PT GoTo Gojek Tokopedia Tbk (GOTO) Earnings Call Transcript & Summary

Hi, folks. Good morning. Hello, everyone. This is Reggy Susanto, Head of Investor Relations. Welcome to the PT GoTo Gojek Tokopedia TBK Third Quarter 2024 Earnings Conference. Please be advised that today's conference is being recorded. On today's call, Patrick Walujo, 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; Hans Patuwo, our Chief Operating Officer; and Catherine Hindra Sutjahyo, 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 3 and 9 months period ended September 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 company 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 IDR 15,138 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 GoTo Logistics. These pro forma figures assume that Tokopedia and GoTo Logistics 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 [indiscernible] Patrick.

Thank you, Reggy. Hello, everyone, and thank you for joining us today. We are pleased to report another quarter of strong performance across GoTo 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 IDR 137 billion or USD 9 million, an improvement of IDR 696 billion or USD 46 million 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 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, breaking IDR 4.3 trillion or USD 287 million. NPL levels have meant -- 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 uses and the remainder from GoPay app users. This diversification across our platforms highlights the cross-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 18 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 vast 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 discipline 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 IDR 388 billion or USD 26 million a year ago with just IDR 65 billion or USD 4 million this quarter. Due to the this rapid business programs, we now foresee the FinTech segment delivering positive adjusted EBITDA for the whole Q4 2024, 1 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 1 in 7 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 16. 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 spend 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 3 main areas: the optimization of mass market products; the expansion of premium products; and the growth of our advertising business. To take [ ebbs ] of this in turn, first, as mentioned, mass market products in both FinTech and ODS will develop 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. From premium offerings not only enhance user satisfaction, but also carry higher margins than standard offerings. One such premium offering is GoFood Express which lands 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 GMV 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 2 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 2 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 a simple lightweight design, while the Gojek app has been recalibrated over the past year to offer a 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 5-year cloud contracts with Alibaba and Tencent in September. Over the next 9 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 broad 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 GoTo for at least the duration of this 5-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 his 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 pro forma figures assume Tokopedia and GoTo logistics 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 and reaching IDR 137.4 trillion or USD 9.1 billion in the third quarter, up 37% year-on-year. Our core GTV grew even faster at 74% year-on-year to IDR 72 trillion or USD 4.8 billion. Gross revenues increased 34% year-on-year to IDR 4.7 trillion or USD 311 million. 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 IDR 1.4 trillion or USD 89 million. Reported recurring cash corporate costs also declined by 37% year-on-year to IDR 170 billion or USD 11 million. 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 IDR 137 billion or USD 9 million 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 IDR 1 trillion or USD 68 million. Lending revenues grew significantly by over 6x 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 contributing to the reduction in our adjusted EBITDA loss by 83% year-on-year to IDR 65 billion or USD 4 million. 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 continued 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 remain disciplined with our costs as recurring cash fixed costs decreased by 3% year-on-year to IDR 640 billion or USD 42 million. This supported an adjusted EBITDA of IDR 156 billion or USD 10 million, an increase of IDR 204 billion or USD 13 million year-on-year. In e-commerce, we have now recorded a second full quarter of e-commerce service fee revenue from Tokopedia of IDR 191 billion or USD 12.6 million for the third quarter. Excluding VAT, the net total amount was IDR 172 billion year or USD 11.4 million. Our total cash balance remains strong. As of September 30, we had IDR 21 trillion or USD 1.39 billion in cash, cash equivalents and short-term time deposits. We continue to return value to our shareholders through the USD 200 million share buyback program that was approved by shareholders in June. As of September 30, we had repurchased around 14.1 billion shares amounting to approximately IDR 743 billion or USD 49 million 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 solidifying improvements in our bottom line. Our disciplined approach, along with the resilience we are hardwiring into our ecosystem, it means we are well prepared for the road ahead. With that, we would now like to open the call to your questions. Reggy, please go ahead.

