GoTo Gojek Tokopedia PT

Hello, everyone. This is Reggie Susanto, Head of Investor Relations. Welcome to the PT GoTo Gojek Tokopedia TBK Third Quarter 2024 earnings conference call. Please be advised that today's conference is being recorded. On today's call, Patrick Walio, President, Director, and Group CEO, and Simon Ho, 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, Franz Patuol, our Chief Operating Officer, and Catherine Hindra Suchahil, our President of On-Demand Services. 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 nine months period ended September 30th, 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 US dollar equivalent by applying an exchange rate of 15,138 rupiah to $1 based on the middle rates published by Bank Indonesia as of the end of September 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 1, 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 Attrick.

Hello, everyone, and thank you for joining us today. We are pleased to report another portal of strong performance across Gotoh, with all cylinders firing as our business accelerates. Our strategy works because it's part of our ecosystems, adds value to the others, giving us a competitive edge that our peers cannot replicate. This model is increasingly bearing fruit as we aggressively pursue new users and enhance profitability across our rapidly expanding platform. We are seeing real success in terms of user acquisition, with monthly transacting users increasing by 21% year-on-year. This, along with the quality and depth of monetization across our platforms, has driven 74% year-on-year growth in Group Core GTV as well as 34% year-on-year growth in gross revenues. As our top line has increased, we have maintained strong discipline in managing our costs, with recurring cash fixed costs declining by 3% year-on-year, creating significant operating leverage for the business and helping to drive today's positive results. Further savings will be realized as we migrate to the new cloud service providers announced last month, which I will discuss shortly. Group adjusted EBITDA turned positive in the third quarter, reaching its highest ever level of 137 billion rupiah on 9 million US dollars, an improvement of 696 billion rupiah of 46 million US dollars year on year. We expect this to remain positive in the fourth quarter and we are squarely on track to hit our target of adjusted EBITDA breakeven for the full year, a target that we communicated to the market back in March of this year. The significant improvements were driven by contributions within both our fintech and on-demand businesses, each of which I will now discuss. Moving first to fintech, we are seeing great progress as our strategy is turning the segment into a driver of both growth and profitability. Just over a year ago, we launched the GoPay app to better serve the mass market by increasing access to our services, particularly among non-Gojek users. Our goal was to grow our business by reaching more users who could ultimately benefit from lending services. This strategy is now delivering promising results as consumer loans outstanding tripled on a year-on-year basis, reaching 4.3 trillion rupiah or 287 million US dollars. NPL levels have remained stable as we focus on responsible lending and reducing risk using our comprehensive ecosystem data, which allows us to effectively assess creditworthiness. This shows that our ecosystem is working as designed. with our range of products and use cases driving user growth while deepening loan penetration. As I mentioned, our ecosystem model means that its vertical must add value to the others. This is very much exemplified by our loan book. Roughly 45% of loans outstanding originated from e-commerce users. 40% from on-demand service users, and the remainder from GoPay app users. This diversification across our platforms highlights the cost-selling potential we have. More broadly, monthly transacting users in the fintech segment grew 35% year-on-year to 18.8 million. Core GTV was up 82% year-on-year as the prevalence of the GoPay app drove growth in consumer payments, in addition to the scaling up of our lending business. Despite launching just 15 months ago, the GoPay app is proving to be a highly effective channel for cross-selling financial services. Its growth momentum is strong, and we see a great deal of room for further growth across Indonesia's large population, providing an increasing source of fuel for our payments and lending businesses. Significantly, we are not generating growth by burning cash. Instead, we are becoming more efficient in customer acquisition and more disciplined in managing costs. Our revenue were up 128% year-on-year, while at the same time, recurring cash fixed costs grew significantly less at 26% year-on-year. The success of our strategy has led to a sharp narrowing of adjusted EBITDA losses from 388 billion rupiah or 26 million US dollars a year ago to just 65 billion rupiah or 4 million US dollars this quarter. Due to this rapid business progress, we now foresee the fintech segment delivering positive adjusted EBITDA for the whole Q4 2024, one year ahead of our previous guidance. We are pleased with this early success and believe far more can be achieved, especially as we continue to focus on mass market products. Loan penetration is low at just a few percent of total users and can go much further as demand for credit is substantial with one in seven transacting users of GoPay and Gojek services over the