New Proposed Indonesia Law Long-Term Incrementally Positive for GoTo and Sea, but Questions Remain

On Sept. 25, Indonesia announced that it may regulate the use of social media to sell goods in the country, which we view as a move to prevent TikTok specifically from selling cheap goods and to ensure fair competition in the country’s retail industry. We view the proposed regulation as incrementally positive for GoTo, Sea, and other Indonesia-based e-commerce platforms in the long run. Despite the positive development, our fair value estimates for both GoTo and Sea are unchanged at IDR 75 and USD 54, respectively, given that we are unsure how enforceable the new law will be, and whether this means peers could step in and continue the aggressive competitive spending. Nevertheless, we believe that in the long term, the restriction of a major competitor poses a potential structural change to the profitability of e-commerce peers in Indonesia. This is incrementally beneficial for Sea and even more so for GoTo, as the latter is almost 100% leveraged to Indonesia, compared with Sea, where only about 40% of its e-commerce gross merchandise volume, or GMV, comes from Indonesia. This could potentially mean that the platforms will spend much less money on sales and marketing expenses in keeping up with competitors, which has been one of the key factors affecting profitability.