[Operator Instructions] The first question comes from Adrian Joezer of Mandiri Sekuritas.

Congratulations, Patrick and Simon, for a very strong results. So I have 3 questions. The first one is actually with regards to the latest status of partnerships synergies with, with the ecosystem across not just the FinTech but also on the food delivery. And the second question is actually the driver for -- I think you mentioned the drivers on the strong growth for ODS GTV being the penetration into the mass market and also deepening all shares in the premium segment. But the question is actually, as you continue to develop your mass market products, will this lead to margin dilution going forward? And can you actually mention any long-term margins for ODS in the future? And the last one is actually, I think in the previous earnings call, it was mentioned that there was an agreement to actually acquire the multi-voting shares to Series B shares by Patrick Walujo? And can you actually give us some updates on this one?

Thank you, Adrian. Maybe I'll answer the last question first. The discussion with the MVS holders are progressing, and we are actively consulting with relevant regulators to make sure full compliance throughout the transfer process. And your first question is about the status of our partnership with TikTok in FinTech and food delivery. In FinTech, we launched our NPL product in ShopTokopedia a few months ago. At this moment, the contribution of this product to our loan book is still small. And we are in constant discussions with the TikTok team. Our performance on the platform is improving. However, there are a few things that I wanted to bear in mind. Number one, the penetration of PayLater in Tokopedia is still relatively small. And second, the average order values on TikTok shop are typically smaller than Tokopedia. And finally, they are in total 3 pay later providers, and we are the newest provider. Having said that, our performance is improving. In food delivery, the contributions from TikTok to food delivery is still small and we are ready to scale up once the service becomes a priority for TikTok. And in regard to your questions about ODS growth margins, I will hand it over to Catherine, the President of ODS to address.

Thanks, Pat. Adrian, thank you for your question. So let me try to address your question, right? The first one is the driver. You are absolutely right. As mentioned earlier, this quarter, our GTV grew by 25% year-on-year. The [ USL ] grew by 13% year-on-year. As you correctly pointed out, it's a multiple-pronged approach. The first one, we continue to add users into our platform, both on our mass market affordable product as well as the premium segment. What is interesting to highlight here is actually as per our hypothesis, it's proven that the affordable, the mass market product is basically becoming the acquisition engine that bring the customer through our ecosystem. And then once they enter and start trying the product and using it in our ecosystem, it helps to also cross-sell to the more premium convenience kind of product. So this combination of these use cases not only help us to increase the frequency, but also the retention of the users. And in fact, most of the users engage with this multiple product portfolio is a majority of the users. So regarding the question on the margin, as we pointed out last quarter, we will continue to improve our margin. We will optimize further. So yes, in the third quarter, as Simon shared earlier, the margin has improved. At the same time, we managed to also continue the growth. So this is done by carefully managing our incentive efficiencies, driving the balance between our mass market and more convenience/premium offerings, the cross-selling that I mentioned earlier as well as growing our advertising business. So the way you look at it is our mass market/affordable product is the funnel is the acquisition engine, opening up our ecosystem for the user to start using the -- start being part of our ecosystem. And then once they enter, once the experience of our product, we started to kind of like upsell, cross-sell them. And one thing I would like to highlight here, it is not only to other ODS products but also importantly here also to the lending product in FinTech. Therefore, this investment that we are doing will be accretive to the profitability of the group. Further, the affluent segment itself, as Pat mentioned, also continue -- we continue to develop to expand our wallet share. GoFood Express was mentioned earlier. This is continued to increase the frequency and of course, the margin of the business. On the long-term margin target, we have not disclosed this. Since we believe at this time, our focus remains to be growing the market, particularly Indonesia, where there is still significant potential and large total addressable market remained in the country. Hope that answered the question.

Thanks, Adrian. Our next question comes from the line of Ari Jahja of Macquarie.

