PT GoTo Gojek Tokopedia Tbk (OTCPK:GTOFF) Q3 2022 Earnings Conference Call November 21, 2022 7:00 AM ET
Company Participants
Ernest Fung – Head, Corporate Development and Investor Relations
Andre Soelistyo – President, Director, Group Chief Executive Officer and Co-Founder
Jacky Lo – Group Chief Financial Officer
Patrick Cao – Group President
Conference Call Participants
Henry Wibowo – JPMorgan
Ferry Wong – Citi
Ari Jahja – Macquarie
Adrian Joezer – Mandiri Sekuritas
Thomas Chong – Jefferies
Operator
Good day and thank you for standing by. Welcome to the PT GoTo Gojek Tokopedia 3Q 2022 Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Ernest Fung, Head of Corporate Development and Investor Relations. Please go ahead.
Ernest Fung
Hello, everyone and welcome to GoTo Group’s third quarter and 9 months 2022 earnings conference call. Joining us today from GoTo Group’s senior management are Andre Soelistyo, President, Director, Group CEO and Co-Founder; Patrick Cao, Group President; and Jacky Lo, Group CFO. Following the management’s prepared remarks, we will open up the call for questions.
As a reminder, today’s discussion may contain forward-looking statements about the group’s future business and financial performance. These comments are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements, including as a result of the factors described in cautionary statements and risk factors included in the company’s earnings release, regulatory filings to the OJK and IDF, by which any forward-looking statements made during this call are qualified in their entirety. This call also includes a discussion of certain non-Indonesian financial accounting standard measures such as gross revenues, contribution margin and adjusted EBITDA. We believe these measures can enhance investors’ understanding of our business performance when used as a complement to Indonesian financial accounting standards measures.
Furthermore, to assist investors in comparison of our quarterly and half year results, we have included accounts on a pro forma basis as the GoTo was formed on January 1, 2021. During this earnings call, we will be going through our results of operations and earnings presentation, which can be found on our website. For more information and additional disclosures on our recent business and financial performance, please refer to our…
[Technical Difficulty]
Andre Soelistyo
I think we lost Ernest, but let me just continue on Ernest’s opening. So thank you, everyone, for joining. Let me just start with the business highlights.
Hello, everyone and thank you for joining today’s call. As we have mentioned in previous quarters, our strategy is built around three core areas: firstly, focusing on sustainable, high-quality growth; secondly, accelerating our path to profitability; and thirdly, product-led growth bolstered by our ecosystem synergies. I am pleased to say that we have made significant progress on all three fronts, with a particularly strong performance on accelerating our path to profitability.
Let me begin by providing a quick overview of the key results in each of these areas. With respect to sustainable growth, we continue to demonstrate quality growth as evidenced by our Q3 GTV and gross revenue, with each growing by over 30% year-on-year and 7% quarter-on-quarter. GTV exceeded the top end of our guidance, and gross revenue was in line with guidance. These gains were made despite our incentive reductions and growing macroeconomic pressure on consumer budgets. We believe that this was achieved as a result of our product-led focus on high-quality users, which has helped us maintain customer engagement and remain resilient. In Q3, we grew last 12-month annual transacting users by 20% year-on-year while average spend per user increased by 18% and user transaction frequency increased by 13%.
With respect to profitability, I am particularly pleased to report that in Q3, contribution margin, one of our key profitability metrics, improved even faster than anticipated. In September, our focus on improving monetization and incentive optimization allowed us to reach an important milestone, achieving a positive contribution margin for the whole On-Demand Services segment several months ahead of target. And as a group, our contribution margin reached negative 0.7% of total GTV, up from negative 1.3% in Q2. This is a 43% year-on-year and 41% quarter-on-quarter improvement, significantly beating the top end of our guidance by 46 basis points. The same improvement can be seen in our adjusted EBITDA. Our ability to manage our OpEx this quarter, combined with the uplift in our contribution margin, resulted in adjusted EBITDA improving by 11% year-on-year and 10% quarter-on-quarter. The progress we have made on our adjusted EBITDA reflects concerted efforts by the team to streamline regarding non-percentile costs.
Going forward, on the back of the better-than-anticipated performance in Q3, we’ve identified additional levers that will help us to accelerate our path to profitability further. First, given how contribution margin has progressed to date, we are in a strong position to further accelerate our group and segment contribution margin breakeven timeline by one or two quarters compared to what we previously communicated. As we gain more visibility in the coming periods, we will update our guidance to reflect our expectations. And second, we have further identified additional OpEx savings in both personnel and non-personnel costs. The total cost savings identified from these exercises will reduce around 14% to 16% on a pro forma basis of our FX OpEx base year-to-date, excluding share-based compensation and one-off expenses. A significant part of this cost savings will be realized in quarter one 2023 and the remainder in the following few quarters after that. Jacky will provide more detail on both non-personnel and personnel cost reductions later on during the call.
As part of the identified cost savings lever, as we announced last week, we have made the decision to reduce our employee base by around 12% which, in turn, impacted 1,300 full-time employees within the group. As a people-centric organization, deciding to reduce headcount is painful for us, but it was an imperative step to support the long-term health of the business as we continue on our mission. I would like to publicly reiterate my gratitude to the employees impacted for their contribution in building GoTo and their dedication in serving our users and stakeholders. We are doing our utmost to help those affected to reenter the job market and find future opportunities.
