What could go wrong for Shopee?

Monday was a big day for Sea Group.

Shareholders at its annual general meeting approved changes that further entrench Forrest Li’s control over the company, giving the chairman and CEO 57% of total voting power – more than double his 25% economic interest.

Such arrangements are common in founder-led companies, and Li – along with Chris Feng, CEO of ecommerce arm Shopee – has steered Sea to become a leading global consumer internet player.

But what should have been a day of celebration for Li ended with Sea’s New York Stock Exchange-listed shares dropping by a whopping 18%. This was due to reports that Free Fire – the best-selling game of Sea’s digital entertainment unit, Garena – was included in a list of apps to be banned in India. The government is moving to restrict apps that are deemed to be of Chinese origin, saying that they pose a threat to India’s national security.

Investors fear that this ban could be extended to include Shopee, which would deal a further blow to Sea’s global aspirations.

Despite the sizable dip in Sea’s share price recently, institutional analysts remain enthusiastic about its prospects. Nine out of 10 recommend buying the stock, with none rating it as underweight or sell. (The recommendations haven’t accounted for the recent India-related news, though.)

See also: How Shopee made its bid for SEA’s ecommerce crown

Some independent analysts like Julian Lin, however, are less sanguine. Lin writes for Seeking Alpha, a provider of crowd-sourced investment content, and he doubts Shopee’s ability to sustain solid margins in the long term.

This is a contrarian view that we’ll be exploring in detail.

Revitalized competitors

Along with Garena and financial services unit SeaMoney, Shopee is one of Sea’s three main pillars and dominates ecommerce in Southeast Asia.

Shopee’s early days coincided with a period of turmoil at Alibaba-owned Lazada, which was then poised to capture the region’s ecommerce market.

But Lazada seems to have left its troubles behind. In late 2021, Alibaba announced an executive reshuffling that saw Jiang Fan, who previously led its flagship Taobao and Tmall divisions, heading a new international digital commerce division that includes Lazada and AliExpress.

The popularity of social commerce

The risks of breakneck expansion

Garena’s slowing growth