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Macquarie initiates coverage on GoTo with 'outperform' call, forecasts 22% upside

Jovi Ho
Jovi Ho9/27/2022 01:36 PM GMT+08  • 7 min read
Macquarie initiates coverage on GoTo with 'outperform' call, forecasts 22% upside
“We forecast robust gross revenue uptick for its key segments.”
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The Gojek-Tokopedia merger, GoTo, is well-positioned to benefit from continued digitalisation, along with growth in its key verticals, according to analysts from Macquarie Research.

As Indonesia’s sole provider of on-demand services (ODS), e-commerce and financial technology services, GoTo is a “clear tech proxy” for Southeast Asia’s largest country. “We forecast robust gross revenue uptick for its key segments,” write analysts Ari Jahja and Akshay Sugandi.

In a Sept 21 note, Ari and Akshay initiated coverage on GoTo with an “outperform” rating; their target price of IDR324 (3.1 cents) implies a 22% upside.

Monetisation and cost cuts at the company could drive a rerating, write Ari and Askhay. “Execution on growth, cost cutting and securing funding will be crucial for a re-rating, in our view, with the stock trading 21% below its IPO price.”

Southeast Asia’s largest economy

GoTo is Indonesia’s leading digital ecosystem and largest tech company. It is among Indonesia’s market leaders in each of its business verticals and by strengthening the synergies and network effects from within its ecosystem, the group seems well-positioned for continued growth, write Ari and Akshay.

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Indonesia represents Southeast Asia’s largest economy, contributing a GDP of more than US$1 trillion ($1.44 trillion) and a population of 274 million — the fourth largest in the world. “Indonesia has a young and highly tech-savvy population with increasing spending power. According to World Bank’s figures, internet users stand at 212 million people or more than 70% of the population,” write Ari and Akshay.

GoTo’s ecosystem synergies, economies of scale, and imminent cost cuts after integrating with Tokopedia will drive margin expansion, write Ari and Akshay.

In aggregate, these would drive a gradual decline in adjusted ebitda loss as a percentage of revenue (from IDR16.2 trillion in FY2021). “As we expect top-line expansion and more moderate incentive spending, we believe GoTo could achieve positive contribution margin by FY2024, and positive adjusted ebitda by FY2027.

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Ari and Akshay point to tailwinds from long-term market growth and rising monetisation. “We forecast pro-forma gross/net revenue compound annual growth rates (CAGRs) of 27%/52% over FY2021-FY2025. “We estimate the gross take rate to rise to 4.3% by FY2025 from 3.7% in 2QFY2022. Macro and reopening will be key swing factors. For 3QFY2022, GoTo’s gross transaction value (GTV) and gross revenue targets of IDR151-156 trillion and IDR5.7-6.0 trillion, respectively, appear reasonable.”

On-demand services

GoTo’s on-demand services connect consumers and merchants with driver-partners across multiple use cases.

GoTo provides consumers seeking rides with a variety of mobility options including motorcycles, private cars, and taxis. Its driver-partners, in addition to transporting consumers, also fulfill on-demand and scheduled delivery of everyday goods and services including food and beverages, groceries, healthcare essentials and packages.

GoTo has more than 2.5 million driver-partners and more than 1 million GoFood merchants as of 3Q2021.

The on-demand services segment reported GTV up 30% y-o-y, while revenue increased 41% y-o-y in 2QFY2022. According to management, the Indonesia ODS segment achieved positive contribution margin in February and March 2022, while Vietnam and Singapore were still negative.

For the ODS segment, we assign a FY2024 enterprise value (EV)/gross revenue multiple of 6.0x. ODS has the highest take rate across GoTo's ecosystem at 21.6% as of 2QFY2022. However, there is still upside risk on take rate longer-term, write the analysts.

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The e-commerce market includes physical products such as electronics, fashion, beauty and personal care, grocery as well home and other categories, which are sold on online platforms.

For 2QFY2022, GoTo’s e-commerce GTV was up 20% y-o-y, with revenue up 59% y-o-y.

