It is all over the news as we speak:
SEA group (previously Garena) saw its losses in Q4 2017 widened to US$251.6 million; and President Nick Nash to leave the group by end of this year.
This triggered a whole wave of discussions, online and offline. Some of the Whatsapp groups we are in are finally revived, or finally seeing a conversation that is not about blockchain.
Again, we have been asked by many friends what our thoughts are. So here are a few points:
- The losses are expected – as Shopee continues to burn money for market share, the mounting loss should not be a surprise to anyone;
- The discussion should not be how big the loss is, it should be about whether SEA (in particular Shopee) is pursuing the right strategy – if it is right, the short term loss, albeit big, should be justified;
- And we think it is the right strategy for Shopee – because as a general platform, it needs to be among the top (two), or at the top, to stay relevant. With Alibaba pouring money into Shopee’s competitors, this is a cutthroat game – Shopee needs to be aggressive;
- However, being the right strategy does not guarantee it would be a successful one – there are many factors that could derail their plan: new regulations, macro environments, competition etc.
- IPO is a double edged sword – while giving the flexibility to raise public money (and issue debts etc.), it forces SEA to open many things to the public (Lazada and Tokopedia do not have to);
- however IPO was the most rational choice (if not the only choice) by SEA group, as getting money from private investors would be harder and harder;
- Alibaba could simply be waiting for SEA’s public investors to lose patience;
- Tencent, SEA’s biggest shareholder, is the wild card here: will they pour in more resources? Will they try to make SEA & JD.com (or SEA & GoJek) work together?
- Analysts who still argue that SEA is the Tencent of Southeast Asia clearly do not understand Tencent (beyond annual reports & other financial statements); they should be fired;
- Read this old article from Bloomberg, which is better than many that are in the financial news;
- Right time for Nick Nash to move on; he has been there for a while, and he has completed the IPO – incremental career benefits for him to stay on are insignificant;
Well, that’s all for now. You are welcome to share your thoughts with us, and tell us why we are wrong 😉
—
Thanks for reading The Low Down, insight and inside knowledge from the team at Momentum Works. If you’d like to get in touch with us about any issues discussed in our blog, please drop us an email at [email protected] and let us know how we can help.
