Our thoughts: GoTo’s 2022 Q4 and FY results

On Monday (20 March), Indonesia’s GoTo released their 2022 Q4 and unaudited Full Year results. Interestingly (and probably not entirely unexpectedly), most investor friends of ours barely paid any attention to this event. Media, in the meantime, have caught the reported widening net loss in 2022. 

GoTo’s peers in the region, Sea Group and Grab (both listed in the US), have recently reported better than expected Q4 2022 results, although the market response has been mixed. 

As GoTo is listed in Jakarta with limited shares available for trading, there was very small price movement on the first trading day after the announcement. However, during the trading day prior to the announcement,  the share price dropped 6.9%, triggering the bottom limit imposed by the exchange. 

As usual, here are some of our thoughts about the latest set of results. You can also refer to Momentum Academy’s recent report “Apples to Apples: Benchmarking Shopee, Grab, GoTo and other major tech platforms” where we make different key metrics reported by these companies comparable. 

1. GoTo stated that their net loss had widened from Rp 25.9 Trillion (US$ 1.69 Billion) (FY 2021) to Rp 40.4 Trillion (US$ 2.64 Billion) (FY 2022). However, the company has not yet released its “consolidated financial statements“ for Q4 2022 as they had for previous quarters – and it is quite hard to get a clear picture from just the press release and presentation.

2. GoTo had announced one month prior to this earnings report that they were bringing forward their profitability targets, expecting group contribution margin to breakeven by Q1 2023, and for adjusted EBITDA to breakeven by Q4 2023.

The metrics on profitability targets announced yesterday are “on track to reach positive adjusted EBITDA within the fourth quarter of 2023” (according to GoTo) , with contribution margin and Group Adjusted EBITDA improving by 85% YoY and 52% YoY respectively.

If you are scratching your head for these two terms (as different companies define these differently) – read section 5 of Momentum Academy’s “Apples to Apples” report.

3. In its effort to cut costs and improve its bottom line, incentives and product marketing spend was reduced by 34% YoY in Q4 2022, translating to a Rp 2.8 trillion cost reduction. Despite this, GoTo maintained a positive growth in GTV (by 33% YoY) and net revenue (120% YoY).

You may have noticed that, in the last quarter, SEA, Grab and GoTo were all cutting down on sales and marketing expenses in efforts to improve their bottom lines.

It is important to note though what is included in sales and marketing expenses can be different (for example, some of GoTo’s consumer incentives are included as S&M expenses, while Grab’s are not) – read section 3 of “Apples to Apples” report for more details.

4. GoTo’s on-demand take-rate rose from 20.4% to 22.0% due to “improvement in dynamic pricing and mapping technology”. The combined monetisation improvements and decreased marketing costs resulted in a “positive contribution margin” (1.3% of GTV) for On-demand Services in Q4 2022.

Of course, the question here is – what does “Contribution Margin” here mean? There is actually a way many tech companies (notably Rocket Internet companies) use to measure different levels of contribution margin. GoTo’s measure is more similar to the 3rd level (CM3) – you can find more in section 5 of “Apples to Apples” report.

5. GoTo’s ecommerce GTV and gross revenue grew by 18% YoY and 38% YoY. GoTo did not break down net revenue for the group – but Shopee’s net revenue is essentially just GMV times take rate. Shall we assume the same here – i.e. gross revenue is roughly equivalent to net revenue?

GoTo’s ecommerce take rate for FY 2022 is provided here though – 3.2%, which improved from 2.7% which we calculated for FY 2021. It is still less than 1/3 of Shopee’s though (Shopee’s take rate, interestingly, is higher than many other platforms globally).

6. GoTo also announced that moving forward in 2023, it will be restructuring its fulfilment and 1P ecommerce delivery business and moving it under GoTo Logistics. Good move – any large ecommerce platform would need strong leverage over logistics to optimise cost especially in dense areas. Shopee Express is already way bigger, however, delivering more than 35% of Shopee’s orders. A lot of catching up for Tokopedia to do.

7. Lastly, GoTo’s financial technology GTV and gross revenue grew by 68% YoY and 43% YoY, but take-rate remains low, at 0.5%. Moving forward, GoTo expects its consumer lending to be a core engine to drive monetization for its Fintech business. Here they should learn from Sea Group, which reported positive EBITDA for SeaMoney, largely driven by its consumer credit business.

8. The velocity of GoTo’s cash reduction has reduced. From end Q3 to end Q4, cash and cash equivalents reduced from Rp 31.5 trillion to Rp 29.0 Trillion – or by Rp1.5 trillion, down from Rp 3.6 Trillion in the previous quarter.It makes a lot of sense to compare “net cash liquidity” with its peers, which we have done so for the previous quarters in section 6 of “Apples to Apples” report.

9. GoTo announced that its strategic direction moving forward is to continue scaling back on incentives and product marketing spend, without sacrificing revenue growth, as well as a sharpened focus on key monetisation drivers that target high-quality, profitable users. These all make sense, obviously.

You may have also noticed that GoTo uses many non-standard metrics – Gross revenue and contribution margin – as compared to other platform companies. For more details on how to make sense of the myriad of reported metrics by key platform companies, do refer to our report “Apples to Apples: Benchmarking Shopee, Grab, GoTo and other major tech platforms”.

The question about how GoTo will compete effectively with better capitalised and larger competitors Grab and Sea Group remains unanswered, though.

We will update the “Apples to Apples” report when all the platform companies covered within have reported their FY 2022 financials towards the end of this month – stay tuned!