GoTo: Initiating on Indonesia’s E-Commerce Heavyweight With IDR 75 FVE; Slowing Growth a Key Concern

We initiate coverage on no-moat GoTo 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.

Our valuation assumes GoTo’s e-commerce business can reach profitability in the medium term by further subsidy reductions, and that GTV growth could increase at 5%-6% per year, equal to Indonesia’s long-term GDP forecast. We hope GoTo can at least meet macro expectations without the overuse of subsidies. However, we assume that GoTo can achieve this with minimal upticks in operating expense, as it has already laid off 1,900 employees, or 21% of its 2021 year-end headcount, to cut costs in the last five months. Given GoTo’s GTV underperformance relative to macroeconomic growth in 2023—there could be downside risks to our growth estimates if it can’t operate more efficiently.