Sea under pressure to turn profit after COVID-driven growth - Nikkei Asia

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SINGAPORE -- Singapore-based online gaming and e-commerce group Sea is turning its focus to improving profitability after growing rapidly over the last year, thanks to strong demand due to COVID-induced stay-home rules and on the back of a marketing blitz.

The New York-listed company is due to announce its 2020 financial results on Tuesday. Total revenue for Southeast Asia's e-commerce leader is expected to have doubled on e-commerce and online gaming demand, but it still has not been able to stem losses because of massive spending to grab market share.

In the nine months through September, Sea reported a revenue of $2.8 billion, doubling from a year ago, and a net loss of $1.09 billion, versus a $1.17 billion loss a year earlier.

Sea unit Shopee grew rapidly amid the pandemic, becoming the most visited e-commerce site in six countries it operates in, according to quarterly data from online aggregator iPrice Group. In tandem with this growth, Sea also aggressively expanded its digital payment business across the region.

A rare Southeast Asian tech company listed in the U.S., Sea drew much attention from the stock market last year despite massive losses. Growth-loving investors who saw potential in the region's tech industry flocked to Sea. Many of them believe it had the potential to become the Alibaba Group Holding or Tencent Holdings of Southeast Asia in the future.

Sea's share price rose more than fivefold throughout 2020, becoming the biggest gainer among Asia's major listed companies. The company was valued at $126 billion as of Monday. This compares to Sony's $134 billion and Uber Technologies' $100 billion.

Over the last week, however, as rising bond interest rates dragged down high-flying stocks, Sea's shares dropped over 10% from its peak on Feb. 19.

One of the company's focus for 2021 and beyond is how to forge a path to profitability. Since its 2017 listing, the company has not reported a profit. 

Sea is paving the way for the monetization of more loss-making businesses. According to a January report from Singapore's DBS Group Holdings, the company at the end of the third quarter of 2020 raised the commission fee it charges sellers on its e-commerce platform in some markets.

That move was "to improve monetization," wrote DBS analyst Sachin Mittal, noting that income from commissions account for the bulk of Shopee's revenues. In Vietnam, for example, commission rates were raised to a range of 3% to 5%, depending on the product, from a previous range of 1% to 2%, according to the report.

For its finance business, the company last year won a digital banking license in Singapore. It also acquired small Indonesian lender Bank Kesejahteraan Ekonomi, otherwise known as Bank BKE. Such moves into lending will help it to bring in revenues.

But improving profitability may be tricky in highly competitive Southeast Asia. Indonesian unicorns Gojek and Tokopedia are in merger talks that would create a formidable tech group if successful. Singapore's super app Grab, which also won a Singapore digital bank license, is going to be a competitor in the finance space.

JPMorgan analysts pointed out in a February report that competition for market share could put Shopee's growth and monetization plans at risk. "As Shopee has begun monetizing its platform across its market and scaling back shipping subsidies, we expect the take rate to increase and Sea's cash burn to decrease. Renewed competition could put both these expectations at risk."

In last year's interview with Nikkei Asia, Sea Group CEO Forrest Li played down such worries by saying the company "[did not] want to compromise our growth potential" and that it "can be profitable by any time" simply by cutting marketing expenditure.

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March 02, 2021 at 12:58PM
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Sea under pressure to turn profit after COVID-driven growth - Nikkei Asia

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