SINGAPORE – Shopee-owner Sea swung back to a loss in the third quarter, hit by flagging consumption and intensifying competition from Alibaba and TikTok on its home turf.
The US-listed stock sank 22 per cent to US$35.87 per cent on Tuesday after the company posted a net loss of US$149 million (S$202.8 million), compared with a profit of US$322 million the previous quarter.
South-east Asia’s largest Internet firm reported a 4.9 per cent rise in sales from a year earlier to US$3.3 billion, versus the average estimate of US$3.2 billion.
The results may stoke concerns that the Singapore-based company is sacrificing margins to stave off a charge from ByteDance’s TikTok and Alibaba Group Holding’s Lazada, or newer entrants such as PDD Holdings’ Temu.
Sea plunged its most on record after founder Forrest Li declared in August his company will invest more in Shopee and live-streaming to counter those platforms, which are appealing to younger shoppers.
Till recently, Sea’s strongest markets including Indonesia seemed under siege from TikTok and a new breed of video-oriented shopping services, which used popular influencers to sell a range of wares to an engaged, growing online population.
But in September, Jakarta effectively forced TikTok to shut its shopping service, acting on a growing backlash from smaller merchants against the Chinese-owned platform.
Investors have been looking for clues since then on whether that abrupt exit will rekindle Sea.
Before Indonesia, the market feared the Singaporean company – which reported more than a decade of losses after its 2009 founding – will sink back into the red.
Compounding the situation are expectations that South-east Asia’s internet economy will log its slowest growth on record in 2023, the result of an economic downturn with uncertain outcomes.
Sea’s other big business, the gaming division centred around Garena, has shrunk rapidly in 2023 given a lack of new blockbuster titles.
But it recently restored its marquee title Free Fire to Indian app stores after a surprise 2022 ban.
Bloomberg Intelligence analyst Nathan Naidu noted that Sea’s marketing costs surged 12.4 per cent year on year in the third quarter, after declining for a fourth consecutive quarter in the second quarter, versus single-digit growth in gross merchandise value and revenue.
“Top-line growth should speed up in the fourth quarter on incentive and marketing spending to entice shoppers and live streamers, costs that could intensify as it regains lost market share and captures year-end shopping demand.” he said.
Mr Li’s company had overhauled its business to focus on profitability earlier in 2023.
Sea embarked on an aggressive cost-cutting drive to reach profit, pivoting to a focus on the bottom line as revenue growth decelerated from the triple-digit percentage rates it enjoyed as recently as two years ago.
The company froze salaries and slashed hundreds of millions of dollars in expenses to achieve positive cash flows.
To jumpstart growth, Mr Li said in August he intends to ramp up investments into Shopee.
He is stepping up efforts to build out its live-streaming arm, an offensive move that could erode margins and trigger a price war with TikTok and Alibaba. He argued that it was necessary to defend Shopee’s market share.
Beyond deep-pocketed competitors Alibaba and ByteDance, local rivals such as GoTo Group are also piling the pressure on Sea.
GoTo, owner of Indonesian e-commerce contender Tokopedia, almost doubled its net revenue during the June quarter. BLOOMBERG