last 12 months applying for credit. We therefore see significant additional upside in this business as we drive further adoption and believe loans outstanding could double versus September 2024 levels by the end of next year. Moving to on-demand services. Our strategy is to focus on user growth through mass market products while utilizing premium products to deepen wallet share among affluent users. We saw solid performance this quarter as orders grew 30% and GTV increased by 25% year on year. These numbers exclude Vietnam due to the closure of our Vietnamese operations on September 16th. All products are growing well with particularly strong progress in our mobility segment. And this growth was achieved while keeping our incentive and product marketing spent stable. In addition to growth, we have also focused on margin improvements as promised last quarter. By actively managing our portfolio of on-demand products, balancing growth and profitability across the product range, we have improved adjusted EBITDA margin by 36 basis points versus the second quarter in line with our guidance. Margin improvements came from three main areas. The optimization of mass market products, the expansion of premium products, and the growth of our advertising business. To take each of these in turn, first, as mentioned, mass market products in both FinTech and ODS were developed primarily to drive growth, but we must also ensure they contribute to our bottom line. We are doing this by optimizing our incentive spend while personalizing the product experience so it aligns with user preferences. Second, our effort to deepen wallet share to our premium offerings also continue to yield results. Premium offerings not only enhance user satisfaction, but also carry higher margins than standard offerings. One such premium offering is GoFood Express, which launched in the second quarter, allowing users to pay extra for faster food delivery times. GoFood Express is growing rapidly, accounting for 22% of GoFood GTV in the third quarter. Finally, advertising is another avenue for enhanced monetization within our ODS business. Our advertising revenue grew 96% year-on-year to 1.3% of Food GMB in the third quarter, supplementing margins across the business. We are confident that our on-demand services business is on the right track and we are moving closer to the ideal balance that will allow us to continue to grow the business while improving profitability across the segment. If we take a step back and look at the on-demand services and fintech segments, together we can see how the two businesses are increasingly complementing each other. ensuring the whole is greater than the sum of the parts. In the GoPay and Gojek apps, we have two extremely powerful tools to help us acquire new users, particularly in the mass market segment. The GoPay app was designed from the beginning to service the mass market with its simple, lightweight design, while the Gojek app has been recalibrated over the past year to offer broader appeal to the mass market audience. As user numbers across our ecosystem increase, so too does the opportunity to responsibly cross-sell lending services, driving the growth and profitability of the fintech segment. Ultimately, we want users to enjoy the benefits of everything our payments and on-demand products can offer and for this to act as a funnel through which the right users find and benefit from our lending products. As our ability to monetize through on-demand services and loans increases, this in turn will provide us with the firepower we need to drive additional growth throughout the ecosystem. At the group level, we announced the signing of five-year cloud contracts with Alibaba and Tencent in September. Over the next nine to 12 months, we will be migrating our cloud infrastructure to their platforms, which will result in a reduction in cloud cost of more than 50% once fully implemented. This is a key part of our broader strategy to improve efficiency and optimize our cost structure, ensuring that we can continue to scale our services without sacrificing profitability. These new contracts will allow us to reinvest the cost savings from cloud into advanced technologies such as AI, while also ensuring that our user data is held onshore to support data localization in Indonesia. In addition, Alibaba has reaffirmed its commitment to our long-term partnership by committing to maintain its current shareholding in Gotoh for at least the duration of this five-year agreement. This is significant for us as working with world-class partners such as Alibaba as well as Tencent, TikTok and many others bring significant benefits for our business. Looking ahead, we remain confident in the strength of our business and the value of our ecosystem. Our financial results this quarter underscore the progress we have made and we believe there is still significant room for growth. Indonesia is a compelling market with a population of over 280 million. and our confidence is increased by the new administration under President Prabowo Subianto and its vision for the country. As demonstrated in our results, we have the capability to accelerate user acquisition while monetizing effectively. We will continue to grow in the mass market, expanding our total addressable market while staying focused on customers by striving to provide them with value, convenience, and delight. Thank you, and I will now hand it over to our CFO, Simon, for the financial review. Thank you, Patrick.

