SEA (formerly known as Garena)

[CY09]

If you look at published results of Amazon US commerce segment and Alibaba China commerce segment, they are all profitable despite competition within. Amazon is the closest model i can think of as compared to Singapore/SEA. Despite the presence of competitors such as ebay, walmart, target. Amazon has constantly maintained a 3% net margin on its e commerce revenue. The companies in USA are not fighting on dangling discounts excessively.

However, South East Asia market is otherwise. Sea Group/shopee has been aggressive, and i have always alluded to the fact that you can use shopee coins to offset 30% of your checkout price (up to $10). Sea is essentially giving you up to 30% off. Shopee coins are earned by playing games or daily check in, this helps to boost Sea group reported numbers in MAU and hours spent on platform. Hence I would bravely stand out to say such metrics presented by Sea Group is bull Sh**. Lazada has been forced to play this game as well and has been generous in giving Laz coins, but they cap it to only 5% and for selected products. As a result, Lazada's losses is growing as GMV grows, as reported by Baba. Essentially the entire e commerce industry here is operating on negative margins as compared to US and China.

Shopeepay is an even worse offshoot where you can redeem shopee coins up to 50% of the amount to be paid.

I have been a proud benefactor of this aggressive promotional expenses and been enjoying my tea at coffee shops at half the price or buying items from sheng shiong at half price, by purchasing it item by item

Sea Group's strategy similar to Grab is a winner takes all in e commerce and financials. However, for financials they are overlapping with Grab another Singapore company. My view if both decide to co-exist, they would all be profitable, however Singapore will face inflation on basic items

[dreamybear]

 Lazada has been forced to play this game as well and has been generous in giving Laz coins, but they cap it to only 5% and for selected products.

Just to add, other than coins, Lazada also offers other "subsidies", e.g. the current Triple Joy Fiesta promo, i.e. $4 off every $50 - today last day liao. Lazada also has vouchers and promotional shipping costs.  

From personal experience - if I purchase from different vendors in the same order to take advantage of credit card / promo vouchers etc, multiple deliveries will be arranged independently based on the seller(s). So I usually receive my order through multiple deliveries - doesn't make economical sense to me since it's all to the same address.

I am not sure about the rest, but for me, I won't be as motivated to buy from Lazada, Shopee if they stop the promotions one day. Singapore is a small well-connected country where amenities are relatively easily accessible. For certain things, I can buy in-person whenever there is a promotion at the physical store, there is no impetus for me to buy from Lazada, Shopee. Besides, there are also other online platforms like fairprice online.  

From another view point, if the promotions really stop one day, how will it affect the retail sales of the companies we are invested in ?

[CY09]

It will definitely affect the non nimble and inefficient ones.

There are some outlets such as Nam kee etc who I dont find their food nice but because Sea group is subsidising half of the price or sometimes even close to 90%, the stores survive.

Listed companies wise (unilever and 3M), I dont think it will affect them much given their scale and how small Singapore is

The potential for Sea Group is there, it has a segment which is growing from its US$5-6 billion in e commerce revenue that it can earn 3% on, instead of making a -50% margin loss on. That will mean a turnaround of 2.5 billion. Lazada is not going to give up the fight and Sea Group has a Damarcus sword hanging over it where in 2025 bondholders will elect to either exchange shares at around the US$400 per share offer or redeem the billion dollar principal + interest. The latter is likely and Sea Group doesn't have the cash to redeem if it continues fighting Alibaba and Grab. Massive dilution would happen and existing shareholders including the CEO would have their fortune downsized if it happens

If I were their Strategy officer, my advice is not to fight the larger giant but take on the smaller giant in the higher margin financial market of SEA.

In this way, I can ensure the company can survive beyond 2025. Fighting on two fronts with two giants is literally impossible considering the size of Sea. I would rather make a few hundred million from e commerce and 2 billion from digital entertainment to use it to boost my digital banking war where Singtel and Grab awaits

[karlmarx]

With malls everywhere and accessible and efficient transportation, SG has a developed retail economy where most of everything you need is easily within reach. So e-commerce here -- particularly for items which can be found in the local grocers and mall shops -- is especially sensitive to pricing.

But the rest of Asia where Lazada and Shopee compete are far from Singapore's stage of retail development. They are like China in 2000s before e-commerce took off. Even if you are living in a 'big city' in Indonesia like Surabaya, the selection of retail goods accessible to you from physical stores is still very limited. Their department stores like Matahari and Ramayana have the widest range of goods you can find in any one place, but now e-commerce gives them endless choices on a phone.

So e-commerce in SEA has the potential to achieve penetration that is similar to China, and I believe that is what Lazada and Shopee is positioning themselves for.