Patrick, Simon, GoTo team, well done for the solid quarter. So first question on ODS, good to see the strong growth there. And can you please share color on the latest competitive dynamics for both the food delivery and mobility? And second question on FinTech. Previously, you mentioned that it is targeted to reach breakeven by the end of next year, we just accelerated it to the fourth quarter of this year. What will be the main drivers of this accelerated profitability guidance? And can you please provide more color on the profitability of each of the payments and lending business within GTF? I will start here.

Thank you, Ari. Maybe I will ask Cath, answer the question about ODS competitive dynamic. And Tom Husted will answer the questions regarding FinTech. So Cath, please go ahead.

Sure Pat. So yes, competitive dynamic in ODS, we believe it remains to enhance the competition as we see here. But I think just like to highlight again, is this something that we continue to pay attention, by at the same time despite that fact, as you see this quarter, happy to share that not only we continue to grow, but also managed to improve our margin this quarter. This is all attributed to our ability to continue to optimize, to improve our efficiencies, our segmentation and stuff in our incentive and discount. Going forward, we will definitely continue to manage these pallets between growing our user, managing the product use case portfolio balances as well as capture the market opportunity while optimizing between this growth and margin. I'll pass it to Tom for the FinTech question.

Ari, thanks for the question. So just as a recap, I think you wanted to understand some of the main growth of the drivers and then also some color on profitability. So let me start with the first one. So this year, as Patrick and Simon discussed in the opening remarks, we've been able to grow the consumer loan book by about 3x over the last year. And the strategy there has really been a focus on customer acquisition, as mentioned by Cath, Simon, and Pat. The customer acquisition has focused on the channels of both the GoPay app, ODS and TikTok Tokopedia. And in this year, what I think has really changed is as we have acquired those customers, we've purposely started to sell the cross -- and cross-sell financial services and especially our loan products. And this integrated approach, I'd say, is fairly new for 2024. And frankly, I think we're encouraged by the overall results. In 2025, the plan, frankly, is to double down on the strategy of customer acquisition being via all of the channels and then continue to cross-sell the financial services. We've been tightly coordinated this year, particularly thinking about the GoPay app, which is really an open loop app and also the Hemat products on ODS. And I think the results really speak for themselves. We're very pleased and the strategy going forward is we're going to double down on that. We think that on the loan book, we're comfortable to think we're going to double the loan book from about IDR 4.3 trillion this quarter. I think we can double by the end of next year. And then on the overall subject of the loan book, the expectation is that we're going to be able to roll out this vehicle financing pilot project. We've been working on this with BFI. So my sense is we're going to be able to roll that out for the overall platform in mid-2025. So I think those are the main drivers of growth and then a little bit of color on profitability. I think, first, let me give a little bit of historical context. The payment business, as many of you know, was really set up originally to solely support the ODS business. And then last year, we went ahead, and I think it was really 15 months ago, we launched our stand-alone GoPay app. And frankly, this has been a game changer for both GTF and the payments business. The core app -- core product in that app was originally payments and transfers but if you've been following or use the GoPay up, what we've done is we've steadily rolled out additional products over the last year. So the additional products now are -- include things like automated bill pay, there's a savings function, which is an integration with Jago in the back end. We're offering the NPL, cash loans, insurance. And as I previously mentioned, we're going to start to roll out some vehicle financing on the entire product. So when we step back and really think about where we are, what we've seen is a significant increase in transaction users each month. And then those users are adopting more products at a faster rate. And this monetization journey is allowing us to reinvest and grow the business without burning cash. And again, I think this is really the first year where we've put these pieces of the puzzle together, and it's a good result. So that's kind of the macro picture now. On some of the color of profitability, particularly around payments and lending, this is something that Simon, Patrick and I have been speaking about where we've received fairly consistent feedback from investors that we need to increase the color and some of the detail of the disclosures for the product set in GTF. And we're working on going to -- we're going to work with Simon and create that. So I think you can expect to see more details in 2025 as we get into the full year 2024 review in March. I hope that addresses the questions.

