GoTo Gojek Tokopedia PT

Hello, everyone. This is Reggie Susanto, Head of Investor Relations. Welcome to the PT GoTo Gojectocopedia TBK Second Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. On today's call, Patrick Wallio, President Director and Group CEO, and Jackie Lo, Group CFO, will deliver prepared remarks. Following their commentary, we will open up the call for questions and be joined by Thomas Husted, our Vice President Director and President of Financial Technology, Hans Patuo, our Chief Operating Officer, Catherine Hindra Suchahio, our President of On-Demand Services, and Simon Ho, our incoming Group CFO. We would like to highlight that the information presented today has been prepared solely based on unaudited, consolidated, selected financial information for the three- and six-month period ended June 30, 2024 and 2023. As a reminder, Today's discussion may contain forward-looking statements about the company's future business and financial performance, as well as certain non-Indonesian financial accounting standard measures as complements to the Indonesian financial accounting standards disclosures. Before using and or relying on these measurements and forward-looking statements, please take note of our disclaimer and cautionary statements disclosed in our earnings presentation and press release. During the earnings call, we will review the results of our operations and earnings presentation which can be found on our website. Our reporting currency is the Indonesian rupiah, and we will denote the U.S. dollar equivalent by applying an exchange rate of 16,421 rupiah to $1 based on the middle rates published by Bank Indonesia as of the end of June 2024. We will refer to pro forma figures to facilitate like-for-like sequential and year-on-year comparisons of our performance following the closing of our announced agreement with TikTok and the deconsolidation of GoToLogistics. These pro forma figures assume that Tokopedia and GoToLogistics were deconsolidated on January 1st, 2023. For more information and additional disclosures on our recent business and financial performance, please refer to our earnings press release and supplemental presentation, which can be found on our IR website. With that, I will turn the call over to Pat Pat.

Thank you, Rajeev. Hello everyone and thank you for joining us today. On our first quarter call in April, we inform you that having greatly improved profitability throughout 2023, our focus has turned to business growth. I am happy to report today that in the second quarter, our growth accelerated as our strategic focus on mass market consumers continued to pay off. Addressing the needs of our consumers, whether they seek value or convenience, will provide the foundation for our growth over the rest of the year, as we aim to increase our top line while remaining committed to adjusted EBITDA break-even for the full year. All of the cylinders within our business are firing, with strong performance from GoPay, the lending business, and on-demand services. Second quarter group core GTV was up 54% year-on-year, underpinned by a 20% year-on-year increase in monthly transacting users. Both of these results are at their highest since we began pursuing profitability in early 2023. They were achieved while we also steadily improved adjusted EBITDA compared to the previous quarter. demonstrating our ability to grow the business while maintaining our bottom line. Growth has come about as a result of our mass market strategy, product innovation, and our relentless approach to execution, as we expanded and deepened our customer reach with new products that appeal to more people by lowering our cost to serve. Turning to on-demand services, in the second quarter, we saw significant growth and increasing market share as we cemented our market leadership in Indonesia, with GTV and completed orders in Indonesia growing by 18% and 24% year-on-year respectively, reaching all-time highs. For the business as a whole, GTV was up 13% and completed orders grew by 20% year-on-year. Both metrics also reached their highest since we began our profitability journey in early 2023. As part of our mass market strategy, we launched an affordable two wheel ride product and improved our affordable food delivery service. By leveraging products rather than incentives in this way, we are driving profitable growth among new as well as previously dormant users. A quarter of our new and reactivated users over the past few months were mass market product users. This is good for us because people that use both mass market and affluent products transact significantly more often and are more loyal to the platform. Frequent mass market product users are also more likely to use our lending products. At the same time, our rapidly growing subscription offering is an effective tool for deepening wallet share. On average, subscribers spend about three times more in GTV versus non-subscribers. They use a wider range of services, and they have higher retention rates. For this reason, we expanded GoJet Plus in Q2 to include all ODS services. As a result, subscriber numbers have doubled since the beginning of the year, with GTV from subscribers now accounting for 20%. of our total on-demand GDP in Indonesia. Progress in Singapore is also supporting growth in on-demand services. By combining our data with official statistics from Singapore's Land Transport Authority, we estimate that our market share increased by 3 percentage points in Q2. This gain in market share was aided by our partnership with Comfort Delcro, which we launched in late April, helping us to address local driver supply challenges. Turning now to our financial technology business. The ongoing growth in both our payments and lending services drove Core GTV up by 65% year-on-year. GoPay app downloads have now cumulatively raised over 30 million, while the cost per install continues to decline. Our loan book grew about three and a half times compared to last year breaking 3.5 trillion