Can Shopee become profitable? Here’s an in-depth analysis

Southeast Asia’s tech industry is famously opaque, which makes online conglomerate Sea Group’s quarterly earnings an anticipated event. For better or worse, it offers us a peek into the state of the internet economy in the region.

While gaming platform Garena is Sea’s original business and prized cash cow, its consumer-to-consumer ecommerce marketplace Shopee is its flashy new asset. Sea is investing heavily into Shopee, with the promise of a big payoff years down the road.

The story every quarter has been the same. Shopee’s revenues have been growing, but so have its net losses. Will these two lines – which appear to be diverging – finally converge? When will it happen?

In this report, Tech in Asia analyzes Shopee’s numbers and benchmarks them against mature ecommerce marketplaces around the world. By doing so, we get a glimpse of what a profitable marketplace should look like. We also project when Shopee might break even, assuming everything goes its way.

We will also briefly look at its competition – namely Lazada and Tokopedia – to see how they might impact Shopee’s growth.

The true cost of running Shopee

Recently, Shopee has been trumpeting itself as Southeast Asia’s leading ecommerce marketplace. This claim is largely based on its user engagement, as measured by number of orders from users on its platform, and user engagement metrics on the app.

(We’ve delved into this topic at length here.)

Gross merchandise volume (GMV) – or the total dollar value of goods transacted on a platform in any given time – is basically an approximate measure of user engagement.

After all, the more buyers and sellers use a platform, the more transactions will occur.

The problem with GMV, though, is how easy it is to boost with all kinds of subsidies. And that’s precisely what many ecommerce platforms have been doing.

But Shopee says it’s gradually cutting down its reliance on subsidies. It claims to have reached such a critical mass of activity that it no longer needs to invest as much in marketing and promotions as a percentage of GMV in order to keep growing.

Shipping subsidies have been going down, and Shopee expects sales and marketing costs to follow suit. The marketplace is eyeing 2019 as the year when it ramps up revenue-generating activities and improves its bottom line.

Growing its revenue

The key to profitability