Go Far, Go To Profit
Key Takeaways:
• GOTO set to accelerate profitability (positive adjusted EBITDA by 4Q23F) mainly through : 1) increasing monetization; 2) cost optimization; 3) ecosystem-based product growth.
• We expect GOTO could raise its take rate by +30 bps annually to FY25F and further optimize cost by rationalizing promo/GTV & headcount downsizing, hence we think positive adjusted EBITDA 4-6 quarters ahead of previous guidance is achievable.
• After taking consideration of net liquidity (cash & cash equivalent + short term investment - interest bearing liabilities) and assuming cash burn rate does not change, basically, cash runway of GOTO, Sea and Grab would be quite similar.
• Yet, GOTO's liquidity condition should not be underestimated given company's ability to increase monetization with higher loyal customers compared to peers.
• Furthermore, GOTO could save funding through equity financing in previous series of funding while Sea and Grab followed equity & debt financing and therefore GOTO should have superiority in term of balance sheet strength under high interest rate environment and possibility of funding dry-up due to SVB collapse.
• All in all, we believe that GOTO's liquidity should be enough to meet company's goal to achieve profitability and thus external financing should be opportunistic.
• We like GOTO due to 4 reasons : 1) FTSE inclusion that would attract foreign inflows; 2) high liquidity in the secondary market post lock-up period; 3) proxy of Indonesia's digital economy; 4) having the most complete digital ecosystem in Indonesia.
• We approach GOTO's valuation using SOTP and derived target price at IDR168/share with BUY rating implying 6.3x/5.3x FY23F/FY24F EV/sales. We use revenue multiple rather than GTV or other platform size key metric as company shifted orientation from growth focus to deliver profitable business mindset.
• Key risk to our call : 1) possibility of valuation de-rating as systematic risk increase due to SVB liquidity and solvency problem; 2) startup funding squeeze; 3) interest rate hike; 4) slower-than-expected increase of monetization primarily in high-margin business such as lending.
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