Cloud Deals With Alibaba And Tencent Will Slash Costs And Boost Net Margins

Key Takeaways

• New cloud contracts could significantly enhance operational efficiency and net margins through substantial cost reductions.
  
• Aggressive user acquisition and FinTech growth may drive increased revenues, market share, and earlier-than-anticipated profitability.
  
• Increasing competition, potential risks in rapid FinTech expansion, and reliance on volatile partnerships may pressure revenue growth and profitability in key segments.

Catalysts

Provides and operates on-demand services in Indonesia and internationally.

• The introduction of new cloud contracts with Alibaba and Tencent promises a more than 50% reduction in cloud costs, enhancing the company's operational efficiency and potentially improving net margins significantly as cost savings are realized.
  
• GoTo's aggressive strategy in user acquisition, particularly through the GoPay app and integration with other services, is driving substantial growth in monthly transacting users, which could lead to increased revenues and market share expansion over time.
  
• The FinTech segment is expected to continue its rapid growth path with a focus on loans and consumer payments, projected to double loan books by the end of 2025, contributing positively to revenue growth and potentially leading to profitability earlier than anticipated.
  
• Strong growth in the On-Demand services, particularly with products like GoFood Express and the advertising business, indicates potential for increased revenues and improved margins, as these premium services are higher-margin offerings that can bolster earnings.
  
• The ongoing partnership and synergy with major platforms like TikTok present opportunities for cross-platform user engagement, which could enhance revenue generation and support long-term growth by leveraging a broad ecosystem.

GoTo Gojek Tokopedia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GoTo Gojek Tokopedia's revenue will grow by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -534.3% today to 3.9% in 3 years time.
• Analysts expect earnings to reach IDR 893.3 billion (and earnings per share of IDR 1.39) by about December 2027, up from IDR -85160.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting IDR 1635.2 billion in earnings, and the most bearish expecting IDR -2683.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 93.9x on those 2027 earnings, up from -0.9x today. This future PE is greater than the current PE for the ID Multiline Retail industry at 20.2x.
• Analysts expect the number of shares outstanding to decline by 15.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.52%, as per the Simply Wall St company report.

GoTo Gojek Tokopedia Future Earnings Per Share Growth

Risks

• The macroeconomic environment presents potential risks, as indicated by management's caution that growth may be tempered compared to the exceptional quarter last year. This could impact the company's future revenue growth projections for the On-Demand Services (ODS) segment.
  
• Despite strong growth in the FinTech segment driven by customer acquisition, there is an inherent risk associated with the rapid expansion of the loan book, especially in terms of maintaining stable Non-Performing Loan (NPL) levels. Any deterioration could adversely affect net margins.
  
• The company faces significant competition in both its e-commerce and On-Demand Services segments. In the e-commerce sector, particularly with the potential entry of new competitors like Temu, increased market competition could pressure market share and revenue growth.
  
• The financials indicate that top-line growth may not consistently translate to bottom-line improvements given the current cost structure. Even though recent cost optimizations have positively impacted adjusted EBITDA, there may be underlying challenges to sustaining long-term profit margins, particularly if rapid growth requires increased spending.
  
• The company's reliance on strategic partnerships and collaborations, such as those with TikTok and major cloud service providers, holds potential volatility. Any shifts or challenges in these collaborations could impact operational efficiency and, consequently, profitability and earnings.

Valuation

• The analysts have a consensus price target of IDR 89.25 for GoTo Gojek Tokopedia based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR 150.0, and the most bearish reporting a price target of just IDR 68.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be IDR 22968.1 billion, earnings will come to IDR 893.3 billion, and it would be trading on a PE ratio of 93.9x, assuming you use a discount rate of 13.5%.
• Given the current share price of IDR 70.0, the analyst's price target of IDR 89.25 is 21.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.