Equity Analysis /
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GoTo: Heading for a severe cash crunch

  • GoTo has announced plans to enter the Buy Now Pay Later (BNPL) segment. This will put further strain on GoTo's cash burn

  • GoTo's maiden results showed that its pre-tax losses rose almost a third to US$1.5bn, worsening its cash burn

  • We cut our target price by 9% to IDR202 implying 50% downside

GoTo: Heading for a severe cash crunch
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
9 June 2022
Published by

We cut our target price for Indonesian tech company GoTo by 9%, due to increased risk of cash burn. Our new target price of IDR202 implies 50% downside, hence we reiterate our Sell recommendation. (see our initiation report here).

SOTP

Forecast vs Consensus

There are three key reasons for our pessimism:

1) BNPL will worsen GoTo's cash burn

GoTo has announced that it intends to expand into "buy now, pay later" (BNPL) loans. GoTo is planning to introduce BNPL services because of the demand for alternative sources of credit. Credit card penetration in Indonesia is below 6%, which is a fraction of the level in the more developed markets in Asia.

The experience of BNPL players in the West such as Klarna suggests that BNPL can be intrinsically cash-destructive and loss-making. For instance, Klarna's net losses in Q1 22 have risen 295% yoy to SEK2.57bn. The rise in net operating income was only 20% in that period.

A foray into BNPL would only worsen GoTo's stretched financial situation. We expect EBITDA losses of IDR31,972bn (US$2.20bn) in FY22 and IDR32,140bn (US$2.22bn) in FY23. We have not quantified the BNPL business in our forecasts as the terms have not yet been spelt out. However, we are concerned at the development.

2) Still heavily loss-making

GoTo recently released its Q1 22 results. Revenue rose 65% yoy in Q1 22, but at the expense of widening losses. Pre-tax losses rose almost a third to US$1.5bn, worsening its cash burn.

Results summary

Note that e-commerce was not recorded separately in Q1 21, as that was prior to the merger of Gojek and Tokopedia.

3) Lower net cash than its ASEAN peers

GoTo's cash position is precarious compared to its ASEAN peers Grab and Sea.

Net cash position (US$bn)

In FY22, the cash burn will be onerous due to high operating expenses.

GoTo Cashburn FY22 (IDR bn)