rupiah, and we maintained a healthy NPL at a similar level to last quarter. The GoPay app, ODS, and e-commerce use cases continue to act as strong drivers for our lending business. We have also launched our BNPL product as an installment payment method for users who shop on Shop Tokopedia on the TikTok platform. GoTo Financial is still in its early stages. We are confident that it is gaining growth momentum and we are focused on investing in its expansion. Our financial products are highly competitive, giving us real advantages as we work to expand our products and increase our penetration in financial services where we have massive room to grow. At the same time, we will continue to act prudently ensuring we maintain optimal asset quality within the current macro environment. I'd like to pause here to take a step back. I was appointed GoToCEO one year ago in June 2023. Having spoken about the quarter, I'd like to take a few minutes to speak more broadly about our progress over the period that I have been CEO. I will briefly summarize our achievements and the challenges that lie ahead. Most importantly, we aggressively cut our cash burn, meeting our target to turn adjusted EBITDA positive in the fourth quarter of 2023. This was a huge achievement that meant reported group adjusted EBITDA losses in 2023 were cut by 12.3 trillion rupiah, or close to $800 million compared to 2022. as we relentlessly focused on cost reduction. The sustainability of our business was further enhanced by our groundbreaking partnership with TikTok, which immediately turned our e-commerce segment into a cash-generating engine that is growing again. We have also focused our intention on growth to ensure our business is sustainable over the long term. We have taken a product-focused approach to this, expanding our product range while lowering our cost to serve. As I mentioned, we have increased our range of affordable products, broadening our appeal to the mass market, while also increasing usage by growing our Gojek Play subscription offering. The GoPay app, which launched in July last year, has been a runaway success, acting as a standalone channel to acquire mass market users, while our lending business has gone from strength to strength. We have achieved a lot. This considerable operational and financial turnaround was made possible by strong and tireless execution from our employees. I am fortunate to have inherited an excellent team while attracting strong new talents that has helped drive us forward. As a result, GoTo is in a healthier and more sustainable financial and competitive position today than it was just 12 months ago. The company's fundamentals have never been stronger, and I am proud to have played a role in bringing such great improvements. Many of our biggest hurdles are behind us, but our work is far from that. Competition will continue to be intense across all segments, as our peers attempt to capitalize on the potential of Indonesia. Indonesia is our home, and as the local incumbent, we are well armed and fully prepared for this. At the same time, there are huge opportunities for growth. The on-demand market in Indonesia remains under-penetrated, and our loan book, through growing rapidly, is still nowhere near the scale we believe we can achieve. We will realize this growth potential with urgency by focusing relentlessly on what our customers want and expect of us. For us, growth must not come at the expense of customer experience. Our powerful platforms together must strive to offer value, convenience, and delight to them as we unleash the full potential of our ecosystem, which is unique compared to our competitors. Looking ahead to the second half of 2024, We will accelerate further still, building on the strong foundation we have developed. Thanks to our efforts over the past year, GoTo now has two critical new user funnels in the form of affordable ODS products and the GoPay app. The GoPay app's total addressable market alone is approximately 150 million people, and we are still in the early stages of what is possible. With our current momentum, we will leverage all the tools in our arsenal to drive user growth and provide more value. This will include driving greater cross-selling as our ability to match mass market consumers with lending products is a key benefit of our ecosystem that our peers do not have. Artificial intelligence will also play a significant role. We recently announced the formation of GoToAI, a long-term program for the development and utilization of AI across the GoTo ecosystem. We think about AI through the lens of our customers and will use it to make sure we are ahead of the curve in leveraging this critical emerging technology in a way that provides benefits to them. For example, we recently launched Dira, the world's first AI-enabled fintech voice assistant in Bahasa Indonesia on the GoPay app. This will have an immediate impact on user experience and provide first-time access to the technology for many non-English speakers in Indonesia. There is much more in the pipeline as we seek to use our considerable internal expertise as well as partnerships in the most efficient way possible. Finally, I'd like to emphasize that as always, we will continue to work hard to balance growth and investment with disciplined cost management, ensuring we remain on track to achieve our goal of fully adjusted EBITDA break-even. With that, I'll turn the call over to Jackie to review our financial performance for the period. As you know, this will be Jackie's last call with us. I'd like to thank him for all his hard work and support in getting us to where we are today. I'd also like to welcome our incoming CFO, Simon Ho, who has already joined the company and will officially assume the CFO position in August. He will also join our board of directors in August, subject to shoulder approval. Simon has been liaising closely with Jackie to get up to speed and is on the call with us today. Jackie, please go ahead. Thank you, Patrick.

