Research & Stock Picks

Emiten Report

16 August 2023

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Trimmed Spending for Maximum Gain

2Q23 results: Cost efficiency helped boost bottom line. GOTO achieved a top line of IDR 3.5 trillion in 2Q23 (+87% yoy, +7% qoq), supported by its on-demand (IDR 1.4 trillion; +9% yoy, +6% qoq) and marketplace (IDR 1.4 trillion; +5% yoy, -20% qoq) revenues. However, GOTO experienced a slight dip in GTV in 2Q23 (IDR 143.7 trillion; -5% yoy, -3% qoq) though it managed to improve its overall net take rate to 2.5% (+121 bps). Regarding its margin, GOTO managed to book a contribution margin (CM) of IDR 1.3 trillion (vs. IDR 351 billion in 1Q23), thanks to the notable drop in S&M expense (-45% yoy). In addition, GOTO managed to cut its G&A expense significantly (-80% yoy, -72% qoq); these expense cuts helped GOTO to reduce its net loss to -IDR 3.3 trillion (+54% yoy, +15% qoq). Cumulatively, GOTO posted revenue of IDR 6.9 trillion in 1H23 (+0.6% yoy), with a net take rate of 4% (+35 bps) and a net loss of -IDR 7.2 trillion (vs. -IDR 12.8 trillion in 1H22).

Exploring new strategies in pursuit of profitability. GOTO’s management highlighted that the company planned to implement several new strategies, including reducing transaction costs, selective spending (expense cuts), and expanding into the ‘budget’ customer segment. The ‘fruits’ of the first two strategies are reflected in GOTO’s 2Q23 results;  even with a steady GTV, the company managed to improve its bottom line considerably. For the third strategy, the company is still testing it. Part of the third strategy is the newly launched ‘Hemat’ mode on its on-demand services; the mode has been proven to be more profitable than GOTO's existing products. Also, since the mode used a technological instead of a promotional approach (no additional promotion expense), it benefits GOTO’s entire ecosystem. For its e-commerce, GOTO aims to improve its product assortments and add more products to its catalog to appeal to ‘budget’ customers, which is expected to increase demand for its BNPL product (GoPayLater). GOTO maintains its goal to book a positive adjusted  EBITDA in 4Q23, though it decided to lower its FY23 adjusted EBITDA guidance from -IDR 5.3tn to -IDR 4.6tn to –IDR 4.5tn to –IDR 3.8tn.

Still optimistic, though slight adjustments are necessary. We project GOTO to book a positive contribution margin of IDR 2.1 trillion in FY23F, supported by its gross and net take rate expansion to 3.8% and 2.1%, respectively. However, we decided to lower our GTV forecast to IDR 614 trillion, as we believe GOTO will improve its earnings by raising its take rates, especially from its fintech business. Regarding its top and bottom lines, we project GOTO to book a net revenue of IDR 12.7 trillion (+12% yoy) in FY23F with a net loss of IDR -11.4 trillion. We expect to see more S&M expense cuts, as we believe that it will be the company’s main strategy of achieving its goal of booking a positive EBITDA in 4Q23. We maintain our view that GOTO will book positive earnings in 2025 at the earliest.

BUY, TP IDR 130. As we roll over our valuation to FY24F, we decided to maintain our BUY rating on GOTO, albeit with a lower SOTP-based TP of IDR 130, implying an FY24F EV/Sales of 7.07x. We decided to lower our TP after considering the new, lower GTV forecast, as well as positive disruption from TikTok should it become a fully integrated social commerce platform with its own fintech. Main Risk: Lower-than-expected GTV and AOV, tech disruption.

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