GoTo: Lowering Valuation by 16% Due to Market Share Decline and Lack of Visibility on Profitability

We are lowering our fair value estimate for GoTo GOTO by 16% to IDR 63 from IDR 75 after the company reported a third-quarter 2023 revenue of IDR 3.6 trillion, which was 20%-25% below our and Refinitiv’s consensus estimates. Our lowered fair value estimate reflects revised on-demand and e-commerce gross transactional value growth forecasts to a 7%-8% decline from a 2% decline in 2023 and to 1% growth from 3% in 2024, given that GTV has fallen for the past three quarters and there is a lack of visibility on how the company can reaccelerate growth while progressing toward profitability.

The result also represents a 20% year-over-year revenue decline and implies that it lost further market share as GTV for on-demand services and e-commerce declined by 12% and 11%, respectively. Compounding its GTV decline was also a sequential operating margin deterioration of 1,600 basis points to a 74% loss due to lowered revenue. In addition, the company expects further reinvestments into its on-demand and e-commerce core businesses to defend market share, which suggests that there could be additional sales and marketing expenses that would lead to margin pressures in 2024 or beyond for the platform and further cloud visibility on when it can reach breakeven, if at all. GoTo indicated that competition in Southeast Asian e-commerce was still intense despite recent law proposals targeted at Bytedance that would require the Chinese company to separate its e-commerce and social media units from sharing data that would target consumer preferences more easily. Even without ByteDance, heavy competition remains in the region, which led to GoTo’s decision to reinvest further.