Is GoTo on the right track?

Written by Kapronasia || June 13 2022

Asia’s platform companies had a great run, but amid a shaky global economy they have no choice but to make substantive changes to their business models. For most of these companies, the biggest problem is that they do not make enough money to offset their costs. Until very recently their primary focus was on user numbers rather than profitability. Indonesia’s GoTo, despite some strong fundamentals working in its favor, probably will have to undergo a painful transition if it expects to thrive in the long term.

GoTo, formed by the merger of Indonesia’s two largest startups, Gojek and Tokopedia, has four core businesses: ride hailing, food delivery, e-commerce and digital financial services. All four businesses have strong growth potential in Indonesia, Southeast Asia’s largest economy.

Yet it is far from clear if they really work together in a super app. Successful super apps, like WeChat, Alipay and Kakao, were able to build large user bases from either messaging or e-commerce because the apps were unusually sticky. Users in China and Korea also had limited alternatives at the time these apps came to prominence. That is not the case in Indonesia, where most segments of the digital economy are ultra-competitive and companies compete for customers by heavily subsidizing their purchases.

Reflecting that intense competition, GoTo has lost a lot of money recently. In 2021, it posted a net loss of 21.4 trillion rupiah ($1.47 billion), compared to a loss of 14.2 trillion rupiah the year before. The first quarter of 2022 was not much better for the company. In the January to March period, it posted a net loss of 6.5 trillion rupiah, worse than an assumed 1.8 trillion rupiah loss in the same period of 2021.

GoTo’s leadership is clearly feeling some heat from investors, though its stock has not performed nearly as poorly as some of its competitors. It was trading at 386 rupiah on June 10, up about 1% from the April IPO. In early June, president Patrick Cao said the company has a “very clear path to profitability.”

If we look only at GoTo’s digital financial services business, Cao is probably right. GoTo is well positioned to serve Indonesia’s large unbanked and underbanked populations. Its first big foray into formal banking, a 22% stake in the incumbent lender Bank Jago, is already paying off. In 2021, Bank Jago had its first profitable year since 2014.

GoTo Financial said its gross transaction value (GTV) in the first quarter rose 91% sequentially to 77.5 trillion rupiah (US$5.32 billion), while gross revenue for fintech increased 47% from the quarter ended December 20211 to 358 billion rupiah (US$24.56 million). For the whole of 2021, GoTo Financial’s GTV rose 80% to 214.9 trillion rupiah.

Where GoTo may run into trouble is if it becomes clear that one or more of its core services is a money loser, and burning cash that is no longer so easy to raise. That would undermine the whole super app value proposition, that the path to profitability is blazed by seamlessly linking up certain services – ride hailing, food delivery, e-commerce and fintech – in the same app.