May 06 2024

GoTo loses money in Q1 but fintech unit performs well

Many platform companies have tried to replicate the success of Alipay and Tenpay as super apps, but very few have been successful. The concept has been difficult to execute in Southeast Asia, a culturally diverse region with many different regulatory regimes. Indonesia’s GoTo has always stood out, however, in that its main focus has been on its huge home market and it has avoided overextending itself in the manner of other super apps.

Ever since macroeconomic conditions turned unfavorable several years ago, super apps have been scrambling to prove that their business models are viable as investors lose patience with growth at all costs. However, the transition has not been easy. In GoTo’s case, the company has existed in form or another for almost 14 years, but has yet to reach profitability. The first quarter of 2024 was more of the same – GoTo lost US$6.3 million, which it blamed on seasonal slowness and “planned investment” – though the company claims that it is on track for EBITDA profitability this year.

GoTo seems to be betting big on the integration of TikTok and Tokopedia, which it believes will lead to significant e-commerce synergies. There is a fintech angle as well: GoTo plans to launch a buy now, pay later product for TikTok and will likely aim to increasingly integrate its e-commerce and fintech businesses in the future. We aren’t especially sanguine about the BNPL idea, which is arriving a bit late to the party. While GoTo has the resources to build out installment payments and subsidize customers to build up the user base, Indonesia is saturated with such products.

What is more intriguing is GoTo’s nascent embedded finance project – which in this case looks a bit like a rebranding of the super app concept. On GoTo’s Q1 earnings call, the company’s management said that it is developing a vehicle financing program for drivers “that at some point will move out to consumers as well,” adding that it is fortunate to have “a bunch of embedded markets” for its fintech business.  

Overall, the fintech business does seem to be doing well. GoTo’s loan book expanded by 43% year-on-year in the first quarter without any corresponding uptick in non-performing loans. The overall loan balance also grew to US$166 million, a threefold annual increase. Bank Jago (in which Gojek took a 22% stake in Dec. 2020) accounted for about 75% of GoTo’s loan book in the first quarter, up from 70% in the fourth quarter of 2023. “The companies will continue to collaborate to scale GoTo’s loan origination throughout 2024,” GoTo said in a press release.

For their part, investors thus far have reacted with moderate enthusiasm to GoTo’s first quarter earnings, which were reported on April 30. The company’s share price had risen more than 8% to 66 rupiah in the five days of trading through May 3. However, it has still fallen 27% over the last three months and about 38% over the last year.

Whether GoTo wants to call its core value proposition a super app or embedded finance, it still has to prove to investors that the bundling of disparate digital services can be profitable. The jury may be out on that for a while yet.