Shopee shuts India operations in second pullback this month

E-commerce and gaming firm Sea is shutting its Shopee business in India just months after starting operations there, the second pullback this month in its overseas expansion, as the loss-making company faces a weak growth outlook.

The withdrawal, which took effect yesterday, 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 their holdings in the Singapore-headquartered company.

But CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan said in a report yesterday 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, announced on Monday, could also help Shopee focus on growing its core markets, or even 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 rose 0.8 per cent on Monday to close at US$116.98 after the news.

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

Sea had said earlier this month that 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 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 lost 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 last year 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 fallen to US$64.76 billion as at this month.

Shopee India had recruited local sellers and launched a shopping website and app. However, India's fast-growing e-commerce market is 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 leave 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 this month that it does not transfer or store data of Indian users in China.

REUTERS

• With additional information from The Straits Times