With all of our cost saving measures in place, we expect to be able to accelerate our group adjusted EBITDA breakeven by three to four quarters, roughly 12 to 15 months following contribution margin breakeven and we will look to provide more detailed guidance on this topic in subsequent quarters. Progress in this area has been rapid and given the decisive action we have taken to improve margins and set ourselves on a course for long-term financial sustainability, we believe our balance sheet is sufficiently healthy to take us to profitability. Our careful management expenses enabled us to reduce our average monthly cash burn by 13% in Q3 to IDR1.3 trillion versus IDR1.5 trillion in Q2, and we will continue our disciplined approach to deliver further sequential improvement in cash burn.
That said, we will continue to review opportunities to bolster our balance sheet. For example, we have been disciplined with divestments, and we will continue to review divestment opportunities of our non-core assets and investment portfolio. Also, subject to market conditions, we can leverage our June AGMS approval for non-preemptive issuances of up to 10% of issued and paid-up capital per annum to opportunistically raise new capital should we judge it to be prudent.
Moving on to product-led initiatives, we continue to focus on innovation designed to make our customers’ lives easier, while deepening user engagement across core products in our ecosystem. GoTo Plus, our pilot subscription program has achieved over 50,000 subscribers in a short period of time. And based on our preliminary data, Plus subscribers transact and spend more than 5x compared to non-subscribers to-date. Perhaps the best example of a product-led innovation that enhances ecosystem synergies is GoPay Coins, our unified rewards currency which we rolled across the whole ecosystem at the end of June. GoPay coins allow customers to earn, redeem and spend points for all transactions within the GoTo ecosystem. For instance, customers can earn points from a grocery purchase on Tokopedia and redeem them when ordering food on Go Food.
By the end of Q3, we had issued GoPay Coins to approximately 21% of transacting users and we have seen promising early results in the first 3 months. First, GoPay Coins support cross-platform user acquisition with 2.3x higher conversion than non-GoPay Coins incentives. Second, GoPay Coins is more efficient as stand-alone platform incentives with a 20% lower customer acquisition costs. And third, users of GoPay Coins have 25% higher retention than those who do not. GoPay Coins will be an important strategic product as we work to increase the number of cross-pollinated users on the ecosystem and increase their engagement while providing a more efficient promotion channel. This should be compounded as we improve the GoPay Coins experience and when combined with our cross-marketing and product integration initiatives. Everything that we have achieved with respect to growth can be linked back to our focus in developing products that customers need, and that adds value to our ecosystem. We look forward to sharing more progress on the behavioral impact GoPay Coins has on customers in the subsequent quarters.
Let me now hand it over to Jacky to discuss each business segment in more detail. Jacky, over to you.
Jacky Lo
Thank you, Andre and good day to everyone who has joined today’s call. Subsequent to what Andre shared regarding performance and further highlights, I want to double-click on each business segment, starting with On-Demand Services.
In Q3, On-Demand Services GTV increased 24% year-on-year and 5% Q-on-Q. While gross revenue for On-Demand Services once again outpaced GTV, growing 31% year-on-year and 8% Q-on-Q in the quarter driven by higher take rates, a big part of our strong showing is the result of returning demand as workers return to the office, students to schools and pandemic and mobility restrictions continue to ease. In turn, mobility GTV grew 111% year-on-year and recovered to 94% of pre-COVID levels. The return to work also helped our GoCorp B2B offering, prompting GTV to grow 2.3x quarter-on-quarter. Our GoTransit offering launched earlier in June, quickly became the market leader in online ticket sales for Indonesia’s largest public transportation operator, commanding 74% of railway operator KCI’s digital ticketing as of the end of September.
In September, the Indonesian government reduced fuel subsidies which led to a 30% increase in subsidized fuel prices. The tariff for two-wheeler state services, were also increased on average by 10%. Today, there has been minimal impact to our mobility business and we will continue to monitor dynamics closely. For our food business, the average basket size remained stable, demonstrating the platform’s resilience significantly as more people are dining out. We continue to improve our monetization further by continued improvement on tax rate from negotiated merchant commissions and from platform fee.
To continue to adapt to the current macroeconomic condition, we have released products for users seeking value options given the increase in their cost base. We launched GoRide to provide a more economical option for riders in select cities in Indonesia and also [indiscernible] providing free or lower aggregated shipping for food orders within a two kilometer radius if users are willing to wait a bit longer while maintaining food quality. The biggest improvement we have made in On-Demand Service is in contribution margin, which improved by 89% year-on-year and 86% Q-on-Q to negative 0.5% as a percentage of GTV in Q3 2022. This represents a 336 basis points quarter-on-quarter improvement. Our efforts in reducing incentives as well as the reduction on product marketing for our food business enabled us to achieve a positive contribution margin for On-Demand Services in the month of September, several months ahead of target.
Let us now shift our focus to e-commerce. In the third quarter, e-commerce GTV grew 15% year-on-year and 4% quarter-on-quarter despite users spending more time offline and other macro headwinds. Average order value and frequency remained resilient year-on-year, driven by growth in the fashion and beauty category as well as digital goods expansion into new regions. The automotive category was also a key beneficiary of the economic reopening, bolstered by auto brands and traditionally offline dealers moving online.
