Ever since the lockup period for GoTo shareholders expired on 30 November, the stock price movement has been following a consistent pattern.
Every day, it quickly drops to the 7% limit-down and stays there for the rest of the day. Trading volume is tiny compared to before the lockup expiry.
This signifies a situation where there are a lot of sell orders but very few buy orders.
GoTo held a public expose last Thursday (8 December) to try to calm the market (read the full transcript here). After the presentations of key personnel, attending analysts went straight to questions on share prices, profitability and capital requirements.
The next day, the market behaved exactly the same – 7% down as soon as the market was open.
As of end of September 2022, GoTo had cash/cash equivalents of Rp 31.52 trillion (about US$2 billion). Its net cash reduction for the nine month period (Q1-Q3 2022) was Rp 13.84 trillion (about US$0.89 billion).
By this rate, GoTo’s cash balance can last for 7 quarters – far behind Grab and Sea Group. In the current competitive landscape, where Shopee is far ahead in ecommerce order volume, and Grab has slightly higher market share in food delivery – GoTo will find it hard to achieve profitability alone.
The group needs additional external funding. The question is who will put in that money – retail alone will not give the volume and price stability, while almost all institutional investors we have spoken to baulk at buying.
One challenge is the valuation (price). GoTo’s valuation has dropped to Rp110 trillion (about US$7 billion) as of Friday 9 December. That indicates a slightly lower enterprise value (valuation minus cash) compared to Grab. More acceptable to some, but that leads to the second, and bigger, challenge – can the management convince investors that it is able to deliver both (sustainable) growth and profitability.
GoTo’s strategy and product line up, especially of GoTo Financial, make a lot of sense. POS, payment gateway, ecommerce tool, lending etc. – on the merchant side the suite of products indicates a closed loop. The question is whether they can integrate all these together and deliver a closed loop (which is defendable) – same can be said on the consumer side, with GoPay and GoPayLater as the hitherto main products.
The public expose on 8 December clearly did not stop the stampede – investors are still rushing to get out.
Unless the management delivers some extraordinary confidence booster, or state forces including regulators step in, we will continue to see the steps down on the stock chart – until an equilibrium price so low that those rushing out the door might as well hold: