Last night (4 March), Sea group published their 2023 Q4 and FY results, announcing its first profitable year. The market had mixed feelings – stock price fluctuated the first trading day post-results, and eventually closed with a 5% increase in share prices. 

During the earnings call, Sea executives reiterated the group’s dedication to deepening its moat in the region to maintain its position as a market leader in the region. But what exactly is its moat?

Join us in this latest episode as we delve into Sea Group’s latest financial results, investor reactions, and explore the rationale behind Shopee’s confidence in its guidance of a high teens growth rate, even in the ever-changing ecommerce landscape in the region.

Tune into the full episode here:

Also available on Apple Podcasts.

Featured materials:

Ecommerce in Southeast Asia 2023, Momentum Works

The TikTok Shop Playbook, Momentum Works

Temu has entered Southeast Asia, challenging Shopee, Lazada & TikTok Shop, TheLowDown

Will TikTok Shop overtake Shopee? TheLowDown

Apples to Apples: Benchmarking tech platforms, Momentum Works

[AI-generated transcript]

[00:00:00] Sabrina

Hello everyone. And welcome to the Impulso podcast. On today’s episode, we are going to be talking about Sea Group’s latest financial results for Q4 and 2023. So, last night, Sea Group actually released their Q4 as well as full year 2023 results. And, of course, the market reacted quite violently, right?

The stocks first went up by about 13%, then down about 14%, and then up again by five percent. So I think this shows that the market has some.


[00:00:31] Jianggan

Doubts, ambivalence. So…


[00:00:33] Sabrina

Some people are a little more optimistic. Some not as much. 


[00:00:37] Jianggan

I think lots of people use this opportunity to sell as well. The stock I think pre market was going up like 11, 12 percent and when it opened, it quickly jumped to like 13.

6%. Then those dived to the negative territory and close today 5. 8 percent up. What I think is also interesting is the turnover rate, right? It’s the number of shares exchanging hands versus the total number of shares outstanding. That’s 6. 1%. So yesterday was very, very active in trading for Sea Groups shares.

So this is quite interesting. 


[00:01:07] Sabrina

So why do you think the market reacted this way? And what do you think of their latest results?


[00:01:12] Jianggan

I think that the results are positive. I think, I mean, take a step back. If you look at Q3 2023, my all these numbers become annoying to me, . So we look at the previous quarter results and you would see that they were spending a lot on sales and marketing.

I think it’s 900 something million dollars. 


[00:01:31] Sabrina

It was about an 86% increase. It’s from Q2 


[00:01:35] Jianggan

From Q2 and that generated about 5 percent year on year GMV growth which kind of shocked the market. Right. And that’s when the market was deeply worried about, Hey, are you able to compete effectively against TikTok shop?

And this time this spent, I think about the same amount, a little bit more on sales and marketing 936 million or something,


[00:01:55] Sabrina

5 percent growth. from Q3. 


[00:01:57] Jianggan

5 percent growth, but they generate a GMV growth of 29%, which is actually quite significant. So of course, I think the market is kind of pleasantly surprised that all they’re sort of like the pressing on a gas pedal in Q4, maybe after some adjustment from the test in Q3 are generating results to company’s it’s growth in e commerce and of course the other businesses and the digital entertainment class financial services together actually putting the company back to the black, right? I mean, the whole company’s net income positive. 


[00:02:29] Sabrina

Not for this quarter, but for the year, yes. 


[00:02:32] Jianggan

For the year is the net income positive.

So overall, I think it’s still, the results are still decent, right? They also talked quite a bit about their digital financial services and during the Q&A A part of the earnings call. I think in the press release of the earnings, they also mentioned that their total loan book size is now 3. 1 billion including 0. 6 billion from other sources, basically leverage. Right? So overall, I think the business, if you look at it stand alone, it looks okay. 


[00:02:59] Sabrina

And I think one, something that I heard a lot during the questions is, I think people asked a lot about the competitive scene in the region.

Right. And of course, I think I’m sure people are wondering was their GMV growth in Q4 attributed to the fact that TikTok shop was banned in Indonesia and they were also a little more cautious in the other countries because of these bans, right.


