Brokers’ take: GoTo’s accelerated profitability timeline cheered by analysts

ANALYSTS have expressed optimism on GoTo Group’s revised guidance for adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) to turn positive in the fourth quarter (Q4) of 2023, which is about a year ahead of the Indonesian tech giant’s previous target.

In light of the news, CGS-CIMB raised its rating on the stock to “add” from “hold”.

Its target price was lifted to 150 rupiah from 115 rupiah previously, to reflect higher earnings per share estimates as well as valuation multiples for the group’s on-demand services, e-commerce and financial services segments.

Analyst Ryan Winipta said he foresees GoTo’s improvement in profitability to be driven by revenue optimisation and cost control, along with the introduction of new features within GoTo’s ecosystem.

According to the analyst, GoTo could “start picking low-hanging fruit” by implementing a more aggressive cost optimisation strategy, in view of recent changes in the group’s boards of directors and commissioners. 

“Aside from fundamentals, we think GoTo should also benefit from its potential inclusion in the MSCI (Morgan Stanley Capital International) and FTSE (Financial Times Stock Exchange) indices, along with incremental buying from local institutional funds,” said Winipta in a note on Friday (Feb 17). 

CGS-CIMB’s forecasts for the group from FY2022 to FY2024 have been raised to factor in higher gross and net take rates.

The research house nonetheless remains conservative in its estimates and expects the group’s adjusted Ebitda to turn positive by Q1 of FY2024, slightly after the group’s guidance for Q4 of FY2023.

UBS Investment Research, similarly, views the accelerated profitability timeline as a positive catalyst for the stock. It continues to rate GoTo at “buy” with a price target of 160 rupiah. 

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In a separate report on Thursday, UBS analysts said the new target could result in significantly reduced future funding risks, as the group’s operating cash flows are brought close to positive.

The group’s latest profitability guidance implies that adjusted-Ebitda profitability would occur two years earlier than UBS’s forecasted timeline for FY2025. 

Mandiri Sekuritas analysts are also expecting a positive share price reaction towards the accelerated profitability timeline.

The research house noted that GoTo’s revised timeline comes in five quarters ahead of Mandiri Sekuritas’ Q1 FY2025 projection – in line with that of Shopee’s breakeven goal by end-2023, but ahead of Grab’s 2024 target in the second half of the year.

It maintains its “buy” rating on GoTo with a price target of 230 rupiah.