Gross revenue continued to grow faster than GTV at 27% year-on-year and 6% quarter-on-quarter. Year-on-year growth was driven by our revised C2C commission scheme implemented at the end of June, introduction of consumer platform fees in August and strong adoption of value-added services such as logistics results in improved monetization. Furthermore, we have reduced our incentive program by eliminating promotional spending on cohorts of unprofitable users through a spending cap. These efforts led to the contribution margin improving by 27% year-on-year and 20% quarter-on-quarter to negative 1.1% of GTV, a 33 basis points quarter-on-quarter improvement.
Moving on to Financial Services, we remain focused on deepening GoPay penetration across the ecosystem and improving the quality of users in the first quarter. This resulted in a 78% year-on-year increase in GoTo financial GTV. We are seeing real momentum in this space. Consumer payments or close loop user penetration across Gojek and Tokopedia, reaching new highs. This means more and more users are using GoPay to pay for products and services within the GoTo. GoPay user penetration increased in Tokopedia from 52% to 58% quarter-on-quarter, while penetration increased in Gojek from 55% to 60% Q-on-Q. The quality of these users has also been improving. GTV per GoPay user has increased 47% as of the end of the third quarter versus a year ago, meaning the average GoPay pay users is spending more and doing so more frequently.
As mentioned, we also made progress on our consumer lending program. Since we launched GoPay Later 2Q, our installment product on Tokopedia, we have whitelist about 4 million consumers. This complements our existing pay later product, [indiscernible], which was added to Tokopedia at the end of last year, allowing consumers to pay for services across the ecosystem in one easy monthly payment. We are taking a conservative approach to growing our loan book. Given the current credit cycle and rising rates, we are using the opportunity to put the right risk management infrastructure in place, and we’re ready to scale up as needed in 2023 or as economic conditions improve.
Meanwhile, fin-tech’s gross revenue was up 48% year-on-year. Our merchant payments GTV grew faster than consumer payments, which resulted in a slight decline in the blended take rate. However, we grew our close loop penetration and saw increased revenues from lending post launch of installments on Tokopedia this quarter. For contribution margin, we improved by over 30% quarter-on-quarter. Moving forward, we will continue to target improvement in contribution margins through promotional and targeting efficiency and shift the revenue mix to higher-margin products. As an example, in early October, we piloted cash loans on the Gojek app, our third consumer lending product. We hope to share more detail in the coming quarters as consumer lending ramps up.
Let me now focus our financial highlights. We saw positive momentum despite macro headwinds and shifting consumer behavior. To reiterate, GoTo’s GTV increased by 33% year-on-year to IDR161 trillion, exceeding the high end of our guidance range. Our group’s overall take rate remained steady year-on-year, resulting in gross revenue growth of 30% to IDR5.9 trillion, which is above the midpoint of the guidance range we provided last quarter. We achieved these results while maintaining our market leadership position amid a challenging operating environment. We cautiously reduced incentives to customers, eliminate promotional spend on cohorts of unprofitable users and further reduced product marketing spend. These initiatives have resulted in a quarter-on-quarter improvement of 61 basis points of our group contribution margin to negative 0.7% as a percentage of GTV, which is an equivalent of IDR837 billion in improvements, a commendable achievement of the group and significantly exceeding the high end of our guidance range.
This quarter, we heightened our focus on rationalization and optimization activities to improve our adjusted EBITDA. OpEx optimization, combined with the uplift in our contribution margin, drove adjusted EBITDA improvement of 11% year-on-year and 10% quarter-on-quarter. In terms of margin, it is 44 basis points improvement quarter-on-quarter to negative 2.3% as a percentage of GTV, which is the equivalent of IDR429 billion.
As part of our ongoing cost optimization program, we further reduced non-people costs. So as Andre mentioned, the total non-personnel cost savings we have identified reached close to IDR1 trillion as of the end of the third quarter to be realized over multiple years. And approximately IDR269 billion has already been realized year-to-date, of which about IDR144 billion is related to fixed OpEx. The largest savings came from technology work streams, including cloud, software and apps renegotiated contracts. A large portion is also driven by marketing work streams, with consolidated volume for TV, digital media and KOL purchases across GoTo.
Further efficiency has also been realized through reducing personnel costs. And as Andre mentioned, we announced our decision to reduce our employee headcount last week. This decision was made in order to optimize our product, operational and functional team across the organization to enhance efficiency. Such steps are important to establish a more sustainable foundation for our business in order to maximize our efficiency and productivity. As a result of this, as well as additional people-related cost reduction measures, we expect to save between IDR915 billion and IDR965 billion annually, represents roughly 14% ongoing savings compared to our September personnel cost baseline, which will result in substantial improvement to OpEx next year.
And moving forward, we will identify areas where we can improve our cost structure while prioritizing profitability and cash flow management. There are also further savings to be realized across outsourcing, office rental and other initiatives which are currently in progress. On a pro forma basis, the future savings we have identified will bring our current fixed OpEx base down by a further 14% to 16%.