And thank you all for joining our call. As a reminder, I'll be discussing pro forma financials today that assume that the consolidation of Tokopedia and GoToLogistics, which took place on January 1st, 2023, to facilitate light-for-light sequential and year-on-year performance comparisons. Additionally, we have included as reported operating and financial results in the appendix of our presentation for reference. As Patrick mentioned, Our second quarter financial and operating results reflect an acceleration in growth, coupled with prudence in our spending. We have shown revenue growth and reduced marketing expenses this quarter. We have also improved our reported adjusted EBITDA year-on-year for the eighth quarter in a row. At the group level, GTB reached 121.5 trillion rupiah, or 7.4 billion US dollars. up 26% year-on-year. This is on top of the double-digit year-on-year uplift we saw in the first quarter. Our core GTB grew even faster at 54% year-on-year to 63.2 trillion rupee. Growth revenues increased 39% year-on-year to 4.3 trillion rupee or 260 million US dollars. If the change in on-demand service business model from an agency to a principal model is applied to the second quarter of 2023, our revenue growth is 25% year-on-year on a stable tech rate. We remain highly committed to disciplined cost management. Our recurring cash fixed costs were 1.3 trillion rupiah or 78 million US dollars, decreasing 5% year-on-year. We also reduced our reported recurring cash corporate costs by 44% year-on-year to 201 billion rupiah, or 12 million U.S. dollars. Group adjusted EBITDA was negative 48 billion rupiah, or 2.9 million U.S. dollars, as we reduced our losses by 95% year-on-year and 53% quarter-on-quarter. These improvements in adjusted EBITDA will reach while we continue to grow our top line and invest in both on-demand services and fintech growth during the period. Now let's look at our financial performance in each segment. In on-demand services, GTV was up 14% year-on-year, underpinned by our mass market strategy as explained by Patrick. Gross revenues also grew by 17% year-on-year, of 5% on a like-for-like basis, accounting for the change in our business model enacted last quarter. Recurring cash fixed costs decreased by 14% year-on-year as a result of our cost savings initiative. On-demand services was adjusted EBITDA positive again this quarter at 90 billion rupiah, or 5.5 million US dollars, an uplift of 254 billion rupiah of 15.5 million US dollars year on year. Turning to FinTech, we are seeing substantial growth. GTB grew by 27% year on year, and our core GTB was up 65% year on year, led by growing payments adoption through the GoPay app. Our consumer lending book grew around three and a half times year on year, to reach 3.5 trillion rupiah, or 210 million US dollars. Around 80% of our total loan outstanding as of the end of Q2, 2024 is channeled through bank Jargo. Gross revenues grew 97% year on year to 788 billion Rupee or 48 million US dollars. And our tick rate increased by 24 basis points year on year due primarily to the growth in our lending products. Ongoing investment in the FinTech business is beginning to bear fruit with revenue double doubling while recurring cash fixed costs decreased 7% year on year, driven mostly by IT infrastructure cost reduction. Adjusted EBITDA loss narrowed by 67% year on year to 168 billion rupiah, or 10 million US dollars, as we recognized increased revenue from scaling the lending business. In e-commerce, we received a full quarter of e-commerce service fee from Tokopedia in Q2, The cash inflow for the e-commerce segment amounting to 171 billion rupiah or 10.4 million US dollars. The net total is 157 billion rupiah or 9.6 million US dollars when VAT is excluded. In addition, the divestment of a number of businesses under GoToLogistics associated with Tokopedia was completed in early May. GoToLogistics was completely deconsolidated from our financial reporting at that time. Our cash balance remains strong. As of June 30th, we had 22 trillion rupiah or 1.34 billion US dollars in cash, cash equivalents and short-term time deposits. Looking to the remainder of the year, we are in an optimal position to continue our growth and reach our adjusted EBITDA break-even target for the full year of 2024. I would now like to give a quick update on our buyback program and the corporate actions we are undertaking to return value to our shareholders. As you know, our shareholders approved a share buyback program in June for a maximum amount of 200 million US dollars, valid for a 12 months period. As of June 30th, 2024, we have conducted a buyback of 3.8 billion shares in total, amounting to approximately 12 million US dollars or 198.4 billion rupiah with the applicable exchange rate for that period. We also announced last week that as part of the extraordinary general meeting of shareholders we plan to conduct in August, we will seek approval for the cancellation of treasury shares relating to historical buyback initiatives. Subject to shareholders' approval, the company will reduce capital by cancelling over 10 billion Series A shares all of which were acquired in 2021 and 2022 through pre-IPO buybacks, as well as the company's IPO-related green shoe program. This will add value to our shareholders by reducing the number of shares in circulation. We'll also seek out annually recurring approval to increase capital through a non-preemptive rights share issuance. As an administrative matter, this is an application we make every year to maintain flexibility should an opportunity that is in the company's interest arise, or as a safety net in the event that an unexpected change in the macroeconomic environment necessitates additional funding. Applying for non-preemptive rights share issuance does not mean we intend to execute on it should it be approved, and the company currently has no plans that would require additional funds. We'll continue to make this application every year without necessarily executing on it, as we deem flexibility in this regard to be prudent, as this puts us in line with global peers who are not subject to this requirement. Before we open the call to your questions, I would like to thank everyone at GoTo for their support and partnership and introduce you to your new incoming CFO, Simon. Simon and I have been working closely together to ensure a seamless transition And you are in very capable hands. Welcome, Simon, and please go ahead.