Company Reports

We maintain our fair value estimate for GoTo at IDR 66 after the company reported second-quarter revenue of IDR 3.66 trillion while its operating loss margin narrowed by 3600 basis points. This indicates the company is no longer incurring heavy cash burn after it sold its e-commerce business, Tokopedia. This quarter is the first time GoTo has reported earnings under its new business structure without Tokopedia, and its on-demand service has become the main focus for investors. ODS' gross transactional volume increased 17% year on year, an improvement and reversal from the previous six quarters of year-on-year decline. ODS operating margin improved only slightly by 20 basis points sequentially. Still, together with its GTV growth, we are encouraged by these positive signs as we believe GoTo is now in a better position to focus its resources and execution on a single business without the distraction of Tokopedia’s heavy cash burn.

We maintain our fair value estimate for GoTo of IDR 66 after it reported first-quarter 2024 revenue of IDR 4.1 trillion, compared with our estimate of IDR 2.6 trillion. The beat was due to a change in GoTo’s revenue recognition using the principal rather than agent model, meaning that revenue is recognized more on a gross basis rather than the previously used net. Recurring operating losses narrowed to IDR 942 billion from IDR 4.04 trillion a year ago following the sale of Tokopedia, as the e-commerce unit had suffered significant losses. In the future, we expect growth of the on-demand and financial services businesses to dictate GoTo’s valuation.

GoTo operates an on-demand service as its core business while also providing e-commerce on its platform, and competes by offering subsidies to entice consumers to make purchases on its platform. After years of subsidies have helped grow the user base to 64 million users, the company is still incurring heavy losses and is now shifting its focus on profitability by reducing subsidies. However, we believe this strategy shift creates significant uncertainty relating to GoTo’s growth trajectory in the long term as gross transactional volume growth decelerated significantly in 2023, which is a concern. GoTo reported a 255% operating margin loss in 2023, and while margins should improve this year after the subsidy reduction, we expect the reductions to cause e-commerce GTV to post only flat growth year on year compared with an 18% increase last year. Given the rate of deceleration, we have reservations about whether GoTo can balance both growth and profitability if it returns to GTV expansion. The massive deceleration questions whether GoTo users are deeply reliant on the platform and implies a low switching cost for its business.

We lower our fair value estimate for GoTo by 15% to IDR 66 per share although the company reported fourth-quarter revenue of IDR 4.3 trillion, which was 3.5% better than our estimate, as risks remain as to its long-term profitability. Despite the deconsolidation of its e-commerce business Tokopedia, there is still significant long-term uncertainty and much of GoTo's valuation hinges on whether it can successfully increase the monetization of the rest of its businesses on its platform. Gross transaction value, or GTV, declined by 10% this quarter for the on-demand segment, worse than our estimate of a 5% decline. The company implied that it could recover to midteens growth in 2024 for the unit, which is now GoTo’s core business, but we are skeptical and assume mid-single-digit growth, given our doubts as to how it can reaccelerate growth while maintaining profitability. After lowering our growth assumption, we believe the possibility remains for further revision on the expense side, given that the market also expects significant cost-cutting, but execution has been a challenge. GoTo provided guidance that it will reach adjusted EBITDA breakeven in 2024 but gave no specific timeline. We believe there are still long-term risks and would elect less risky companies such as Grab for investors wanting exposure to Southeast Asia.

GoTo operates an on-demand service as its core business while also providing e-commerce on its platform, and competes by offering subsidies to entice consumers to make purchases on its platform. After years of subsidies have helped grow the user base to 64 million users, the company is still incurring heavy losses and is now shifting its focus on profitability by reducing subsidies. However, we believe this strategy shift creates significant uncertainty relating to GoTo’s growth trajectory in the long term as gross transactional volume, or GTV, growth is likely to decelerate significantly in 2023, which is a concern. GoTo reported a 255% operating margin loss in 2023, and while margins should improve this year after the subsidy reduction, we expect the reductions to cause e-commerce GTV to post only flat growth year on year compared with an 18% increase last year. Given the rate of deceleration, we have reservations about whether GoTo can balance both growth and profitability if it returns to GTV expansion. The massive deceleration questions whether GoTo users are deeply reliant on the platform and implies a low switching cost for its business.

GoTo operates a low-cost strategy in its e-commerce and on-demand businesses, and competes by offering subsidies to entice consumers to make purchases on its platform. After years of subsidies have helped grow the user base to 64 million users, the company is still incurring heavy losses and is now shifting its focus on profitability by reducing subsidies. However, we believe this strategy shift creates significant uncertainty relating to GoTo’s growth trajectory in the long term as gross transactional volume, or GTV, growth is likely to decelerate significantly in 2023, which is a concern. GoTo reported a 255% operating margin loss in 2023, and while margins should improve this year after the subsidy reduction, we expect the reductions to cause e-commerce GTV to post only flat growth year on year compared with an 18% increase last year. Given the rate of deceleration, we have reservations about whether GoTo can balance both growth and profitability if it returns to GTV expansion. The massive deceleration questions whether GoTo users are deeply reliant on the platform and implies a low switching cost for its business.

We are increasing our fair value estimate for GoTo to IDR 78 from IDR 63 previously after the company sold off its e-commerce unit Tokopedia to TikTok on Dec. 11. We view GoTo’s e-commerce platform as a loss-making business with limited visibility and its profitability was burdened with heavy cash burn. The 20% decline in GoTo shares after the announcement likely reflects market sentiments of the loss in upside from selling its e-commerce business and disappointment that GoTo will no longer be its majority shareholder. However, we view the transaction differently and the increase in our valuation reflects that GoTo will no longer incur significant cash burn from Tokopedia and can now reach profitability in 2025, from 2027 in our model as we also removed the operating and corporate expenses that are associated with the e-commerce unit. Despite the loss of upside from the selloff, we believe this should allow GoTo to better allocate its resources and save on corporate costs and marketing expenses in the long run, which should put the company in a better position to run its on-demand business. Essentially, we believe GoTo is cutting its losses on the e-commerce platform to better manage its risk, so it can reach profitability.

