Citi composed a broker note on ‘Indonesia Internet’ in February 2015 with some detailed stats and views that I thought would be worth sharing for investors understanding the market and for founders to use in their pitch decks.
Have a read yourself, but i’ll set out some quick takeaways.
High growth, but off a small base compared to India and China
Indonesia’s internet sector is on the cusp of a new era, in their view, given:
- Rising online ad spend as consumer goods advertisers gradually shift from traditional media (eg. print and radio) to online platforms;
- Rising internet penetration (from 18% in FY11 to 40% in FY16E) on an expanding middle class and skyrocketing smartphone usage;
- An upsurge in e-commerce (from USD0.5bn in 2011 to US$4.5bn in 2015E). Total investments in Indonesian e-commerce are still relatively small at less than half a billion dollars (Softbank-to-Tokopedia US$100m, Temasek-to-Lazada SEA US$250m; both in the past 6 months), a long way shy of India’s ~US$8bn (Amazon, Flipkart, Snapdeal), translating to promising upside potential going forward for the industry.
Industry landscape: Low internet penetration but a fast expanding middle class
- An expected doubling of Indonesia’s middle class to 141m in 2020 (from 2012’s 74m), coupled with rapid urbanization (60% by 2025 from 42% in 2000), will likely spur online activity.
- Internet penetration is still low at 29% (from 248m population), but the number of internet users is among the highest regionally (at 73m); Jakarta is ranked #1 most active Twitter city and Indonesia is #4 largest Facebook user.
- Meanwhile, smartphone penetration stands at 23% (vs. 49% in Thailand, 72% in China and 80% in Malaysia), higher than for India (18%) despite Indonesia being behind the curve relative to the latter in terms of Internet development.
- Foreign investments in tech start-ups and e-commerce in Indonesia are still <US$500m (all in the past 6mths) vs. India already at ~US$8bn.
- Fixed broadband penetration in Indonesia is a mere 5% (vs. 7% in the Philippines, 21% in Vietnam and 36% in Thailand) and an average speed of 1.7mbps is among the slowest regionally (vs. 3.1mbps for Malaysia, 4.5mbps for Thailand and 6.5mbps for Singapore).
Recent investments in Indonesia e-commerce
The top 5 e-commerce players in Indonesia by traffic are 1) OLX (previously Tokobagus), 2) Berniaga, 3) Lazada, 4) Bukalapak, and 5) Tokopedia. None of them are listed as the market is still at an early stage of the cycle.
Recent investments timeline:
- Lazada South East Asia (majority revenue coming from Lazada Indonesia), which booked over US$90m of GMV in 1H14, secured U$250m financing in Dec2014 from Temasek Singapore for an undisclosed stake.
- Softbank pumped in US$100m to Tokopedia in Oct2014 for an undisclosed stake.
- OLX (subsidiary of Nasper from South Africa) bought over Tokopedia.com and Berniaga.com throughout 2014 and merged both into one platform: OLX.co.id.
- Meanwhile, Emtek recently announced series B financing to Bukalapak for <50% stake for an undisclosed amount.
Total investments in Indonesia e-commerce are still <US$500m (all in the past 6mths), shy of India’s ~US$8bn (Amazon, Flipkart, Snapdeal – in which US$6bn was invested in the past 12mths), translating to promising upside potential going forward for the industry.
Indonesia’s Internet Boom
We believe the Indonesian internet sector is entering a new phase in the digital era on the back of:
- Rising online ad spend as consumer good companies gradually move ad placements from traditional media platforms (like print and radio) to online digital platforms like news & entertainment portals (detik.com, liputan6.com, video.com, okezone.com) and social media sites (Facebook, Youtube). Figure 10 shows that online adspend has been showing the strong growth at +74% 5-year CAGR (FY10-15E), rising from a 1% pie share in 2009 to the current 7% (US$205m market).
- Rising Internet penetration (from 18% in FY11 to 40% in FY16E) on the back of a rising middle class (expected to swell from 74m in 2012 to 141m by 2020) an skyrocketing smartphone penetration.
- Booming e-commerce growth (~US$3.6bn market in FY15E) with one of the highest growth rates globally (+52% FY11-16E CAGR), further backed by 250m population base. The top five e-commerce players in Indonesia by traffic are 1) OLX (previously Tokobagus), 2) Berniaga (recently also acquired by OLX), 3) Lazada (recently secured US$250m financing from Temasek), 4) Bukalapak (recently secured financing from EMTK), and 5) Tokopedia (recently secured US$100m financing from Softbank)
B2C E-Commerce Sales Worldwide, by Region and Country, 2011-2016
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