[00:03:22] Jianggan

I think in Q4, we how do I say that? So our impression based on sort of speaking with lots of people on the ground over the past two years, is that most of the growth of I’m sorry, most of the GMV that Tiktok Shop is able to accumulate was the growth that Shopee would have otherwise attempt . I mean, TikTok shop had not at sort of attacked the core of Shopee, the existing stock of of customers and demand volume. So in Q4, we all know that during the first week of October . TikTok shop went offline in Indonesia until the 22nd of December. Sorry, 12th of December, I think, most part of Q4, and because of this ban in Indonesia. Became a bit careful about spending subsidies and stuff in other markets because they were afraid that the ban in Indonesia would encourage other governments to do something similar.

So they become quite modest in terms of growth in other markets as well. So I think that gave opportunity to Shopee to reclaim some of the growth that they would have otherwise, being sort of seized by TikTok Shop. So I do think there’s an effect there.

By how much is very, very hard to tell. Because we spoke with quite a number of people on the ground. so of course, some of the live sellers, because they couldn’t sell on TikTok shop, they went to Shopee. So that obviously contribute to part of the growth. But whether that will persist I’m not sure.


[00:04:38] Sabrina

We also saw their live streaming grew a bit, right? I think during the earnings call, he said that 15 percent of orders came from live streaming across the region. And it was even bigger in Indonesia. So do you think this is something that Shopee would focus a little bit more on in 2024 as they compete with TikTok shop?


[00:04:57] Jianggan

That’s actually one of my worries as well, because obviously, especially in Q3, Shopee had to spend a lot of time sort of subsidizing and promoting live streaming. The way they do it, it seems that they are directly competing against TikTok shop in live streaming. But there’s a sense that no matter how much they invest in terms of technology, in terms of algorithms, in terms of the active user base, which are already on a platform.

So they will not be able to compete against the Tiktok Shop effectively. So the question is that whether it was right for them to invest so much in live streaming, whether they should, you do something which is not their strength against the strength of a major competitor. So that’s a big question mark.

And I think they are still promoting live streaming, but I think every investor who I’ve spoken to who have tracked very closely of the e commerce development in China over the last few years would tell you that if you do live streaming the same way that TikTok or Douyin does it, it’s very hard for you to beat them.


[00:05:54] Sabrina

I think this brings us to our next point, which is very good. It’s what is Shopee’s real strength or moat ? Because you’ve mentioned it’s that probably not live streaming, right? The way they do it would never compare to TikTok shop. So what do you think would be their moat moving forward? 


[00:06:10] Jianggan

I think today is just a casual comment.

And I think Gosh, we’re so busy nowadays, but let’s try to maybe organize a briefing sometime in Q2, where we can talk about this in a more systematic way but I think Chris and Forrest basically talked about that during the earnings call, right?

I mean, Chris mentioned about, okay, we have the logistics, we have the executives on the ground, everybody learned Bahasa to be operating effectively in Indonesia. They have been focusing so much on customer experience all these things how much do they matter?

And how much do they actually contribute to an active moat? So I think it’s evolving because if you look at the whole journey of TikTok shop, right, when it first came to Southeast Asia, people were saying that, oh, They don’t know how to do e commerce.

They don’t do it seriously. And then the last year, I mean, after like a significant growth, I mean, the whole management went to the U. S. to focus on U. S. market. Then there was a narrative saying that, oh, TikTok doesn’t focus on Southeast Asia anymore, but it was still growing. Then there was narrative saying that, oh, the growth was left to left tenants operating the markets.

They don’t know the market. That’s why. You see the bang in Indonesia happened, right? They completely didn’t have engagement with the government to understand what are concerns that the government and other stakeholders had with TikTok Shop growing so fast. But then they were able to very quickly revert this by going into a deal with GoTo by effectively taking control of Tokopedia.

And now, if you think about it in Indonesia. They become the top player. If you combine the volume of Tokopedia and the pre-ban TikTok shop, they’re actually bigger than Shopee in Indonesia. 


