GoTo Earnings: Risks Remain As On-Demand Services Still Struggle to Grow; Fair Value Cut by 15%

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.