Our next question comes from the line of Ferry Wong with Citi.

Yes, I have 3 questions. Practically, the first one is on the e-commerce division. From the e-commerce service, it seems that the GMV of Tokopedia and Shop Tokopedia grew by close to 9.5% quarter-on-quarter in the third quarter. Could you provide some color on the competition dynamics in the e-commerce? And is there any outlook for the growth going forward? And could you please comment on the Temu potential entries into the Indonesian market? And the second question is on the GoTo Financial loan. You mentioned that you're going to double it in 2025 from about like IDR 4.3 trillion this year. Could you provide some color in terms of the composition of the lending book for 2025, whether it's going to be like BNPL or cash loan, what's going to be the proportion of that this year and also next year? And then my third question is on the credit quality on this financial loan. What is the cost of credit, NPL and what do you think will be the trend moving forward over the next 1 to 2 years? That's all.

Thank you, Ferry. I'll answer your question about e-commerce. As we are aware, TikTok is the controlling shareholder of Tokopedia and has full control of Tokopedia and Shop Tokopedia. We are in constant discussions. We are very happy with the partnerships. However, we are unable to comment on their behalf. On our side, as a shareholder of the e-commerce entity, we are extremely happy with the development of the business. And we are confident that the business in, in good hands, and our partner, namely TikTok, we'll continue to execute well. And with that, maybe I will hand over your questions about FinTech to Tom.

Right, Ferry. Thank you for the questions. So the first question was in regards to our ability to double the loan book in 2025 and some color on the composition and what are the drivers going to be. So I think when we look -- I think Patrick and Simon covered in the intro comments, what we're seeing, and I think this is part of the surprise and part of the reason why we've adjusted a number of our assumptions and have been able to pull forward the profitability of GTF, so impressively. What we -- I think, frankly, we're surprised about was the demand of the lending business on the ecosystem. Particularly in both the ODS platform and the GoPay up on the cash flow side. the BNPL product remains strong, but the growth on the cash loan side has been remarkable, and that is the more profitable product. And I think by -- from a management perspective, we've been trying to optimize how we run the book and to make sure that we are working in a construct where we're thinking about growing responsibly, but also profitably and we're going to continue to do that. On color on composition of the book, we have been aggregating the book as one number. And this is some of the feedback that we've received from investors where they want us to start to think about disaggregating and providing more detail on that. And that was my reference for the last call that Ari -- the last question that I Ari asked in regards to how we're thinking about it going forward, and we will provide more incremental color on that. And then on the NPL side, the second part of your question was NPL. And happy to report, I think this is kind of a continuing theme. Similar to previous quarters, we are seeing the significant loan book growth with stable metrics on the credit side. NPLs at this point continue to remain around 1%. And we continue to do the monitoring of both the Indonesian macro economy as well as the competitors that we see in the market. And in terms of disclosure, we've been benchmarking ourselves to the competition. And this is where we're going to be reflecting more and thinking about how we can provide incremental exposure so that we analysts -- not incremental exposure but incremental data so that we can -- people can look at the business and understand a bit more. I do want to underscore we do have very detailed reviews on the credit side. And we have not seen any significant deterioration. If we do, we're going to move quickly and prudently to adjust the credit acceptance criteria for our customer base. And really, the #1 goal, as mentioned, I mean, is kind of the North Star is that we want to grow the loan book responsibly first and absolutely maintain profitability. We could have grown significantly faster, but we didn't feel comfortable that we can do that in a responsible manner. So we're going to maintain those kind of guardrails of responsibility and profitability as we go forward.

Our next question comes from the line of Ryan Winipta of Indo Premier.