Recall that when Alibaba was in the early stages of developing TB in China, in the heat of competition with Ebay, it charged merchants zero commissions for three or more years. Ebay went from owning the entire market to zero. Of course, being unable to sustain a price war was not the only reason why Ebay lost. But it is one of the key reasons it failed.

Since both are more or less well-financed, I think Lazada and Shopee will both remain key players in the market for some time. Maybe Shopee will merge with a bigger company for more security, maybe JD.

[dreamybear]

The potential for Sea Group is there, it has a segment which is growing from its US$5-6 billion in e commerce revenue that it can earn 3% on, instead of making a -50% margin loss on. That will mean a turnaround of 2.5 billion. Lazada is not going to give up the fight ....

If I were their Strategy officer, my advice is not to fight the larger giant but take on the smaller giant in the higher margin financial market of SEA.

In this way, I can ensure the company can survive beyond 2025. Fighting on two fronts with two giants is literally impossible considering the size of Sea. I would rather make a few hundred million from e commerce and 2 billion from digital entertainment to use it to boost my digital banking war where Singtel and Grab awaits

If I have to place my bets on only 1 winner btw SEA & Lazada, I will choose the latter. My theory is it is in China's interests for a sizeable stable Chinese company like Alibaba(Lazada) to facilitate trade (platform) between Chinese companies with Asia or even the rest of the world. It could even be considered to be part of the "common prosperity" theme and have the govt's support.

Sidenote : Tencent has a stake in SEA though.

It could be difficult to accurately define what being a smaller giant entails, and at the same time, this type of "story" may not be what certain stakeholders want to hear or the type of valuation the mkt is asking.

-----------
https://www.reuters.com/technology/tence...022-01-04/

[CY09]

Whats the story and value for Sea?

The e commerce story is easy to document. Every $10 GMV = $1 revenue, and there is 3-5% profit margin on it. With 2030 South East Asia E commerce market to be about $200-$300 bil in GMV, this means a $1.5 billion profit if a single victor remains.

How about the financial side? How do we value the potential profits? The biggest banks thus far in South East Asia has been delivering $3-$5 billion in profits. Will the victor in the digital payment/e wallet segment make such profits too? For fellow members discussion on the value proposition of the digital finance market in South East Asia. From there we can actually determine the rough value of Sea Group

[karlmarx]

If their games lose popularity and gradually decrease their contribution to the group coffers, that would be pretty much it for SEA. So between Lazada, SEA, and Grab, I think SEA's fate is the most unpredictable. I'll still give this a miss even if it goes back to pre-covid prices.

[weijian]

I thought the top people (at least the finance folks) have done a good job (and on hindsight, a very good one) raising copious amount of capital via equity in 2020-2021. I observe most companies get the timing wrong and raise expensive capital via equity during downcycles.

Sea's secretive billionaire CEO opens up after 75% stock crash

[SINGAPORE] On Mar 7, Sea employees were starting their week when an email from chief executive officer (CEO) Forrest Li arrived. In the 900-word memo, the billionaire adopted a contrite tone, addressing head-on a US$150 billion plunge in his company's value since late 2021.

"This drop is painful, and you might be feeling frustrated, disheartened, or worried about Sea's future," the 44-year-old wrote in his email seen by Bloomberg News, sent companywide the first working day after Sea notched its third-biggest stock decline.

"Do not fear: we are in a strong position internally, and we are clear on our next steps. This is short-term pain that we have to endure to truly maximise our long-term potential."

https://www.businesstimes.com.sg/garage/...tock-crash

[CY09]

No doubt he was a genius for raising 6 billion in cash at the height of the tech boom.

Here is a discussion question, I will like to present to fellow members. Do you believe in the narrative that Forrest Li is telling the investing community and what is the value range do you forsee Sea to be in?

To me, I am unsure I have tried playing with scenario analysis and make believe total addressable market variables assuming Sea Money can be as large as DBS etc. And my position (views) on Sea is now in neutral territory where I am not overly critical of their cash burning ways nor too positive over any story told--> so hopefully it wont slant any views

The floor is open to reading members!

Let's put it out as a dicussion question.

[CY09]

https://cdn.sea.com/webmain/static/resou...esults.pdf

Its an absolute painful result. One thing that strikes me is how Shopee is growing but at escalating losses. In the last slide, revenue grew US$600 milllion, but losses grew by US$100 million. This only serves to tell me that shopee is expanding on negative margins, for every $1 revenue it grows, it loses $0.15 more. This is terrible management in my view.

Garena's profits are falling and its cash burn is gigantic about US$2.9 billion in 6 months. Sea's admin expenses (where employment expenses is parked) and share based compensation has grown a lot indicating it is paying a lot for employees and expanding. I think by end 2023, Sea will burn through its entire cash pile.