Before we discuss guidance, I would like to highlight the refinement of our estimation process in allocating incentives to corresponding revenues from customers to present a more representative view of net revenues and sales and marketing expenses when accounting for the offsetting of customer incentives against revenues. So we have started refining the estimation process since the beginning of the year, and we completed the refinement in the third quarter which was then applied to all the transactions starting from January 1, 2022. This change in estimates resulted in an increase to both net revenues and sales and marketing expenses of roughly IDR2.2 trillion in this quarter, including IDR751 billion and IDR761 billion impact from the first and second quarters, respectively. There was no impact on gross revenue contribution margin or adjusted EBITDA.
As we look ahead to Q4 and 2023, we will continue to focus on quality users and improve efficiencies to accelerate our path to profitability. The past 3 years have shown us how unpredictable the future can be, and with the backdrop of continued geopolitical and macroeconomic uncertainty, post-COVID headwinds and market rationalization, we expect that growth will moderate as we focus on sales sustainability without relying on additional external capital. For full year 2022, we expect group level GTV to be between IDR613 trillion to IDR619 trillion, an equivalent of 33% to 34% year-on-year growth; and gross revenue to be between IDR22.6 trillion and IDR23 trillion or 33% to 35% year-on-year growth.
Our top priority remains unchanged, and that is to accelerate our profitability time line. We expect to see continued sequential improvement in both contribution margin and adjusted EBITDA in future quarters. On the back of a continued improvement during our strong Q3, we expect Q4 group contribution margin to reach between negative 0.6% and negative 0.5% as a percentage of GTV. Further, as previously mentioned, based on our contribution margin outperformance in Q3 and strong progress with optimization initiatives, we believe there is room for us to potentially accelerate our contribution margin breakeven targets for the group and our segments by one to two quarters.
For On-Demand Services, we achieved a positive contribution margin in September, ahead of schedule. We are also anticipating positive trajectory for e-commerce, which we expect the business to turn contribution margin positive by Q4 2023 and possibly earlier. In terms of group adjusted EBITDA, we expect to be able to accelerate the breakeven point by three to four quarters, roughly 12 to 15 months following CM breakeven. And we will look to provide specific guidance on this on future earnings calls.
Moving forward, we see further room to improve monetization as we enhance our value-added services across the ecosystem on top of further driving cost of revenue efficiency and promotion optimization. Given our strategic shift, coupled with global macroeconomic uncertainty, we believe it is prudent to continue our focus on cost optimization across our business with the goal of building a stronger foundation.
With that, I’ll pass the call back to Andre for closing remarks for our presentation.
Andre Soelistyo
Thank you, Jacky. In summary, we accomplished what we set out in Q3, delivering solid growth across each of our core business segments and making good progress towards profitability. Our momentum is strong. With a significantly improved contribution margin for the group and positive contribution margin for On-Demand Services in September, we are on track to accelerate our path to profitability. This is fortified by our focus on high-quality users and improving efficiencies as we leverage the competitive advantages of our ecosystem through product innovations like GoPay Coins.
We will also maintain our focus on Indonesia, one of the world’s most resilient economies, in which GDP growth is expected to reach 5% in 2022, balanced by 4% inflation even after a 30% – around 30% fuel price increase and 29 basis points interest rate rise year-on-year. In Q3, we saw persistent global volatility with rising inflation and interest rates, global supply chain issues and increasing geopolitical risk. We cannot predict when things will improve, and we are not immune to the potential impact, so we will continue to evolve. We remain committed to quality growth. And as we’ve said before, a focus on quality will come with more moderate but more profitable growth in future periods.
Lastly, in connection with our shareholders, we want to address the upcoming lockup expiry. As a reminder, post a statutory 8 months lockup after our IPO in April, pre-IPO shareholders will be able to trade their shares on the IDX at the beginning of December. As a newly listed company, we believe there is naturally going to be some churn in shareholders, and we are exploring options to support selling shareholders as well as bring new long-term institutional capital into our cap table. This could include a secondary offering, an option we announced we are exploring on October 26, to help pre-IPO shareholders sell to investors in a coordinated manner. Any transaction will be subject to market and macroeconomic conditions, among other factors, and there is no assurance at this stage that a transaction will take place.
We may also receive additional liquidity in our stock from Index inclusion next year. To date, GoTo has been included in some local indices, including IDX30, LQ45, IDX80. And the increased free float that the lockup expiry will bring will mean that we also become eligible for inclusion in the FTSE all world all cap indices and/or MSCI between March and May 12, 2023.
And with that, this concludes our prepared remarks. Thank you very much for your time. We will now open up the call to questions. Thank you.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Henry Wibowo from JPMorgan. Please go ahead. Your line is open.
Henry Wibowo
Hi, everyone. Thanks, Andre, and team for the presentation. And congrats on the results. I have two questions. My first question is on e-commerce. Could you please provide some color on how the e-commerce market is going right now? It seems like some of the logistics guys are guiding a contraction on the past 10/10, 11/11 and the recent months of e-commerce growth. But at the same time, when we speak to the merchants, it seems like there has been very high commission increase, up to like 5% to 9% in terms of take rate on some of the e-commerce promotion, which I think is good for Tokopedia. If you can share more color on the e-commerce side, that will be great. Maybe I’ll stop there first for the first question. Thanks.