[00:07:44] Sabrina

Yeah. I think in our previous e-commerce report, we said Shopee’s market share in Indonesia was about 36%, and Tokopedia was 35%.


[00:07:52] Jianggan

That was in 2022. 


[00:07:54] Sabrina

That’s in about, I think July, 2023 .


[00:07:57] Jianggan

Okay. So basically the volume in Indonesia, Tokopedia and the Shopee were very similar and Tokopedia was declining, but but the TikTok shops growth was more than the decline of Tokopedia. So if we combine the two together it could be actually bigger than Shopee.


[00:08:13] Sabrina

They could be the market leader in Indonesia now. 


[00:08:15] Jianggan

And also they recently said that they will be fully compliant with government rules by April. I do think that there will still be a little bit sort of cautious about stepping on a pedal and they are probably taking a little bit more long term view, but if they grow like more sustainably that could be a bigger 

 So by Shopee’s moat. I do think logistics, I do think the digital financial services. I do think the fact that they have local management and everything adds up together. So, but the question is that, how do you place all these elements in kind of like, you know, synchronized and also sort of harmonized away so that they actually form a moat together.

I mean, just 1 element of this alone will probably not be enough, but we have multiple elements. They can so act in harmony and move towards a certain direction, but there can also be destruction to each other. So that really depends on the, the leadership of Shopee and Sea Group in general.


[00:09:12] Sabrina

But I think now that Shopee is, I mean, they’ve had their first profitable year and they do have a relatively strong cash position, I think that they can spend a little more time and effort into building up these modes 


[00:09:24] Jianggan

So they’re not in danger any time like immediate But then if you look at the situation in china, right alibaba is not in any kind of danger immediately But they see the problem they see the decline and they need to fix the problem quickly.

I do think internally that the Shopee and Sea Group are making lots of adjustments to respond to this formidable, competitor And I think the problem is that they don’t really know what TikTok or ByteDance leadership is really thinking about and that thinking might involve as well.

 So when you are facing a competitor, which of course you have like 8 billion cash, right? But if you believe in financial times Bytedance generated what 25 billion EBITDA in China so they have cash, they have this cash generation machine in China, which is fueling all their growth.

And unless that machine is imperiled in any way in China, which, I mean, could be possible, but I don’t think the government in China wants to do any more crack down to the market at this juncture. So they do have the firepower, and if you compete purely on cash, I don’t think Shopee can win this game.

 So the question is that, I mean, is for Shopee to analyze, okay, all the strength they have, local management, logistic capabilities, the best fintech or best digital financial services in Southeast Asia, how do you make everything work together to defend against TikTok?


[00:10:42] Sabrina

I think, I mean, you mentioned they don’t know what TikTok Shop will do, right?

During the earnings call, Chris said, we can’t control our competitors. Nobody knows if TikTok shop even wants to continue focusing on Southeast Asia or if they’ll redirect their efforts towards the US. But despite this, even in their earnings call, Shopee gave pretty clear guidance for high teams growth rate.

So why do you think they are so clear on this guidance, even though they’re not very sure how macro environment would change?


[00:11:11] Jianggan

I think they can control what they can control, right? So between Q3 and Q4, they probably optimized their marketing spending a lot. They probably optimized the team a little bit.

And I think digital financial services is growing well. I think payment has been I mean, so, so Shopee Pay has been turned around. So there are some positive signs which they can look at it to say that, okay, if we follow this trajectory, what can we do based on the resources and cash we have?

But here’s the question. So if I don’t know what my strong competitor is thinking about, I’m not sure. I might be a bit vague about my guidance because, I mean, telling people this is what I expect, no, telling my competitor this is what I expect, and I don’t know what kind of reaction that will elicit from my competitor.


[00:11:54] Sabrina

Maybe they’re telling their competitor, this is what we are going to do. 


[00:11:57] Jianggan

Yeah. And if their competitors are really annoyed by Shopee, especially if they believe that Shopee is behind the ban that happened in Indonesia, which I’m sure that GoTo Tokopedia leadership would probably try to, you know, position it this way because now they’re allies with the TikTok shop, right?