“We think Tokopedia’s key exposure to middle-to-high income population might make it more resilient to possible downside risk to consumer purchasing power compared to Marketplace peers with lower average order value (AOV),” write Ari and Akshay. “Furthermore, rising take-rates could be an offset towards slower GTV growth. According to our checks, Tokopedia’s AOV stand at US$20-US$30, compared to Shopee’s US$5-US$8.”

GoTo has integrated online food delivery service GoFood into the Tokopedia app as part of the cross-platform synergy in its ecosystem.

From Aug 3, Tokopedia began charging a new fee of IDR1,000 for all physical goods transactions. Application service fees, which are used for system maintenance and service improvements, apply only for the purchase of goods on the Tokopedia website or application.

These fees do not apply to transactions for financial products, digital products, topAds, zakat (obligatory donations) and other donations.

Furthermore, on Aug 23, Tokopedia introduced PLUS by GoTo, a new monthly subscription plan offering unlimited free shipping for e-commerce orders on the platform.

The PLUS package fee is designed to be affordable, starting at IDR150,000 for six months during the initial promotion period. This works out to some IDR25,000 per month for unlimited free shipping, including same-day delivery with faster order processing time, on hundreds of millions of products available on Tokopedia, compared to quota restrictions that currently apply for free-delivery promotions.

For the e-commerce segment, Ari and Akshay assign a 2024F EV/GTV of 0.3x, or 11.0x of EV/gross revenue.

This implies FY2024 16.9x EV/net revenue but could be justified by increasing take rate potential from 3.1% as of 2QFY2022. “Importantly, Tokopedia still has room to catch up to Shopee Indonesia’s 3%-4% and mature comparable Alibaba’s 7.4%. E-commerce accounted for 40% and 37% of GoTo's total 2024 GTV and gross revenue, respectively,” write the analysts.

Financial services

The digitalisation of the financial services sector is one of the most critical growth engines behind the surge in the consumption of digital goods and services, write Ari and Akshay.

According to RedSeer, 38% of the Indonesia and Southeast Asia population aged 15 and above in 2020 were “unbanked,” or did not have a bank account. This compares to 7% for the US and 13% for China, underscoring the substantial headroom for banking penetration to increase in Indonesia.

An additional 17.5% of the population aged 15 and above in Southeast Asia were considered “underserved,” defined as individuals with bank accounts who nonetheless have insufficient access to credit, insurance and investment offerings.

Moreover, according to Bank Indonesia, credit card penetration was only around 6% in 2020, an indication of the significant under-penetration of financial services, write Ari and Akshay.

The buy now pay later (BNPL) scheme has been one of the positive catalysts for e-commerce sales growth, they add. “Electronics is one of the categories benefiting from rising BNPL penetration. BNPL seems to be popular among the middle-class population. We think this makes sense since the high income segment might be more inclined to use debit or credit cards. We believe gradual rise in BNPL penetration within Tokopedia would be crucial for this segment’s growth prospects and take rate improvement.”

The recent introduction of GoPayLater Cicil on Aug 19 as a new BNPL lending solution on Tokopedia enables users to split payments for e-commerce purchases on the platform into monthly installments over one, three, six or 12 months at varying interest rates.

According to Ari and Akshay, Tokopedia users' enthusiasm for BNPL payment methods increased almost threefold in 2021. GoPayLater Cicil provides a seamless experience from registration to disbursement with the support of several financial services partners, including GoTo’s strategic partner Bank Jago as the main source of credit funding.

For the fintech services segment, Ari and Akshay assign an FY2024 15.5x EV/gross revenue multiple to reflect robust growth off a low base. A rising portion of BNPL services as a percentage of GTV could drive a gradual take rate uptick from 0.5% as of 2QFY2022, write Ari and Akshay.

US-listed BNPL player Affirm, for example, has had a net effective take rate of 5% at a more mature phase. Fintech services accounted for 65% and 12% of GoTo's total 2024 GTV and gross revenue, respectively.

As at 11.23am, shares in GoTo are trading IDR4 down, or 1.56% lower, at IDR252 on the Indonesian Stock Exchange

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