War Of Attrition Continues As Shopee’s Parent Firm Loses S$2.1 Billion

Another Godzilla movie is set to release later this month, but it looks like we’re seeing a pretty real monster battle in the Southeast Asian ecommerce market today.

Shopee’s parent company, Sea Ltd., recently released its financial results for 2020 and they make for interesting read.

Despite what you might have thought otherwise, with all the ongoing talk about how the Covid-19 pandemic is lifting digital businesses, the numbers aren’t so clear, at least by conventional standards.

Although Sea doubled its revenue, it also nearly doubled its costs and recorded its biggest ever loss of US $ 1.6 billion (S $ 2.1 billion).

Yet in this rather peculiar reality of the IT startup world, 2020 can be considered an exceptionally good year.

Sea against. Lazada

The company’s stock continued to rally, bringing its market capitalization to nearly US $ 120 billion today (briefly topping US $ 140 billion in February) – up from around US $ 25 billion this time around. last year and only US $ 5 billion in 2019.

In other words, $ 1,000 invested in Sea in early 2019 is now worth almost $ 24,000 today – all while the company continues to bleed money.

history of sea market capitalization
Image Credit: companiesmarketcap.com

A high valuation enabled it to raise more capital in the stock market, with an issue of US $ 2.6 billion in December, providing the funds needed to spend in 2021 to meet the company’s stated goal of doubling further. its e-commerce income (as it did in 2020).

This time around $ 4.5 billion, or 112 percent more than last year, as he announced in his statement.

He is also looking to use the funds to expand his financial services offering, having obtained a digital banking license in Singapore last year.

Shopee continues its stratospheric ascent, in just over five years of activity, leaving Lazada, owned by Alibaba, behind. But it is quite clear that while the Internet Rocket Child may be down, it is not out yet.

With a new CEO appointed in 2020 and the deep pockets offered by its Chinese parent company, the war is likely to escalate.

While Lazada hasn’t released separate results since his acquisition in 2016, he’s quite certain he too has to bleed when trying to keep up with his main rival.

In a corner of the ring we have the current market leader, able to raise significant funds thanks to his high market capitalization.

On the other side, we have a challenger backed by a Chinese money-making giant, who seeks to dominate his geographic backyard.

As a result, neither is currently at risk of running out of steam.

Their battle is for long-term dominance in a growing market of over 600 million increasingly affluent customers, so don’t expect towels to be thrown away in the near future.

Challenges the client must overcome

Despite its excellent results and clearly successful management, Sea Ltd. remains more exposed to external factors.

A stock market crash could limit its funding options (or make them relatively more expensive), and its current market cap of $ 120 billion to $ 140 billion appears inflated from Alibaba’s $ 635 billion or even $ 1.5 trillion. of US dollars from Amazon.

Sea is valued at between 8-10% of Amazon’s market cap, while its revenue is just 1%, nearly half of which comes from its digital entertainment arm Garena.

The stock market situation remains difficult to predict as governments around the world attempt to support economies through both fiscal and monetary measures, which have contributed to stock price inflation.

Whether these rallies continue or face a painful correction remains to be seen and no one is guessing, as we’ve never been in a situation like this.

Any volatility can hurt Sea more than Alibaba, and a major economic crisis could end up giving Lazada the upper hand.

It is also uncertain whether the pace of e-commerce growth – fueled by the pandemic in 2020 – will remain equally strong this year to allow Shopee to double its revenue again, as Sea Ltd. has announced. in his report.

Regardless of how these internal and external factors play out, it seems highly unlikely that the title will go fivefold in value for the third year in a row.

Sea’s market capitalization is more a vote of confidence from investors seeing its continued growth relative to its competitors, rather than a reflection of current results.

What does this mean for buyers and sellers of SEA?

Expect even more aggressive advertising, discounts, offers, shipping options, and commissions for all traders as the two giants continue to trade hits in the years to come.

Sea has so far been very successful in trying to establish itself as a local Southeast Asian brand, but for Alibaba dominating the region is of strategic importance.

It is quite natural for the Chinese company to want to control its closest neighborhood. It also needs visible success across national borders to prove to investors that it can succeed globally, and not just in China (a curse that plagues many Chinese companies).

The Covid-19 market rally has placed Sea’s market capitalization beyond any prospect of acquisition and the company can stand on its own.

In fact, he can use his capital to acquire smaller competitors and strengthen his position in e-commerce more quickly.

But if an economic crisis erupts, pushing stock prices lower, things could tip again and that could get on the radar of wealthier companies, just like how Lazada was taken over by Alibaba in 2016. Its acquisition for just $ 2 billion that year seems like pocket change today.

Right now, both companies can be expected to continue to bleed in hopes of being the last man standing.

In the meantime, everyone should take advantage of the shopping paradise of discounts and other incentives, used in the hope of settling this rivalry. Take advantage while it lasts – no business can lose billions every year forever.

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Jothi Venkat

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