Brokers’ take: DBS upgrades GoTo to ‘buy’ on ‘undemanding’ valuation; expects fintech breakeven in FY2025

DBS Group Research has upgraded GoTo to “buy” from “hold”, as it believes the Indonesian tech company’s valuation is now “undemanding”.

Concerns over cash burn have been resolved, and the group is expected to post positive adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) in FY2024, the research team said in a report on Thursday (Apr 4). 

Furthermore, GoTo’s enterprise value (EV) is trading at 2.95 times its sales, similar to competitor Grab, which is trading at an enterprise value that is three times its sales. 

DBS noted that GoTo’s EV-to-sales valuation of 2.95 times does not capture the potential of revenue sharing between TikTok and Tokopedia, as the income will “flow directly” to Ebitda. 

In December 2023, GoTo struck an e-commerce deal with ByteDance’s TikTok to halt Tokopedia’s slide in market share. TikTok will invest more than US$1.5 billion in a joint venture that it will control, without additional dilution to GoTo.

DBS also raised its price target on GoTo to 99 rupiah from 96 rupiah, implying a 45.6 per cent upside from the counter’s last share price of 68 rupiah as at 3 pm on Friday. Shares of GoTo were down one rupiah or 1.5 per cent at the time. 

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This came as the research team raised its adjusted Ebitda forecast for FY2024 and FY2025 by 15 per cent and 7 per cent, respectively. These projections are lower than the consensus.

It maintained its forecast for GoTo’s on-demand segment and e-commerce service commission, as it believes the group’s recent results were in line with expectations. Meanwhile, it lowered its projections for fintech losses to 1.4 trillion rupiah (S$119 million) from 1.6 trillion rupiah. 

To recap, GoTo’s adjusted Ebitda turned positive at 77 billion rupiah for the fourth quarter ended Dec 31, 2023, reversing from negative 3.1 trillion rupiah previously. 

Net revenue rose 26 per cent to 4.3 trillion rupiah, while net loss for the quarter widened to 80.9 trillion rupiah from 19.5 trillion rupiah a year ago. 

DBS expects GoTo’s fintech segment to continue booking losses in 2024, with breakeven expected only in FY2025. New products from the group’s partnerships with BFI Finance and TikTok Shop are also expected to require significant initial marketing costs. 

Thus, the research house has benchmarked losses in 2024 to be similar to 2023’s.