Is GoTo on the right track?

Written by Kapronasia || November 07 2023

Observing that GoTo managed to reduce its losses in the third quarter, we are wondering to what extent this platform company created from a merger of Indonesia’s two most prominent tech startups is on the right track. Its stock hit a 52-week nadir of 54 rupiah on October 16, but since then, boosted by investor enthusiasm about its quarterly earnings, has risen to more than 40% to 76 rupiah.

In the third quarter, GoTo reported 942 billion rupiah ($59.30 million) in underlying losses for the July to September period, a far cry from profitability but nonetheless a large drop from a loss of 3.7 trillion rupiah during the same period a year ago. The reason for the narrowing of the company’s losses appears to be aggressive cost-cutting measures, notably to reduce marketing spend. In other words, GoTo is offering fewer of the type of customer subsidies that it has relied on to build market share.

Of course, the problem with this approach is that GoTo is finding out that customer loyalty sometimes needs to be bought. Customers that are the most sensitive to price may now start shopping around for more generous subsidies elsewhere. GoTo CEO CEO Patrick Walujo said in an earnings call that the company has launched product specifically for price-sensitive consumers. It will be interesting to see how that plays out.

If there is one reason to be optimistic about GoTo, it is that the company seems to be making steady progress in digital financial services, a business we see as being more promising in the long run than either ride hailing, food delivery and e-commerce. In the third quarter, GoTo launched four new financial  products and features: the GoPay App, cash loans on Tokopedia, cash loans on the GoPay App, and GoPay Tabungan (Savings) by Bank Jago. With these efforts, GoTo seems to be trying to tap into a larger base of customers than what it can already access through the Gojek and Tokopedia ecosystems while also increasingly focusing on higher-margin segments of financial services such as lending, which GoTo says “has seen significant growth throughout 2023,” adding that it is prioritizing “the scaling up of high-margin cash loans.”

To that end, in its earnings statement, GoTo said that outstanding loans generated from its consumer lending business grew by 44% on a quarterly basis to 1.4 trillion rupiah, up threefold over the same period a year earlier, with non-performing loan levels “well below comparable products in the market.” Close to 60% of GoTo’s loan book is currently funded by Bank Jago and the companies will continue to collaborate to scale GoTo’s loan origination throughout 2023.

At the same time, GoTo is exiting some of its unremarkable super app forays, such as its ill-fated entertainment business. Digital entertainment may work well for platform companies that start out with messaging apps, but probably less so for those with their roots in mobility. Most people don’t want to be entertained in the same app they use to hail a ride or order food.

If GoTo can keep its eyes on the prize, the potential of high-margin digital financial services, and strengthen synergies between that side of its business and e-commerce, perhaps it can live up to investor expectations about profitability. However, questions remain about the long-term viability of ride hailing and food delivery.