DIGIVESTASI - Technology issuers on the Indonesia Stock Exchange (IDX) get special treatment, the stock exchange authority itself rolls out the red carpet for startups that want to make an initial public offering (IPO). This special treatment allows companies to go public even if they continue to lose money, as long as their fundamentals are good. For technology stocks and issuers, you can expect them to be cheap because common valuation ratios, such as price-to-earnings (P/E) and price-to-book ratio (PBV), are usually low.

Unfortunately, there are still startup tech companies whose P/E/PBV cannot be measured because they are still losing money. PBV is basically the first indicator of whether a stock is expensive or cheap, but its use is relatively limited because it only refers to the balance sheet without considering the company's profit and loss situation. The quality of assets in each company and industry also varies, which can be illusory.  Companies with a high proportion of current assets tend to have a relatively high PBV compared to companies whose main assets are classified as long-term assets or cannot be quickly converted into cash. 

This is currently the case for several public technology companies, with long-term assets accounting for a large portion of the company's total assets. Almost 80% of long-term assets are classified as goodwill.

What is Goodwill?

Goodwill is an asset on the company's balance sheet and falls into the category of intangible assets. Therefore, the amount of goodwill is difficult to measure accurately and truly reflect the state of the company's balance sheet. Goodwill arises when a company acquires another company for an amount that exceeds its net asset value. Generally, the difference is classified as goodwill.

Goodwill itself is a common practice often applied by technology companies, as many of the company's assets are intangible. Intangible assets include patents and consumer data. However, the biggest challenge is how accurately and appropriately goodwill represents a company's intangible assets.

But the IDX, which is the main regulator of public company listings in Indonesia, also does not comprehensively regulate goodwill in its IPO guidelines and requirements. The stock exchange authority only mentions that companies listed on the main board must have physical assets of at least Rp 100 billion, and the development board of at least Rp 5 billion.

"In terms of numerical requirements for financial statements, companies must meet the net worth (NTA) requirement of at least IDR 5 billion. "NTA is calculated from total assets minus intangible assets, deferred tax assets, total debt, and non-controlling interests," the IDX wrote in its IPO guidelines.

In contrast, according to the IDX Guidelines, there are no detailed rules regarding intangible assets, including rules regarding goodwill. As a result, goodwill is difficult to detect, which means most Indonesian tech stocks are still posting net losses, even though other financial aspects are recovering well. 

For example, the shares of PT GoTo Gojek Tokopedia Tbk (GOTO) represent an increase in GOTO's intangible assets at the time of IPO due to the merger and acquisition with Tokopedia. This merger consolidated Tokopedia into a company with an acquisition valuation that far exceeded its net assets. 

Until the merger in May 2021, Tokopedia's acquisition price of IDR 103.2 trillion resulted in goodwill worth IDR 93.12 trillion. This means that Tokopedia's net worth at the time of acquisition was IDR 10 trillion. The high acquisition cost is not without reason, considering that Tokopedia reached a valuation of USD 7.5 billion or IDR 112.5 trillion at its peak in the Series A funding round led by Temasek and Google. 

The acquisition itself was done without cash, with the company replacing previous shareholder payments with GOTO shares. The merger comes at the height of the post-pandemic tech sector investment recovery and amid a flood of cheap capital as a result of loose monetary policy, suggesting that the flow of capital into startups will never stop.

As a result, the company's valuation increased significantly, and the same thing happened to Tokopedia due to the bullish attitude of private fund investors. However, as global monetary policy tightened, conditions for tech companies also improved. In fact, these excessive valuations cannot be sustained as many global startups have had their valuations significantly lowered. 

The value of payments company Stripe dropped from $95 billion to $50 billion, while the value of Indian edtech giant Biju dropped from $22 billion to the remaining $1 billion. Similarly, Tokopedia internally recorded an impairment loss in its 2022 financial report. 

At that time, the company recorded Tokopedia's goodwill at IDR17 trillion, up from IDR93 trillion at the start of the merger to IDR76 trillion at the end of the year. Recently, the value of GOTO's goodwill has further decreased after TikTok acquired Tokopedia. 

Late last year, Tokopedia was acquired by TikTok for $840 million or around Rp13 trillion, and TikTok became the administrator with a 75% stake. 

This means that GOTO's remaining 25% stake in Tokopedia is worth $3.38 trillion, as stated in GOTO's latest financial report. With the acquisition, Tokopedia again suffered a loss of 73.19 trillion. This in turn caused the company's net profit to decline by Rp 90.39 trillion.
 

It should be noted that since the value of goodwill itself arises from non-cash transactions, the loss due to this impairment is a non-cash loss and does not affect the liquidity or liquidity of the company. This drop in value can also be interpreted as the bursting of Tokopedia's rating bubble. 

This will be the last time Tokopedia is integrated into GOTO's financial statements, as Tokopedia lost control on February 1 last year and is no longer a subsidiary of GOTO, and its reports have been integrated into TikTok.

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