Net loss continues to decline. GOTO reported a GTV of IDR 151.3tn in 3Q23 (+5.2% qoq, -6% yoy); the qoq growth was primarily driven by the shift in focus to budget-conscious customers. The company adjusted its net take rate to 3.95% (-0.1 bps qoq, +0.1 bps yoy), mainly due to the drop in Tokopedia’s service fee (from IDR 2k to IDR 1k). GOTO managed to post a contribution margin (CM) of IDR 1.1tn in 3Q23 (+8.6% qoq, 3Q22: -IDR 1.1tn), while its adjusted EBITDA stood at -IDR 942bn in 3Q23 (2Q23: -IDR 1.2tn, 3Q22: -IDR 3.7tn) and -IDR 3.7tn in 9M23, in line with the company’s FY23 EBITDA target range (–IDR 4.5tn to –IDR 3.8tn). GOTO’s management remained optimistic that the company would be able to achieve its guidance. Cumulatively, GOTO posted revenue of IDR 10.5tn in 9M23 (+31.9% yoy), beating our projection (SSI: 82.8%) but below cons (67.2%), with a net take rate of 2.4% (0 bps) and a net loss of -IDR 9.6tn (vs. -IDR 20.3 trillion in 9M22).

Is positive adjusted EBITDA really achievable? Management highlighted that its guidance for positive adjusted EBITDA in 4Q23 is still achievable through further cost-cutting measures and new product offerings such as GoNego, that will boost GTV and earnings. Management also hinted that new product offerings will not disrupt its current business. However, we noted that GOTO’s take rate might decline further in 4Q23 due to various promotions and discounts offered to customers, making it almost impossible to book a positive adjusted EBITDA in 4Q23. Our forecast remains the same; GOTO will achieve it in 2Q24 at the earliest, supported by cost-cutting measures and take rate stabilization.

Is the runway getting shorter? GOTO has done several financing deals that allow the company to raise cash to prolong its runway. However, this should be a red flag, since it indicates that GOTO might have a shorter runway than we think. With an estimated net loss of IDR -11.4 trillion in FY23F and with only IDR 24.6 trillion in cash balance as of 9M2. We estimate that should there be no improvement in earnings or further fundraising, GOTO’s runway might run out in 2-3 years, compared to previous estimates of 4-5 years. This presents a risk for the company as cost-cutting is not the only solution. We think the company should explore other options to boost its GTF business by further collaborating with Bank Jago and other financial intermediaries.

Downgrade, TP IDR 69. In light of several factors, including the fact that the public is now the majority shareholder of GOTO (which might lead to major volatility), the loss of several key personnel, and other potential risks, we decided to downgrade GOTO to HOLD with a SOTP-based TP of IDR 69, implying an EV/Sales FY24F of 3.1x. Previously, we assigned a premium for all GOTO business, but due to lack of scalability, we decided to give a 20% discount to its ODS business and a 30% discount to GTF.  Main Risk: Lower-than-expected take rates,  more net losses.