I'm Ryan from Indo Premier. I think just one question from my side, I think, regarding the growth and also profitability outlook. I'm just wondering and what kind of growth that we should be looking at for 2025, especially for the ODS business. And regarding to adjusted EBITDA margin, I know earlier in -- from Adrian question that you don't provide any like sustainable or long-term margin but will be -- will you be able to get a sense on what kind of adjusted EBITDA margin that we should expect in 2025 for both ODS as well as the FinTech business?

Thank you for your question. We are still in the middle of budgeting process for 2025. We believe that ODS will continue to grow its user base, increase users frequency with increase retention, drive product adoption and improve efficiency in incentives and spending. In regard to your question about long-term margin, I think we will address that in the next earnings call once we are done with the budgeting process. And in FinTech, we will continue to grow our lending book. As Tom mentioned, we will accelerate our payments business as well. And we believe that loans outstanding would double by the end of next year. In regard to the remaining of the year, for Q4, we think we will continue to grow on a quarter-by-quarter basis. We start seeing some headwinds in terms of macro -- in the macro environment, which may temper year-on-year performance especially in the ODS segment. But having said all of that, we still have strong confidence of the -- on the performance of the 2 business segments.

Our next question comes from the line of Divya Kothiyal of Morgan Stanley.

Ari. A couple of questions from me. The first one is on the On-Demand service business. You had a very strong GMV growth in the third quarter. Could you give us some color between mobility and food as well as trends in October? You just mentioned some headwinds in year-on-year growth comparison. So I just wanted to get a sense on how things have been. The second question is on advertising. I understand the advertising doubled year-on-year, but what was the trend quarter-on-quarter? And could you give us a context on where this -- what would be the target for this and the implications on margins should be pretty strong? So is there any offset on margins, which is why we haven't seen the margins go back to the 1.2% levels that we saw previously despite this higher-margin segment contributing so well. And then just the last question is on the FinTech business. You did mention the NPL is only 1%, and you're clearly managing that well. But curious to know what the target market for this growth has been where -- what kind of loans, what kind of demographics are taking these loans? What are the tenors? If you can give some color on where this incremental growth that surprised you is coming from, that would be very useful. Those are my 3 questions.

I hope somebody is taking down the other questions, so we can track them. But anyway Divya, your question about ODS, we don't provide breakdowns of our mobility and food businesses. But as we mentioned in my -- early on that transportation has been a star performer for us. As a matter of fact, I think we -- in certain segments, we actually have to increase supply to meet the level of demand. And I will probably hand it over to Catherine to add more color.

Sure. Divya, thank you for the question. Yes. As Pat mentioned, actually, the quarter 3 has been a very strong quarter. all our 3 key products, car, ride and food actually grown, although as Pat mentioned, that the transport mobility segment grow faster compared to the deliveries. Having said that, we see your question on the -- how do we see it on the quarter -- this current quarter. We mentioned about a headwind a little bit. I think this is due to the macro situation. We see a little bit of a tempering. But so far, we still see the growth, the quarter-on-quarter growth, as Pat mentioned, we will still see strong quarter-on-quarter growth. On the advertisement, yes. So this is doubled year-on-year. As you heard earlier, this is definitely the area that we started focusing more and more in the past couple of few quarters. Quarter-on-quarter, it also grows -- this also grow -- mainly is from the how do we always track this, like how the number of the merchant participant that continue to use this product of ours and then the retention of them as well. We will continue to focus on this. This is actually going to be like one of the lever for us to continue to push to improve our margins going forward as well. Your question on the -- is there any offset, no, I think because this is like -- we are looking at it. What we disclosed earlier is the total 1.3, I believe, ads revenue as a percentage of food GMV. So this is also contributing to our margin improvement on the quarter by quarter.

Okay. And on FinTech, the question is about target market in terms of demographics, standards and NPL. Tom, take this question.

