Morgan Stanley is joining a growing chorus of brokerages in upgrading their ratings on GoTo Group as its share price starts to recover, reflecting views that risks appear reasonably priced into current valuations.

The recent plunge in GoTo has brought multiples down to reflect risks to the group’s revenue base and profitability, and GoTo “now deserves this premium for its faster 2021-24e revenue” growth annually of 68% versus peers at 42%, said Morgan Stanley. The broker upgraded the Indonesian ride-hailing and e-commerce provider to equal-weight from underweight.

GoTo is well-positioned to capture “the continuing structural growth of this digital consumer and the cyclical recovery post Covid-19,” analysts including Mark Goodridge wrote in a note Sunday.

The stock has plunged about 74% since a peak in June, dismaying investors after it was listed with much fanfare in April. Many traders remain concerned over its high valuations despite a smaller market base than peers such as Grab Holdings Ltd. and Sea Ltd. - given its focus on Indonesia - as well as a weak outlook on its profitability.

GoTo is trading at an enterprise value-to-revenue of 4.3 times for 2023 versus a 3.5 times multiple for peers, which is justified given the scarcity premium for Indonesian internet names, Morgan Stanley analysts wrote.

Still, intense but improving competition and its lack of clear market leadership will mean that significant cash burn for GoTo will remain until 2025, they added. The brokerage cut its target price by 41% to 110 rupiah.

In December, UBS AG and BNI Securities upgraded their ratings on GoTo as valuations became attractive after the Indonesian firm’s premium versus its peers narrowed. The company has taken a number of measures to address market concerns about competition and the global economic slowdown, including cutting its workforce and selling assets.

  - Bloomberg