each company.
Personally, I think markets are efficient in the long-run but can suffer from moments of irrationality, often driven by fear or greed. Such moments can make or break fortunes.
There may also be unique reasons that cause markets to operate suboptimally. For example, some shareholders could be prevented from selling their shares. GoTo’s actual float – shares available for trading as a percentage of total shares outstanding – is only around 4% due to shareholder lockup agreements.
This is significantly lower than for its Southeast Asian peers.
We may only get a fuller picture when these lockups expire. Until then, GoTo’s army of retail investors, who have been spared the investor bloodbath in most other tech companies, should assess how much to keep on the table.
— Simon Huang, journalist at Tech in Asia
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Image credit: Timmy Loen
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