Superb top line, discouraging bottom line. GOTO posted a top line of IDR 3.4 trillion in 4Q22 (+199% yoy, -26% qoq) on the back of higher revenue from its on-demand services (IDR 1.9 trillion; +1,242% yoy, -39.7% qoq). GOTO also managed to book a higher GTV (IDR 161.9 trillion; +18% yoy, +1% qoq) with an overall net take rate of 2.09% (+127 bps) due to lower promotional expense spent by its on-demand services business. In addition, GOTO managed to improve its contribution margin (CM) to -IDR 1 trillion (vs. -IDR -5.2 trillion in 4Q21), supported by the drop in S&M expenses. On the flip side, GOTO’s 4Q22 bottom line was considerably worse than our expectations (-IDR 19 trillion net loss), which was mainly caused by the impairment of goodwill from Tokopedia (approx. -IDR 11 trillion). Cumulatively, GOTO booked a revenue of IDR 11.3 trillion in FY22 (+511% yoy), with a net take rate of 1.85% (+73 bps), and a net loss of -IDR 39.6 trillion.

Positive EBITDA in 4Q23: Oasis in sight or a mere mirage? Management has set an adjusted EBITDA guidance of around -IDR 5.3 trillion for 2023. However, the highlight is that the company expects to book a positive EBITDA in 4Q23 with its new strategy (GOTO is now targeting high GTV users using machine learning to boost its take rate). We tried to put this to the test by doing a scenario analysis to see the impact of a +0.5% qoq take rate hike on GOTO’s financial performance. Our study shows that with a +0.5% qoq take rate hike, GOTO will book a positive CM in 3Q23 (IDR 1.1 trillion) and a positive EBITDA in 2Q24 (IDR 1.3 trillion). Even though our analysis differs from management’s guidance, we still believe GOTO is on the right track to achieve early profitability by leveraging machine learning to identify high GTV users, enabling them to reduce promotion and S&M expenses.

2023 outlook. We project GOTO to book a GTV of IDR 836 trillion (+36% yoy), gross revenue of IDR 31 trillion (+35% yoy), and net revenue of IDR 17.5 trillion (+54% yoy) in FY23F, implying gross and net take rates of 3.7% and 2.1%, respectively. In addition, we expect GOTO to book an improved CM (-IDR 2.1 trillion) and an EBITDA of -IDR 18.8 trillion. Lastly, we forecast GOTO to book a significantly lower net loss in FY23F (-IDR 20.5 trillion), supported by its new strategy.

BUY, TP IDR 150. We reiterate our BUY rating on GOTO with a SOTP-based TP of IDR 150, implying an FY23F EV/Sales of 9.25x. Main Risk: Lower-than-expected GTV and AOV, tech winter.