It's a pleasure to speak with everyone today, and thank you all for joining our call. As a reminder, I will be discussing pro forma financials to facilitate like-for-like sequential and year-on-year performance comparisons. our performer figures assume Tokopedia and GoToLogistics were deconsolidated on January 1, 2023. For your reference, as reported, operating and financial results are included in the appendix of today's presentation. As Patrick discussed, our business is accelerating while we continue to be prudent in terms of cost management. This is clearly reflected in our top-line growth and bottom-line improvements, both by business segment and at the group level, with the third quarter marking our ninth consecutive quarter of year-on-year adjusted EBITDA improvement. Group GTV has grown year-on-year each quarter in 2024, reaching 137.4 trillion rupiah, or $9.1 billion in the third quarter, up 37% year-on-year. Our core GTV grew even faster at 74% year on year to 72 trillion rupiah or 4.8 billion US dollars. Gross revenues increased 34% year on year to 4.7 trillion rupiah or 311 million US dollars. Spending is now more disciplined and aligned with our goal to grow our business sustainably. In the third quarter, we reduced our recurring cash fixed costs by 3% year on year to 1.4 trillion rupiah or 89 million US dollars. Reported recurring cash corporate costs also declined by 37% year on year to 170 billion rupiah or 11 million US dollars. The steps we are taking to manage our expenses, including the measures we are taking to reduce our cloud costs will allow us to invest in the customer experience, helping us to grow our business in a highly competitive environment. Under the strategy, which is generating significant operating leverage, Group Adjusted EBITDA returned to positive for the period at 137 billion rupiah, or 9 million US dollars, from negative Adjusted EBITDA a year ago. As Patrick mentioned, We expect adjusted EBITDA to remain positive in the fourth quarter, and we are confident of hitting our target of breakeven for the full year. Taking a closer look at our financial performance by segment, I'll start with our financial technology business. The segment has grown substantially in a relatively short period of time. GTV grew by 38% year-on-year, with core GTV up 82% year-on-year, led by rapid growth in consumer payment volumes, especially in use cases such as online and offline payments and fund transfers, as well as the scaling up of our loan book. As a result, fintech recorded gross revenue growth of 128% year-on-year to 1 trillion rupiah, or 68 million U.S. dollars, lending revenues grew significantly by over six times year-on-year, driven by the tripling of loans outstanding and accounted for 14% of group net revenues in the third quarter. Roughly 80% of total loans outstanding originated by us are funded by Bank Jago. This percentage has been relatively stable in the third quarter. As Patrick mentioned, while we continue to actively invest in growth, our ongoing cost management efforts have resulted in significant operating leverage attributing to the reduction in our adjusted EBITDA loss by 83% year-on-year to 65 billion rupiah, or 4 million US dollars. This has prompted us to change our profitability guidance for fintech, which is now expected to reach positive adjusted EBITDA for the fourth quarter of 2024. In on-demand services, GTV, excluding Vietnam, was up 25% year-on-year, demonstrating the success of our strategy to expand our reach in the mass market while deepening wallet share among affluent users. Gross revenues continue to grow, increasing by 15% year-on-year on a like-for-like basis, which excludes Vietnam, and adjusted for the change in our delivery services model from an agency to a principal model, which took effect in January of 2024. We remained disciplined with our costs as recurring cash fix costs decreased by 3% year-on-year to 640 billion rupiah or 42 million US dollars. This supported an adjusted EBITDA of 156 billion rupiah or 10 million US dollars, an increase of 204 billion rupiahs or 13 million US dollars year-on-year. In e-commerce, We have now recorded a second full quarter of e-commerce service fee revenue from Tokopedia of 191 billion rupiah or 12.6 million US dollars for the third quarter. Excluding VAT, the net total amount was 172 billion rupiah or 11.4 million US dollars. Our total cash balance remains strong. As of September 30th, we had 21 trillion rupiah or 1.39 billion US dollars in cash, cash equivalents, and short-term time deposits. We continue to return value to our shareholders through the 200 million US dollar share buyback program that was approved by shareholders in June. As of September 30th, we had repurchased around 14.1 billion shares, amounting to approximately 743 billion rupiah, or 49 million US dollars, meaning there is still flexibility in terms of buyback deployment. I'm also pleased to announce that all measures at our August extraordinary general meeting of shareholders passed, including the cancellation of treasury shares, which we expect to complete in early November. This will result in a reduction in the number of Series A shares in circulation, amounting to around 10 billion shares in total. Looking ahead, we expect to continue on our growth trajectory over the coming months while managing costs effectively and certifying improvements in our bottom line. Our disciplined approach along with the resilience we are hardwiring into our ecosystem means we are well prepared for the road ahead. With that, we would now like to open the call to your questions. Reggie, please go ahead. Thank you, Simon.