 So there has to be a bad guy. So then, I mean, if I were in TikTok leadership, I would say, okay, here’s the guidance and I’ll make sure it doesn’t happen. But of course, I mean, these are rational business people, so they will not think based on the wind, right?

 But it’s not out of pettiness. But if Shopee shows the TikTok shop that should the whole world is what we’re expecting. While you don’t know what your competitor is planning. I think it’s a tricky situation here. 


[00:12:40] Sabrina

Do you think they’re trying to show that they already have a strategy in mind?

It doesn’t matter what their competitors do. They have a strategy. They want to build their moat and that’s why they can be so confident about this guidance. 


[00:12:54] Jianggan

I do think , this market is different from the market that Grab is in. Well, Grab is absolutely dominating and they have weak competitors.

In most cases Shopee is different, right? They are facing a very strong competitor. And then there is this Temu which is in the two countries in the region, but the Philippines and Malaysia, but they are not spending any effort doing active promotion. There are sort of rumors in the market saying that after the Superbowl this february, the U. S. growth is not as fast as last year, but it’s kind of expected to which extent when their growth becomes a bit slow in in the Western markets that they were said, okay, maybe now it’s time for us to look at Southeast Asia because the ROI I mean, now it makes sense compared to previously where is much lower compared to the Europe.

So I don’t think Shopee has taken Temu seriously enough. I do think Lazada takes them seriously. They take them very seriously. So you see this divergence of strategy, right? I mean, previously Lazada was trying to compete against Shopee. And for a while they were trying to reclaim market number one.

But now I think Lazada has given up on that. They want to look at, I mean, the supply chain. They spend a lot of time together with the Alibaba international digital group, a sort of digital commerce group. They look at how can they build the Supply Chain capabilities that the Temu has in China. So you see the divergence in strategy.

Then increasingly Shopee will be fighting a lone battle, which is probably good for them because I mean, there are a bunch of smart people and if you are faced with no choice but to fight on and who knows what kind of potential that can unleash. 


[00:14:32] Sabrina

I think a lot of interesting things are happening in the e commerce space in the region, right?

Maybe we should update our report soon. Sometime this year we will. 


[00:14:41] Jianggan

No, we will. We will. So I think e commerce in Southeast Asia, right? The last time we did it was August, 2023. Yeah, it was July or August. Yeah, then, then we updated the market share predictions for 2023 based on the TikTok ban. And of course, now things have become very different.

Yeah, we should do that. The thing is that this month the whole team is busy with the China Immersion Program, which is now oversubscribed. But yeah, but we should look into it. 

 Sorry, one more point. I think you’ve read the transcript for the earnings call.

I’ve read transcripts and done by, I think, a few different parties and essentially nobody was able to notice that actually Chris Feng was there. Chris Feng was actually speaking, answering questions and every comment that was the male voice was attributed to Forrest Li across different transcription platforms.

So I’m just curious whether it was because I mean, these people, I mean, the transcribers are not familiar with the quiz or. Or because they were using AI. I don’t know. But then you look at the Grab, right? 


[00:15:43] Sabrina

Maybe they couldn’t tell the accents apart.


[00:15:45] Jianggan

Oh, right. I don’t know, we know these people, I mean, we have heard these people like multiple times.

Their accents are quite different. The way of speaking is quite different. And the filler words they use are quite different as well. But this transcription services can tell the Grab earnings call quite well. I mean, who is Anthony Tan? When is Anthony Tan speaking? When was like Alex Hungate speaking?

When is Peter Oey, the CFO speaking? But it seems that for Shopee, even though I think Shopee is probably better researched by investors and it seems people are still not that familiar with the Chris Feng. Let’s just end it though.


[00:16:17] Sabrina

So thank you guys for tuning in to another episode of the Impulso podcast.

We hope that you guys enjoyed today’s episode. If you do like our podcast and follow us on Spotify, Apple podcast, or your preferred podcast platform to stay up to date on the latest happenings and trends in tech, new retail, and the broad digital economy.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].