We are lowering our fair value estimate for GoTo by 16% to IDR 63 from IDR 75 after the company reported a third-quarter 2023 revenue of IDR 3.6 trillion, which was 20%-25% below our and Refinitiv's consensus estimates. Our lowered fair value estimate reflects revised on-demand and e-commerce gross transactional value growth forecasts to a 7%-8% decline from a 2% decline in 2023 and to 1% growth from 3% in 2024, given that GTV has fallen for the past three quarters and there is a lack of visibility on how the company can reaccelerate growth while progressing toward profitability.

GoTo operates a low-cost strategy in its e-commerce and on-demand businesses, and competes by offering subsidies to entice consumers to make purchases on its platform. After years of subsidies have helped grow the user base to 64 million users, the company is still incurring heavy losses and is now shifting its focus on profitability by reducing subsidies. However, we believe this strategy shift creates significant uncertainty relating to GoTo’s growth trajectory in the long term as gross transactional volume, or GTV, growth is likely to decelerate significantly in 2023, which is a concern. GoTo reported a 255% operating margin loss in 2023, and while margins should improve this year after the subsidy reduction, we expect the reductions to cause e-commerce GTV to post only flat growth year on year compared with an 18% increase last year. Given the rate of deceleration, we have reservations about whether GoTo can balance both growth and profitability if it returns to GTV expansion. The massive deceleration questions whether GoTo users are deeply reliant on the platform and implies a low switching cost for its business.

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.

We are maintaining our IDR 75 fair value estimate for GoTo after the company reported significant improvement in operating losses in its second quarter, offset by a 5% gross transactional value decline year on year, which highlights our main concern. E-commerce and on-demand service GTV declined 13% and 11%, respectively, bringing into question GoTo’s long-term revenue growth trajectory. The year-on-year declines worsened for both businesses from last quarter, and there is increasing uncertainty about where future GTV growth can come from, given increasing competition in the region, as indicated by GoTo management and peers. We believe that the stock is already overvalued as we reiterate our view that GoTo will be challenged to achieve profitability and reaccelerate GTV growth at the same time.

With reference to the July 27 Indonesian government regulation to ban imported goods under USD 100 on e-commerce platforms, our view remains and our fair value estimates for Sea and GoTo are unchanged at USD 70 and IDR 75, respectively. We reiterate our previous stance that both platforms will still likely have challenges on achieving both gross transactional value growth and profitability at the same time. While the new law is an incremental positive in the long term for both companies, there is no effect on their near-term headwinds which relate to how consumer demand is declining as a response to increasing commission fees and subsidy cuts on the platforms.

We maintain our fair value estimate of IDR 75 for GoTo after it reported first-quarter 2023 results that showed profitability improvement offset by worse-than-expected gross transactional volume, or GTV, decline. The company reported IDR 3.32 trillion in revenue, which increased 120% year on year and in line with our estimate of IDR 3.28 trillion. The increase was due to the reduction of subsidies and growth in its financial services. While the revenue growth is encouraging, the long-term GTV growth and profitability for e-commerce remain the key valuation drivers and we are uncertain if GoTo can balance both. The first-quarter operating loss was IDR 4.1 trillion compared with last year’s loss of IDR 7.8 trillion. While profitability improved, a further significant reduction of operating expenses is required which should force GoTo to run at lean levels.

We initiate coverage on no-moat GoTo with a fair value estimate of IDR 75, which implies 20% downside from the April 12 closing price of IDR 94. Our bearish view is based on the significant uncertainty of GoTo’s future growth trajectory, as we expect e-commerce gross transactional volume to remain flat year on year from 2023, versus the 18% year-on-year increase in 2022. The sharp deceleration is due to the reduction of subsidies on its e-commerce platform, as GoTo looks to increase net monetization to achieve profitability. GoTo still incurs heavy operating losses—its operating loss margin was 255% in 2022. While we expect margin to improve after the reduction of subsidies and marketing expenses, we question whether GoTo can achieve both growth and profitability, given that subsidy reduction has already contributed to a significant GTV growth deceleration. We don't see a path to profitability if GoTo can't cut its subsidies and marketing expenses. We also believe there are low switching cost issues in the industry, where other platforms can offer the same goods and services. This forces GoTo to operate under a low-cost strategy where subsides are required for traffic acquisition—and if it cannot provide incentives for consumers, growth may be challenging in the near term and possibly beyond.

GoTo operates a low-cost strategy in its e-commerce and on-demand businesses, and competes by offering subsidies to entice consumers to make purchases on its platform. After years of subsidies have helped grow the user base to 64 million users, the company is still incurring heavy losses and is now shifting its focus on profitability by reducing subsidies. However, we believe this strategy shift creates significant uncertainty relating to GoTo’s growth trajectory in the long term as gross transactional volume, or GTV, growth is likely to decelerate significantly in 2023, which is a concern. GoTo reported a 255% operating margin loss in 2023, and while margins should improve this year after the subsidy reduction, we expect the reductions to cause e-commerce GTV to post only flat growth year on year compared with an 18% increase last year. Given the rate of deceleration, we have reservations about whether GoTo can balance both growth and profitability if it returns to GTV expansion. The massive deceleration questions whether GoTo users are deeply reliant on the platform and implies a low switching cost for its business.