Sea’s ecommerce gamble may be starting to pay off

Sea chairman and CEO Forrest Li (center) on the podium of the New York Stock Exchange / Photo credit: NYSE

Sea, one of Southeast Asia’s largest internet companies, made a risky bet when it ventured out from its safe haven of digital entertainment into ecommerce. Its stock price took a beating as Sea’s financial results bled quarter after quarter while the company poured money into its online marketplace Shopee.

But things may be looking up for the company. In 1Q18, Shopee booked a revenue of US$33.7 million, up nearly four times from the previous quarter. It had no ecommerce revenue in the same period last year.

“EC” denotes ecommerce, “DE” denotes digital entertainment, and “DFS” denotes digital financial services.

More people are buying and selling on Shopee as well, judging from the growth in transactions on the platform and its payments service, AirPay.

Another positive development is that the growth did not result from out-of-control marketing spending. As a percentage of gross merchandise value (GMV), Shopee’s sales and marketing spend stood at 6.6 percent, down from 7.1 percent in 1Q17 and 8.5 percent in 4Q17.

“It’s still too early to say that Shopee has turned the corner. But it is encouraging that the losses being generated for every dollar of GMV achieved have started to fall in 1Q18 after historically rising consistently on a sequential basis,” says Paul McKenzie, an analyst at investment group CLSA.

“While there’s no individual market breakdown, I also think that Shopee’s GMV growth figures suggest that it continues to gain market share in all of its key markets of which Taiwan and Indonesia are by far its most important,” he adds.

The marketplace needs to continue its momentum to become profitable. It’ll also need to fend off well-funded competitors like Alibaba, which can engage in a price war that Sea’s shareholders may not have an appetite for.