Andre Soelistyo
Thank you. Thank you, Henry. So I’ll take that question first. So first of all, as mentioned during the last quarter and also this quarter, we do see a softening in terms of consumer demand, especially those with lower economic segment. And then as a result, in a while, the – some part of the sales in terms of the double dates and stuff is actually – when we see across the market, some platform actually kind of experienced some contraction. But I think for our platform, we continue to actually see a small growth. And this is actually something that we don’t do often – as often as other platform. So we only do the 11/11 equivalent. So we don’t have the examples of the other double dates in the last quarter.
But I think the combination of the increasing in goods – cost of goods and also the logistics price have actually dampening some part of the vertical sales. Having said that, I think as mentioned during the – this earnings script as well, I think in Tokopedia, we always believe in being the everything store in Indonesia. And therefore, when certain categories is actually softening, we’ve seen increase in other categories. In this case, this quarter has been the automotive category. And we’ve seen actually a significant jump into that as well. And that’s why despite the softening in consumer demand, we continue to see a healthy growth year-on-year for Tokopedia. And this is on the back of obviously a very strong Q3 last year, if you remember. Q3 last year was one of the first quarter where there is actually significant jump post-COVID days. So Q3 and Q4 last year is particularly strong. And this year, not only is softening consumer demand, but there is also a lot more activities offline as well, where people go shopping offline. So being able to actually continue to grow in a healthy manner year-on-year, is the testimony of our diversity and also our focus on the high-quality users. Hopefully, that answers the first question.
Henry Wibowo
Thank you, Andre. Yes, it did. My second question is regarding the CM positive for on-demand. Can I just check, given that September is already CM positive, why is the guidance for CM positive for on-demand is actually first quarter next year and not fourth quarter? Thank you.
Andre Soelistyo
Great question. We did mention in the earlier remarks that because of all the progress we’ve seen in Q3, not only for On-Demand Services, but as a group. We actually are expecting that we will be able to improve the group’s contribution margin by one or two quarters. And that translates into each of the segment being accelerated in their contribution margin positive as well. So that’s how we should think about it.
Henry Wibowo
Yes. Alright. Thank you very much.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Ferry Wong from Citi. Please go ahead. Your line is open.
Ferry Wong
Yes. Hi, thank you. Congratulations on the pretty decent results. Two questions for me. One on the – on November financial, basically, could you please explain a little bit more on your variable expense increases in the third quarter? And also – could you also please explain on the net revenue jump from IDR1.9 trillion to IDR4.6 trillion. That’s my first question. And then the second question, practically, could you elaborate more on the competition on the e-commerce front, especially from the TikTok? Because when we talk to the – some of the logistics company who have mentioned that their revenue actually based around one-third of the Shopee volume practically. So I just wanted to get the view from your end. We know that basically it’s not directly competing [indiscernible] but more towards this. Yes, could you please elaborate? Thank you.
Andre Soelistyo
Thank you, Ferry. First question, can I ask Jacky to help answer it, and I’ll help answer the second one.
Jacky Lo
Yes, Ferry. I think let me address the net revenue first. So as I mentioned during the prepared remarks, this is like a change in accounting estimates. So it has no impact on our gross revenue, contribution margin or adjusted EBITDA. This is more – like as you recall, like for the accounting of all the incentives to our customers, we actually reduce it first with our revenues. And then if there is any assets incentives, we will reclassify that as sales and marketing expense. So I think, as I mentioned during the – since the beginning of the year, we have been refining like how to actually offset these incentives to different revenue streams from our customers. And so there is part that’s coming from like system enhancement. So by – like roughly around the beginning of Q3, we completed the refinement of the estimation process. And so that way, we can actually have more representative way to actually allocate all these incentives to different revenue streams within the – from different customers. And so that results in like the increasing of our net revenue, but at the same time, increasing in our sales and marketing expense. So as I mentioned, it was a cumulative adjustment or catch-up in Q3 of IDR2.2 trillion, so about IDR750 billion and IDR760 billion that’s coming from the impact from Q1 and Q2. So I hope that answers the questions on net revenue.
The second on the variable expenses, yes, so I think for On-Demand Services, that’s mainly coming from just more efficient in terms of our [indiscernible] spend, the promotion and incentive spend. So if you look at the total incentive as a percentage of GTV, that’s improved by roughly about 138 basis points or IDR85 billion. So that’s coming from like reducing both our supply incentives as well as demand incentive. So kind of like across our markets, we have reached a supply and demand equilibrium. So we are able to reduce the incentive we spend for both on the supply and demand side. And also for food, we have been actually reducing the subsidies to some of the non-profitable customers cohort, so leveraging a spend cap. So these are all the initiatives for the On-Demand Services side. And for e-commerce, also, we have seen like a 35 basis point reduction in terms of incentives. So that’s translating to roughly about IDR167 billion. That’s mainly just being more like targeting our promotions and then reducing the incentive spend for certain customer groups, as I mentioned, like the more profitable cohort. So these are some of the initiatives we have undertaken to improve the overall incentive spend and tying to the variable expense.
