UBS has upgraded GoTo to “buy”, making this a double step from the tech group’s previous “sell” recommendation.
“Driven by broader tech correction, balance sheet concerns and lock-up expiry, GoTo shares have fallen 45%-50% in the past month and [less than] 70% from the initial public offering (IPO) price,” say analysts Navin Killa, Marissa Putri and Joshua Tanja.
“Meanwhile, competition in the Indonesian Internet sector has improved with Sea, Grab and GoTo all lowering incentives and cutting general and administrative (G&A) expenses,” they add.
In their report dated Dec 12, the analysts note that there is “opportunity in adversity” for the group as they estimate GoTo’s gross merchandise value (GMV) to grow at 16% with its adjusted ebitda turning positive in the 1HFY2025.
At its current share price of IDR93 (0.805 cents) as at Dec 9, GoTo is trading at an FY2023 EV/sales of 2.6x and EV/GMV of 0.12, making its valuations attractive and largely eliminating its premium over tech peers, Sea Limited and Grab.
The way the analysts see it, the expiry of lock-up and steady progress towards profitability in FY2023 should help GoTo’s shares re-rate.
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In the 3QFY2022, GoTo reported an ebitda loss of US$240 million ($324.6 million). The group said that it intends to target an ebitda breakeven by late FY2024 or early FY2025.
“Assuming [a] US$50 million – US$60 million reduction in incentives and sales and marketing (S&M) costs per quarter (which declined by [some] US$50 million in [the] past two quarters), and [around] US$35 million – US$40 million reduction in G&A (which management has guided for), we estimate it needs [around] US$180 million [of] incremental revenue,” the analysts point out.
With take rates set to increase by 100 to 150 basis points over this time, GoTo’s GMV would need to grow by 15% to 20% to reach an ebitda breakeven, they add. According to the analysts’ estimates, this should be achievable given GoTo’s current GMV run-rate of 25% to 30%.
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They continue: “Additionally, with cash balance of US$2 billion and quarterly burn rate of US$250 million, we believe the need for fresh capital issue has reduced although management will likely remain opportunistic here.”
Despite the upgrade, the analysts have lowered their target price to IDR160 from IDR240 previously. The new sum-of-the-parts (SOTP)-based target price is based on the same multiples the brokerage uses for its target prices for Sea Limited and Grab.
“While near-term concerns over lock-up expiry remain, we see long-term value,” the analysts write. “We cut [our] FY2023-FY2024 GMV estimates by 8% but our ebitda breakeven estimate comes forward.”
Shares in GoTo closed IDR6 lower or 6.45% down at IDR87 on Dec 12.
