“With roughly US$2.2 billion in net cash balance as of June and annual cash burn of about US$1 billion per annum based on 2QFY2022 performance, we see the possibility that GoTo will need some external financing over 2024-2025. Our forecasts indicate a peak financing requirement of about US$500 million.
“We believe this is a very manageable level of financing, given that the company already has underutilised credit lines of about US$500 million and also has in place shareholder approval for capital issuance (up to 10% dilution) via a non-preemptive rights issue or an international listing,” says Bhasin.
Deutsche Bank believes that GoTo’s efforts in improving its take-rates, especially in e-commerce, reflect a studied view of its financing situation. “Prima facie, recent investor nervousness appears to overestimate the external financing risks,” Bhasin opines.
In 1HFY2022, GoTo’s e-commerce take-rates went up 110 basis points versus 2021 levels, Bhasin points out. The full impact of various optimisation initiatives should provide further uplift in coming quarters.
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“We believe about 150 basis points improvement in take-rates through the next two to three years (2023-2025) is possible. Our discussions with GoTo point to long-term ambitions of high single-digit take-rates in e-commerce and a studied understanding of its impact on company finances,” says Bhasin.
Aside from initiating measures to improve take-rates in e-commerce, GoTo has also widened the ability of lending activities in financial services. Deutsche Bank expects these initiatives to grow gross revenues at a CAGR of about 38% and net revenues at a CAGR of 64% over 2022-2025. Thus, revenues are expected to outpace GTV growth of about 27% over the same period, reflecting higher take-rates.
Bhasin’s target price of IDR250 is based on discounted cash flow methodology with a weighted average cost of capital of 11.8% and a terminal growth rate of 4.5% (based on GDP growth expectations).
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At current share prices, GoTo is trading at an EV/GTV of 0.2x versus 0.2 for Grab and Sea, reflecting higher GTV growth for GoTo. “A rise in competitive intensity across the e-commerce industry is a key downside risk to our outlook,” Bhasin says.
As at 1.46pm, shares in GoTo are trading IDR2 higher or 0.98% up at IDR206.
