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 😉
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