Sure. Happy to take it. Divya, thanks for the question. I think contextually, I think it's important for everybody to remember that the lending business is really new. We had made some fruitive efforts in kind of 2022, early 2023. But I'd say we really got serious about the business in 2023. And that seriousness corresponded with a few really critical events inside of the company. One was the TikTok, Tokopedia transaction that was done and making sure that as part of that transaction. We locked in channels there for both cash flow, and NPL and the Tokopedia app and BNPL on the TikTok platform. Likewise, the GoPay app was launched last year, and that targeted a completely different segment from the ODS business historically, right, ODS was largely considered to be a premium product and the GoPay app was designed for the mass market. So when we think about the diversity of the channels that we have, we really have -- we can kind of reach across many of the demographics within Indonesia, through these diverse channels. And then we made a decision to invest in the systems and people and really try to push on this business. So when I think about the product mix, which is what you asked about, BNPL, the way we think about it is largely an acquisition tool for and a customer engagement tool, it will never be tremendously profitable. But it's a critical part of the portfolio because it retains customers on the ecosystem and then they can start -- we can start to sell incremental products from financial service products, including cash loan. So when you think about it, BNPL on Toko and ODS, these are good They've been established for quite some time now for a number of quarters. On BNPL, on TikTok has just started. And I think, as Patrick alluded to in his comments earlier, this is a business that where we're going in with 3 competitors or we're now 3 competitors, we're white-listed and AOVs are small. So it's -- we see there's opportunity there. We need to manage the credit risk because the customer base is different. And we're being very scientific and working with the TikTok folks in a very collaborative way to make sure that we can grow that business sustainably. On the cash loan business, this is the driver -- a primary driver of the profitability. And we've seen very strong demand, both within ODS, Toko and also the GoPay app. And the GoPay app has been the most interesting. I think earlier there was a [indiscernible] like 1 out of 7 of the people in the ecosystem are applying for loans. So this is, this is I would say, where we're the most encouraged and now we're seeking -- we're doing all the usual things that you do when you run a large credit portfolio or a growing credit portfolio. We're thinking about how do we make sure we maintain the cost of credit appropriately. And then we're thinking about things like how do we add duration, right? If you have short-term loans, I'd say, 1 to 2 months only, it feels like you're constantly on this kind of, let's call it a trend mill, right, because you're just trying to disperse to keep up with the growth. As you add duration, you can slow down that pace because you then -- the loan book will naturally grow through the -- grow and the falloff will be less. So that's in part why we're looking in the vehicle financing because by definition, that's a significantly longer tenured product and why we're putting in some development efforts there. And then on the cash flow within our credit scoring ecosystem, we're looking at a subset of users that have high credit ratings. They have a lending experience with us in the past. And then we're going to start rolling out significantly longer tenor loans that are effectively priced based on their credit portfolio, their credit history with us. So this is how we want to try to continue to grow the book responsibly, convert people from BNPL onto cash loan and add tenor to the overall mix. And then as I referred earlier, I think we will, as part of the disclosure going forward, we will start to think about how to disaggregate some of these the numbers so that way, people can get a better feel about how big is cash loan versus BNPL versus vehicle financing. And that's something that Simon and I will continue to work on and we'll be ready to share. I hope that answers the question.

Our next question comes from the line of Pang Vittayaamnuaykoon of Goldman Sachs.

