I highlighted the GoTo Group (ID: (GOTO) ) as Asia's most-exciting new stock offering when the company listed in April. And I want to revisit this "unicorn with two horns" since the company may soon turn profitable.
A GoTo holding has held its ground despite this summer's selloff. GoTo went public in April at 338 rupiah per share. It's changing hands at 372 per share on Wednesday, only slightly lower than its strong first day of trade, when it posted a 13.0% advance. Since GoTo's debut, the Nasdaq composite has dropped 18.3%.
GoTo is a strong candidate for investors looking to make the most of Indonesia's attractive demographics. The country is blessed with a young and increasingly middle-class population. The average age of 29.7 years old is almost a decade younger than the United States, at 38.3.
And Indonesian shares in general have held up well in this summer's selloff. The Jakarta Composite Index shed 8.7% quickly in two weeks through mid-May. But it rallied sharply, too, and had recoupled virtually all lost ground by the end of last month. The Jakarta market is still up 6.0% so far this year, and has gained 15.8% in the last 12 months.
GoTo is the product of the 2021 merger of Indonesia's two most-valuable startups, the ride-hailing app Gojek and the e-commerce site Tokopedia. It has developed into a superapp that the company says can satisfy two-thirds of a household's consumer needs. Besides getting you and your goods where they need to go, it set up GoTo Financial at the time of the merger to oversee digital payments and consumer loans.
The company, officially named GoTo Gojek Tokopedia, is locked in a battle with Singapore-based Grab Holdings (GRAB) for the Indonesian consumer. Grab has expanded into much the same industries, with food and package delivery, ride hailing and e-wallets.
Nasdaq-listed Grab has fared much worse than GoTo this year. Grab debuted in December in a SPAC deal at US$13.05, but immediately lost virtually half its value. It'll start trading at US$2.73 today.
But the battle between GoTo and Grab may actually suit both. They've chased Uber (UBER) out of Indonesia, with Uber selling its Southeast Asian business to Grab in 2018. Any company looking to challenge GoTo and Grab now will likely have to burn between US$500 million and US$1 billion per year to keep up, according to Nomura's Indonesia analyst Ahmad Maghfur Usman.
Usman is playing it cool that it "can be very expensive" to burn US$1 billion. Every year. So we're seeing an online oligopoly develop, as it has in many other markets. A bit more competition might be good for consumers, but it does give the companies the kind of firm standing from which they can invest into infrastructure, and the future.
That future may soon see GoTo turn to profit. Its on-demand services started posting positive margins in February and March, well ahead of its initial target of 2023.
Usman reckons we should be seeing actual earnings per share by next year. GoTo faces less inflationary pressure than companies in many other markets, Indonesia has welcoming regulation, and the company can square up against Grab as its only competition. Both GoTo's shoppers and drivers are proving "sticky," with 86% of consumers saying they would still use Gojek even if it doesn't have incentives that subsidize journeys. Likewise, 86% of drivers say they work only for Gojek, unlike in other markets, where driving is often a second job.
Positive margins put GoTo ahead of the pack in terms of profitability. Uber only says it will post "meaningful positive cash flows" for the first time this year, that should lead to actual EPS in 2023. Lyft (LYFT) and the Chinese grocery-delivery app Meituan (MPNGY) and HK:3690 are following a similar 2023 timeline. Grab, by contrast, is looking out to 2025 as the time it turns a full-year profit, same as DoorDash (DASH) .
GoTo's backend payment-processing system is one way that it keeps merchants in its universe, an advantage it has over Grab. GoTo drivers also report stronger ride demand and, as a result, income.
Although growth may slow for GoTo, Indonesia's 274 million population gives it a massive market for expansion. Emerging markets are always beholden to overriding EM sentiment, which turns bearish at the first signs of "risk off."
But with GoTo and the Indonesian stock market holding up well in 2022, the company remains a steady performer, particularly by emerging-nation standards. Its strong growth prospects and the promise of profitability suggest an upside for the stock, with Usman anticipating an 11.8% gain based on its current cash flows. It's not often you find a tech stock with defensive characteristics and a strong upside, but GoTo offers both.