Andre Soelistyo
Thank you, Jacky. On your second question, Ferry, on TikTok, I think, firstly, I do note that their growth has actually been quite fast over the last few quarters. So similar notes that you have gotten from logistics partners and stuff, we also heard it from our logistics providers and also merchants as well. But I think I would like to note, first, the main difference in terms of the approach. As you all know, in Tokopedia, we built a platform to ensure that everything that our customer wants to buy, they can get it with high-quality experiences. It’s something that we continue to invest in areas like logistics, our customer service, our payments capabilities and whatnot. So a lot of the kind of analogy that we are using, were very discovery and also everything that you wanted to search as a user, we will be able to provide immediately, right, whereas people goes to TikTok to actually browse for social content and stuff. And incidentally in few of the instances, especially when KOLs or influencer are promoting certain items, you will be able to purchase that. Now it’s not paired with a lot of investment in a lot of the customer care, customer service, things like escrow, dispute settlement. And even areas like logistics and also payments are quite limited. And therefore, a lot of the purchases, as far as I know, has been on lower, what you call AOV items, but with higher margins because the cost for any of the merchants who wants to sell, especially getting the attention from the audience, the cost they have to pay for influencer is quite high. So that’s why the categories that is actually selling really well right now is things more high-margin, low-ticket items. A lot of that is actually related to fashion, and that’s why you mentioned the comparison to Shopee. So this is actually the criteria. We’re continuing to focus on building this everything store commerce with high-quality experience to our customers so that whenever people buy, there is no issues with the item. Items can be delivered fast and they can get anything they want and then they can search it into Tokopedia. This is going to be our continued focus. But having said that we are obviously not undermining the emergence of TikTok, we also have done a lot of things that actually leverage social media platforms to actually do our affiliate kind of programs and stuff, and that allows us to also get access to those audiences and bring them over back to our platform as well. So all that, we’re going to continue to innovate on those things to ensure that this continued growth that we are actually projecting can continue to happen with high-quality experiences in mind. Hopefully, that answers the question.
Ferry Wong
Yes. Thank you, Andre.
Operator
Thank you. We will now move on to our next question. Please standby. Our next question comes from the line of Ari Jahja from Macquarie. Please go ahead. Your line is open.
Ari Jahja
Hi, everyone. Thank you, Andre, Jacky, both of you for the updates. So my first question is on the fourth quarter guidance. So it looks like the GTV and gross revenue could still slightly increase on a quarter-on-quarter basis. So can you please elaborate on the key drivers on a segment basis behind this? So it looks positive despite the macro pressures out there. So I’ll stop here with the first question. Thanks.
Andre Soelistyo
Jacky, do you want to take that answer – question?
Jacky Lo
Sure. Yes. So I think if you look at the guidance basically for Q4, GTV is roughly IDR161 trillion to IDR167 trillion. And gross revenue is between IDR6 trillion and IDR6.3 trillion. So, if you break that down by segments, so on-demand services first, right? So, let’s go through – for transport, basically, we expect there will be continued recovery, but it will be lower demand due to the year-end holiday, there will be more outbound travel. But at the same time, we expect there will be like a significant reduced reduction in terms of like supply incentives, as we mentioned earlier, and we are seeing with demand incentive. And for food, we expect that will be faster growth sequentially because of the higher year-end – due to the year-end activity. And I guess like in terms of e-commerce, yes, that will be – yes, basically, it’s like a flat or like a slightly moderate growth versus Q3. I think Andre addressed this during the earlier question. So – and also like, if you consider year-on-year, it will be lapping last year in Q4, which is like the tailwind from COVID. So, that’s kind of like how we look at the – for the two segments of on-demand services and e-commerce. And I guess, like for fin-tech, it will be like slower than Q3 as well. It’s mainly because, first of all, we are like rationalizing incentive spend, especially in the open loop and offline, yes. But I think overall merchant payment, it will be affected by the overall slower market momentum as well. So, that’s kind of the thinking behind the Q4 guidance.
Ari Jahja
Got it. Thanks Jacky for the color there. And then my second question is just trying to get a better handle on the contribution margins because it looks like the guidance we traded in line with what GoTo provided us in the second quarter results. But given any positive impact on the CM given that there is a classification on the certain sales and marketing expenses from basically resulting in the net revenue improvement, which basically being used to the G&A, which is basically impacting about IDR500-plus billion that Jacky pointed earlier. Just want to get a better handle on that. Thank you.
Jacky Lo
Yes. So, as explained, the requisition that accounting estimate on the incentive net-off, it has no impact on our contribution margin or gross revenue. It’s more like closing up the net revenue and the sales and marketing expense.
Ari Jahja
Okay. So, basically – the requisition is basically modified, right, across the board?
Andre Soelistyo
Yes Ari, so the CM is calculated netted off of any incentives. So, any movement doesn’t change the CM calculation.
Jacky Lo
Yes. CM, basically is gross revenue reducing all the incentives. It doesn’t matter it’s in – like a reduction of revenue or in sales and marketing. It’s all reflected in CM.
Ari Jahja
Got it. Okay. Thanks for the additional color there. And then…
Andre Soelistyo
And then just for clarification, Ari – sorry, for the clarification, our Q3 CM is 46 basis points better than the guidance that we gave. I just want to make that clarification.
Ari Jahja
Understood. Thank you. And then third, just to basically try to triangulate the recent cost cuts announcements, right? How should we think about this kind of OpEx cost saving realization heading into ‘23? And how far the adjusted EBITDA target would be following the contribution margin positive target? I think I heard earlier around 12 months to 15 months or so. Thanks.