Thank you very much for the opportunities and congratulations for the solid set of results. A couple of questions from my side. Number one, on the On-Demand segment. Can you explain a little bit more in terms of your adjusted EBITDA trend quarter-on-quarter? Given that from a contribution margin perspective percentage, why it hasn't really changed materially quarter-on-quarter but EBITDA improved quite substantially. Can you walk us through a little bit on what has changed in the quarter that led to this? Is there any contribution or mix shift around your country breakdown, Indonesia, Singapore and of course, the departure from Vietnam that may lead to some of this movement around EBITDA? That's question number one. Question number 2 is around the top line and particularly on the management previous comment around macro concern. Can you walk us through or provide more color what exactly are you seeing right now that led to this comment that there is a certain size or signals of this macro happening, the overall growth and whether or not we have to be concerned that this trend may carry forward into next year? That's question number two. And last question will be on the Digital Financial Services segment. Of course, I understand that, cannot provide too detail. But just wanted to have a better understanding around some of the trends here. Particularly, we did notice that when it comes to the differences of growth on revenue coming in from lending versus your actual loan principal growth year-on-year. The revenue portion is growing at a much faster rate versus the actual loan growth. So wondering whether -- is there any kind of like profiles or anything you can provide to us that would help us understand a little bit better whether it's on yields, whether it's on the mix shift of customer or mix shift of some of the loan products?

Sure. Thank you for the questions. Maybe I'll address the macro environment. At this moment, I think the way we were addressing our forecast of Q4. We are still going to see robust growth quarter-on-quarter. Having said that, 1 year ago, we had an exceptional fourth quarter. I think we -- it's a combination of strong macro and a lot of initiatives in -- that we did. So if you -- we compare Q4 this year versus Q4 last year, we think that growth will temper, but it's not a main -- there's no real reason for concern. Maybe I will hand it over to Cath to elaborate more. And also, there's a question about the profitability.

So I'll continue on the second question on the macro. Basically, what we see is here, again, as we mentioned, we remained seeing and confident the quarter-on-quarter number will continue to grow. What we are cautioning here is because we started seeing a little bit kind of like a dampening on the macro in terms of the market spending. This is especially compared to last year. That's why we are seeing that though the quarter-on-quarter number, we believe it will remain strong. There might be a slight kind of softening on the year-on-year number. While on the EBITDA, yes, as you correctly pointed out, Pang, it is -- indeed, this is in line with our continuous cost optimization, cost disciplined effort. So this quarter, while we managed to do the growth -- to manage to achieve the growth while using the -- this with the -- while maintaining the efficiency of the spending or slightly improving that. We also managed to reduce our OpEx, right? This is what deliver the better performance of feral on our EBITDA number. So our OpEx, we continue to do to the disciplined effort line by line, seeing how else we can further improve our cost efficiency. And this is basically what you see in our last quarter.

Tom, would you please take the question about the word of revenues for FinTech whereby the revenue is growing faster than the loan outstanding.

On the OSP. Yes. So Pang, I think this is a -- and this is something that we're working on. I'm thinking about internally. The majority of these loans are relatively short in duration. So what that happens is over the course of the year, your disbursements are significantly higher as a ratio than what your OSP is at any one point your outstanding loans because the turnover is quite down. There are fee components here. So what you're seeing is that you have an outstanding loan balance at the end of a balance sheet date, but within like -- within any quarter or like half year the number of loans originated and repaid is significantly higher and you get to recognize some of those fees. And this is where, I think, from a management perspective, we want to make sure that we're adding value to the customer, and this is in part where I referred earlier in the one of the other questions where we want to think more tactically about how the customer engagement is over the longer term, especially around we're adding longer tenure loans with reduced interest rates, which would actually help us build a very sustainable business model. So these are some of the -- kind of the analysis that we're going through right now. And again, I want to underscore this is a new business for us. I mean we've been at this for a year. We've learned a tremendous amount. And I think we probably could have grown the book significantly faster but we've been prudent, especially around making sure that we're managing the credit risk appropriately. And overall, I would say we're -- as a management team, we're very happy with the fact that we're now we now clearly see that we have operating leverage inside of GTF, meaning we can have significant top line growth. And really for kind of the first time we don't have the corresponding increase in RPL or customer incentives. So we see margins opening up across the board and this is why we're able to announce the going forward EBITDA -- adjusted EBITDA so much. So it's encouraging. We've got a lot of work to do, but it's -- I feel like we've got our arms around it, but it's going well.

With that, we have reached the end of the question-and-answer session, and we conclude our conference call.