Sea's Shopee to shut India operations in second pullback this month

The withdrawal, effective from March 29, comes weeks after India banned Sea's popular gaming app Free Fire. PHOTO: REUTERS

SINGAPORE (REUTERS) - E-commerce and gaming firm Sea said on Monday (March 28) it is shutting its Shopee business in India just months after starting operations there, the second pullback this month in an overseas expansion drive, as the loss-making firm faces a weak growth outlook.

The withdrawal, effective from March 29, comes weeks after its e-commerce arm Shopee said it was pulling out of France and after India banned Sea's popular gaming app Free Fire.

After the ban, the market value of New York-listed Sea dropped by US$16 billion (S$21.8 billion) in a single day, leading some investors to cut holdings in the Singapore-headquartered company.

But CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan said in a report on Tuesday that Shopee's exit from India should ease investor concerns over the group's significant cash burn, especially given that its funding source in the country - Free Fire - has been impacted. 

The exit could also help Shopee focus on growing its core markets, or potentially quicken its pace of narrowing losses in the coming quarters, they said. 

CGS-CIMB's target price for Sea has been kept at US$202, with an "add" recommendation.

Sea's shares in New York on Monday rose 0.8 per cent to close at US$116.98 after the news.

Shopee said in its statement on Monday that its withdrawal from the Indian market came "in view of global market uncertainties".

Sea earlier this month said revenue growth of its e-commerce business was expected to halve to around 76 per cent this year from a blistering 157 per cent in 2021, amid fewer online purchases and engagements as more countries emerge from the Covid-19 pandemic.

"Due to a drastic shift in the market sentiment towards growth stocks, all these e-commerce companies are under real pressure to at least break even as soon as possible," said LightStream Research equity analyst Oshadhi Kumarasiri, who publishes on the Smartkarma platform.

The company's shares had already dropped 11 per cent in January after Chinese tech giant Tencent announced it was selling 14.5 million shares in the group.

There is no clear evidence that the decision to withdraw from India is based on government pressure or other operational decisions, Citi analyst Alicia Yap said.

Shopee's India business began in October 2021 as part of an aggressive international push that saw it expand into Europe. Sea's market cap at the time was as much as US$200 billion. It has since dropped to US$64.76 billion in March 2022.

The local unit, Shopee India, recruited local sellers and launched a shopping website and app. India's fast-growing e-commerce market was already dominated by players such as Amazon.com and Walmart's Flipkart.

One person with direct knowledge of the company's thinking said Shopee's decision to exit from India was sparked in part by stricter regulatory scrutiny that saw Sea's gaming app Free Fire banned as part of a crackdown on companies allegedly sending data to servers in China.

Sea said earlier in March that it does not transfer or store data of Indian users in China.

• With additional information from The Straits Times

 

The person said Shopee had been planning to invest up to US$1 billion in India, and that the pullback would hurt Indian logistics firms with whom it had signed lucrative contracts.

The company, asked to comment on the figure, disputed the number as "not accurate" without giving details, saying "the decision regarding Shopee India has nothing to do with regulatory matters".

"We continue to work on addressing the situation with Free Fire in India," added the firm.

Reuters reported in February, citing sources, that the Singapore authorities had raised concerns to India over the ban, asking why Sea had been targeted.

E-commerce players face a strict regulatory environment in India. New Delhi has for years imposed restrictions to protect smaller brick-and-mortar retailers.

Offline retailers in India have often alleged foreign companies bypass regulations and offer deep discounts that hurt their business, allegations the companies deny. Shopee had in recent months faced boycott calls from such traders in India.

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