Jacky Lo
Yes. So, I think we actually shared this during the prepared remarks. And so I think it will be coming from a combination of both non-personnel costs as well as personnel costs optimization. So and as we mentioned like from the announcement we had last week in terms of reducing the headcount. So, that comes across all of our products, operations and like support functions team. And if you compare that to the September personnel cost base, it’s roughly about 14% reduction. So, that’s going to be like reducing our cost base moving forward. And in dollar amount, that’s roughly about like IDR915 billion to IDR965 billion. And on the non-personnel costs, as I mentioned, we have identified so many different initiatives like covering IT costs, marketing costs, outsourcing, office rental, all these different initiatives. And year-to-date, we have roughly about IDR1 trillion savings identified. And we have realized so far about IDR269 billion in this year. So, the rest will be realized like next year and going forward. So, that’s also going to lower our cost for non-personnel costs. And so in total, like combining personnel and non-personnel costs, we believe if you compare to the September OpEx base that we have, it’s going to be roughly about 14% to 16% lower moving forward.
Ari Jahja
Got it. Thanks a lot Jacky for the color. All the best.
Operator
Thank you. We will now move on to our next question. Please stand by. Our next question comes from the line of Adrian Joezer from Mandiri Sekuritas. Please go ahead. Your line is open.
Adrian Joezer
Thank you. Thanks for the opportunities Andre and Jacky. So, two questions from me. I think the first one is with regards, I think to follow-up to the previous question with regards to – I think you provided the bridge to the personnel and non-personnel cost savings. So, actually I am wondering as regards to when you all want to achieve the EBITDA breakeven. Could you also provide some color as regards to what kind of take rates are you actually printing [ph] this assumption?
Andre Soelistyo
Sorry. I missed a little bit of that question. Jacky, did you get the question?
Jacky Lo
Adrian, you are asking like in terms of adjusted EBITDA, what will be our printing on that, right, in terms of timing.
Andre Soelistyo
I think there was…
Adrian Joezer
Yes. Sorry, actually was – yes, so actually just wondering, I think if you can provide the bridge to reach the CM breakeven and also the adjusted EBITDA breakeven, let’s say, as regards to the take rates.
Andre Soelistyo
Maybe I can answer that, Jacky. So, first of all, we are not providing detailed guidance in terms of how each of the components will actually contribute in the future. But having said that, Adrian, I think from – as mentioned, the improvement in adjusted EBITDA comes from three or four main buckets. The first is obviously growth. We – and in this case, we are actually – we will continue to focus on high-quality growth and despite a little bit moderation coming from the macroeconomic. From a take rate perspective, I think the improvement that you have seen on a quarter-by-quarter and year-on-year basis, we continue to believe that it will continue to accelerate further. One of – there is a few factors towards it. The first is, especially for Tokopedia and GTF, GoTo Financial, we continued to see there is actually room for the take rate to actually continue to improve, coming from the baseline of things like commission, but also a lot of the work that we are doing on value-added services. In Tokopedia, I think we are investing a lot in logistics and fulfillment. So, we will be able to fulfill more from what we call Gojek and Tokopedia or equivalent of fulfillment by Amazon. And this is actually obviously has higher monetization as well, and as well as increasing kind of a lot of the spend per user as we speak. Advertising is also our big focus. I think a lot of the contribution of the take rate increase has been from this. On the GoTo Financial side, I think what you have seen in this quarter is the kind of a flat take rate, but having said that, in this quarter and the recent quarter as well, we have added two more additional consumer lending product. One is [indiscernible], which launched in Tokopedia last quarter. And we are ramping up to about 4 million white-listed users. And very soon, a lot of the contribution from the loan book growth and also the revenue associated with that will start to get meaningful. And in addition to that, we also launched cash loan in Gojek app in this quarter, relatively small experiment. But I think coming early next year, we will start to ramp it up, of course with a lot of the moderation with risk management and stuff. So, all of that combined, I think we will continue to be able to improve take rates as a blended quite consistent year-over-year. But I think the way that you should also think about it is looking at our CM progression. Of course, Q2 to Q3 was a really big jump. But I think quarter-over-quarter, I think we have been able to improve the CM as a percentage of GTV by about 0.2% in average. So, if you do a simple math with that logic, you will see how we actually be able to reach positive CM. And then of course, over time, we will actually start generating cash flow to start paying off the fixed cost as well. And that’s kind of where – that, plus a lot of the work that Jacky has mentioned on fixed costs, the OpEx personnel and non-personnel costs optimization that’s quite significant, that actually will translate into the desired adjusted EBITDA positive that we mentioned earlier. So, hopefully, that helped answer the question, Adrian.
Adrian Joezer
Thanks Andre. I think moving on to my second question. I think with regards to – you mentioned that the high-quality users of GoTo and ecosystem actually help the resiliency of your GTV in the third quarter when you actually monetize and given the macro headwinds. So, actually just wondering simply as regards to how you actually – how do you actually classify your ATU based on the profitability cohorts in terms of how do you segment them and how does this translate into the GTV concentration towards the profitability – I mean the profitable and non-profitable users?
