Shulou(Shulou.com)11/24 Report--

On the morning of April 7, Beijing time, it was reported that Andre Soristo, chief executive of GoTo, Indonesia's largest technology company, said that this period was "challenging" and a "turning point" for companies that have been trying to make a profit, referring to the increase in net loss of more than 50% in 2022.

"this year has changed our mind and shown us how we need to operate," Soristo said at a news conference last month to announce the annual results.

Since 2021, the company's 12-month net loss has increased by 56% to 40.4 trillion rupiah ($2.7 billion, 18.6 billion yuan), according to GoTo. Although the company's revenue doubled last year to 11.3 trillion rupiah, the deficit is growing rapidly and is now more than three times its revenue.

To make matters worse, although GoTo has suffered more losses, its technology peers in Southeast Asia-Bukalapak, the Indonesian e-commerce company, Grab and Sea-- of Singapore-are emerging from their profitability scares.

Perhaps it is not surprising that investors are becoming more cautious about GoTo. In May 2021, Southeast Asian ride-hailing and takeout company Gojek merged with local e-commerce leader Tokopedia to form a new company, GoTo Group, which became the largest merger in Indonesian corporate history. Both companies are high-profile unicorns and start-ups valued at more than $1 billion.

But since listing on the Indonesian stock exchange on April 11 last year, GoTo's shares have fallen sharply, closing down 6 per cent at 101 rupiah on Thursday local time, down more than 2/3 from its ambitious initial public offering price. GoTo currently has a market capitalization of 119.6 trillion rupiah, ranking 14th on the Indonesian Stock Exchange.

"what I want to say is that for GoTo, the biggest obstacle they face is bad timing." "when the company went public, the market was bad for the industry and the market required profitability, not rapid growth," said Piter Abdullah, executive director of the Segara Institute in Jakarta. "

Despite rising losses, Mr Soristo sees a positive sign. "We have made considerable progress on the road to accelerating profitability," he said in a statement accompanied by the earnings announcement. He seized the opportunity of GoTo in the last three months of last year to achieve adjusted EBITDA (earnings before interest, tax, depreciation and amortization) growth for the fourth consecutive quarter.

The company says it is making progress in reducing costs. In the October-December quarter, the company's incentives and product marketing fell 34 per cent from a year earlier to 2.8 trillion rupiah.

But analysts believe that the challenges facing the company go far beyond financial streamlining and that the company also needs to improve its competitiveness and fundamentals in order to be profitable.

"GoTo has announced that it will raise its profit target, but they face a very challenging capital and competitive environment." "the real challenge is for them to compete with larger and better cash-positioned regional competitors in so many industries," said Jianggan Li, chief executive of Momentum Works, a Singapore-based consultancy.

GoTo will summarize several factors for the increase in net loss, including a loss of goodwill of 11 trillion rupiah related to the merger of Gojek and Tokopedia, which are still subsidiaries of the group.

GoTo also noted that stock-based compensation expenses have increased due to adjustments to hypothetical staff turnover to reflect the latest historical trends, as well as one-time restructuring costs, that is, expenses incurred during the restructuring of the company's business.

"We believe that the largest portion of the company's expenses comes from employee salaries, including the cost of layoffs in 2022." "looking ahead, as GoTo improves the efficiency of its operations through layoffs, we expect the company's non-variable costs-especially employee salaries-to fall and be able to support GoTo's profitability," said Josua Pardede, an economist at Permata Bank.

GoTo is not the only company facing profitability difficulties and other challenges. But other technology companies in the region are making progress through layoffs and so on.

Last month, Southeast Asian "Little Tencent" Sea reported its first quarterly profit since it went public five years ago as restructuring efforts, including thousands of layoffs and wage freezes, began to take effect.

Bukalapak, an Indonesian e-commerce company, made its first profit in 2022, although it made a profit mainly because of mark-to-market returns on its investment in the local bank Allo Bank.

Based on the adjusted EBITDA, Singapore ride-hailing company Grab expects to break even in the last quarter of 2023. The company's annual loss narrowed to $1.74 billion in 2022, up 51 per cent from a year earlier.

GoTo is also stepping up the pace of layoffs, announcing last month that it would cut another 600 jobs. In November last year, the company said it would cut 1300 jobs, or 12% of its workforce. The company said the recent layoffs were aimed at "creating a leaner organization."

Analysts welcomed the move, but said it was only part of the solution. Jianggan Li, chief executive of Singapore-based consulting firm Momentum Works, stressed that the company must speed up layoffs, but said "layoffs are not enough." He said the company needs to take action in a number of areas, including cutting non-core activities, emphasizing efficiency, improving at the business unit manager level, and divestment from markets such as Vietnam, which are unsustainable in the near or medium term. "in order to achieve net profit, they need to take more stringent measures to improve efficiency and save costs in all areas of operation," Jianggan Li said.

Reza Priyambada, a senior fellow at the CSA Institute, believes there is no need for a major management shake-up. He believes that the current management team should "focus on how to manage costs" and strive to increase revenue through innovation and other ways.

Spending too much on promotions is "good for customers, but bad for the company," Priyambada said.

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