GoTo may not have an obvious path to profitability

Written by Kapronasia || August 21 2023

It’s earnings season and Southeast Asia’s platform companies are trying once again to convince investors that they are on the path to profitability. The jury is still out as far as we’re concerned, especially in the case of any company that started out in the business of ride hailing and until recently emphasized growth at all costs. Having lost 75% of its market valuation since going public a little over a year ago, SoftBank and GIC-backed GoTo has yet to convince investors that it has turned a corner on the path to profitability, and we see little in its second-quarter earnings results that suggest anything has fundamentally changed for the better.

To be sure, GoTo has been reducing its losses. In the first half of the year, losses narrowed to US$470 million. To accomplish this feat, the company has both slashed its headcount and reduced subsidies to customers. In an earnings report, GoTo said that incentives and product marketing decreased by 43% during the second quarter, amounting to savings of 2.7 trillion rupiah for that period.

GoTo remains determined to be EBITDA profitable by the fourth quarter of this year –though it seems aware that investors want to see more of a long-term plan to be positive in terms of net income. "We understand that achieving adjusted EBITA break-even is not the end goal," Patrick Walujo, who became CEO in June, said during an earnings conference.

If GoTo only had its fintech unit to worry about, we would be fairly optimistic about the company. It is among the most recognized tech companies in its massive home market of Indonesia, where a significant portion of the population of 275 million has limited access to the formal banking system. By GoTo’s own estimate, 97 million Indonesians are unbanked. GoTo has a foothold in the digital financial services market thanks both to its investment in the local lender Bank Jago and its GoPay app.

Speaking of GoPay, GoTo launched it as a standalone digital payment app in late July. This app allows users to perform bank transactions and pay bills anywhere, in addition to the existing services that have been available for a while. While GoPay has a solid user base to draw upon within the broader GoTo ecosystem – about 63.8 million people according to Statista – it seems that subsidies are still needed to attract customers. During the introductory period for the app, users are exempt from bank transfer fees and offered discounts on internet package purchases and utility bills.

It is unclear if GoTo will be able to build the necessary synergies with its e-commerce business and digital financial services offerings to push itself into the black from the red. It faces a lot of competition in online shopping from the likes of Shopee, Lazada and even Tik-Tok now.

At the same time, there are the costly ride hailing and food delivery businesses to consider. Does it make sense to bundle these into the same app as e-commerce and digital financial services? 

In a nutshell, we don’t think there is anything about GoTo’s app that makes it essential for customers to stay in the app for all of these different services, and that could pose a long-term challenge for profitability. It takes a long time to build that type of user loyalty unless there are very specific market conditions such as in China at the time Alipay and WeChat built their respective super apps, or you have a comprehensive fenced-off ecosystem of both hardware and software like Apple does.