Andre Soelistyo
Yes, great question. I think you will notice that in the last quarters, we talked about the cross-platform users, Adrian. I think what we are working on right now is to be able to define it more comprehensively. And that actually will be – will be in the proximity of kind of a multi-service users in the ecosystem. And then there is also a lot of internal analysis in terms of looking at the profitability as a whole group on that user basis. Of course, as mentioned during the – maybe a few quarters ago, in every of our businesses or products, we maintain a very high quality of definition in terms of the correlation between the frequency of usage and also the profitability as well. But to be able to combine it into one requires a lot of work and requires a lot of tools that we are actually building right now to be able to leverage so that we can actually address those users in a more one GoTo way. And this is something that we are working on, and there is actually a lot of progress quarter-over-quarter. And I think we believe that early next year, we will be able to share a much more definitive and comprehensive breakdown for it that is actually actionable and relates to our growth as well, and as well as obviously the tools that is required to be able to move that number quite significantly. So, this is actually a work in progress. But maybe in a separate kind of analysts one-on-one that we will have in the next 24 hours, 48 hours, we can actually give some indications on that as well.
Adrian Joezer
Thank you, Andre and thank you, Jacky and also thanks for the opportunity to ask questions.
Operator
Thank you. We will now move on to our final question. Please stand by. Our final question comes from the line of Thomas Chong from Jefferies. Please go ahead. Your line is open.
Thomas Chong
Hi. Good evening. Thank you, management for taking my questions. My first question is relating to our headcount optimization. We have been seeing other peers optimizing their headcounts, but I think we are also seeing that the headcount optimization is a bit dynamic. Some of the business departments are still increasing the headcount, while some of the non-core business are scaling back. So, I just want to look at some color from the management with regard to the headcount optimization. Are we increasing our headcount in some of the core areas? If so, connect and be shared. And my second question is about the investment that we are thinking about in the long run. Given the fact that we are striving for profitability and the CM in the coming quarters, how should we think about our long-term strategies after profitability is achieved? And how should we think about our spending after reaching the profitability milestone? And on that front, if we think about the annual transaction users over the long-term as well, will we invest more on the new users [ph] after we are reaching the milestone? Thank you.
Andre Soelistyo
Thank you, Thomas. On the first question on headcount, I think the principle that we took in this organizational optimization was mainly two. The first is, as Steve pointed out, we wanted to move and be able to continue to invest in the core things that we do. And obviously, the three main segments plus our logistics plus fulfillment is we continue to believe that is super core for the long-term value creation for GoTo, which means that a lot of the non-core initiatives has actually – was some part of the resources is moved to the core. And the rest of it, unfortunately, as mentioned, was reduced. The second principle was to look into the ways of operating, ways of working and identifying a much better, effective – organization effectiveness and efficiency by combining teams, especially for supporting functional in the company as well. And therefore, we will be able to do more with less and being able to serve the whole group with this execution as well. So, that combined, was translated into the total considerations. It is not about performance of the individual, but its identifying redundancies of roles and also focusing a lot of our resources into core. And we do believe that it continues to have an adequacy in terms of our ability to actually continue to execute for the future despite obviously needing to actually continue to improve our top line growth as well. And we will – we will continue to be very moderating a lot of the OpEx growth by being very selective in adding resources and stuff, only those who are actually going to translate into the core initiatives. For the – second question is the long one, investment, given – yes, I think the profitability point is not the end, right. The company’s view is not once we become breakeven then we will relax, that’s not the point, because we continue to believe that this business, especially in each of the segments, have a very clear profitability milestones and margins along the way, right. And this is actually an area where we will continue to do what’s right in terms of focusing on the growth – sustainable growth and also to improve margins by really like rightsizing the cost to ensure that we can actually translate that into comparable margins with some of the global peers. I think you had a question about growth in users. I think that’s a really good one. When we mentioned about high-quality user, by the way, it’s not always associated with middle to high-income individuals, which obviously, if we only focus on that, it will cap our growth, right, because there is only a certain kind of a population that will be categorized in that manner. While a lot of the contributions for the organic and profitable growth that we have seen comes from that segment, but slowly and surely, we have been able to invest in ways to make sure that even the lower to middle income segment of our population can be high quality as well. How do we do that, for instance, things like thinking about how the delivery costs can be cheaper, significantly cheaper for them, it’s one area that we are investing a lot. I think you have seen us speaking in the remarks about the launch of a few things. Mode Hemat in GoFood allows us to reduce the delivery cost by aggregating the delivery for our customer, for those who actually seek for value, but don’t mind to actually wait slightly more, not too long more, but slightly more. And this is an area that we continue to invest, and that’s why our – a lot of our investment goes into logistics and fulfillment. I continue to believe that those who will be able to continue to deliver speed but in a much cheaper manner, by aggregating a lot of the orders and because in GoTo, we have the equivalent of many hyper local use cases. We have the best chance to be able to get there. And this is actually an area where we are investing quite significantly so that a lot of the lower and middle-income segment can be high quality as well where we don’t have to actually engage with them just simply by giving discounts and stuff, but because we have a much superior cost against our competitors in being able to serve them. And this is actually an area where we have seen a lot of contribution so far. But going forward, it will be bigger and bigger as well. Hopefully, that answers the question.
Thomas Chong
Thank you.
Operator
Thank you. I will now hand the call back to you for closing remarks.
Ernest Fung
Thank you, Mel. We want to thank everyone for joining us tonight. We look forward to speaking with you all again in the next quarter. Thank you.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
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