Yesterday, Shopee’s parent Sea Group released its Q2 2024 results. The capital markets responded very positively, sending the share price up nearly 12%.
No doubt a solid set of results – digital financial services showed steady and robust growth; ecommerce performed well in GMV, take rate and profitability; and digital entertainment also stabilised.
A lot of analysts have published their detailed analyses, so we will not go into that. Instead, as usual, some of our thoughts:
- Undoubtedly, the competitive pressure Shopee faced in the first half of this year has significantly eased. A major reason was that TikTok Shop, aggressively over the past two years, started to focus heavily on ROI and profitability. Moreover, TikTok Shop’s adjustment period this time seems to be significantly longer than we had anticipated.
- In the Momentum Works Ecommerce in Southeast Asia 2024 report, we posed the question of what exactly is Shopee’s moat. Localisation of leadership, people and organisation, in-house logistics, government and business relationships, as well as digital financial services are all important. But how deep is this moat? That depends on the determination and endurance of competitors with deeper pockets and higher efficiency (e.g. Temu. TikTok Shop) to overcome these.
- Shopee has recently made many efforts to improve customer experience – for example, logistics efficiency. One significant advantage of having its own logistics is that all the data is transparent, allowing for more effective improvements in key areas that are aligned with the platform’s interests. This is a long process that requires concentrated effort.
- Shopee recently rebranded its logistics arm from ShopeeXpress to SPX Express. It’s unclear whether this is in response to Indonesian authorities’ concerns about platform monopolising logistics, or if they also hope to position SPX as an infrastructure service for other clients in the future.
- During the earnings call, analysts asked about two competitors: the South Korean ecommerce platform Coupang, which is burning cash in Taiwan, and Temu, which is seeking to expand its footprint in Southeast Asia. Sea Group management’s response was quite confident: B2C cross border is small in Southeast Asia, while stiff competition over a long time has driven prices down, such that Temu’s price advantage seen in Western markets doesn’t exist in Southeast Asia.
- Everyone is aware of these factors. The bosses of TikTok and Temu are smart, and their companies have deep pockets and strong organisational capabilities. TikTok Shop will likely still aim to increase its market share – they will not feel secure being market No 2; Temu will not give up on Southeast Asia. As for what they will do next, whether they will launch another aggressive attack or proceed to gain market share steadily, it depends on how the bosses (Mr Zhang and Mr Huang) think.
- Of course, we hope it’s the latter. Yesterday, Lazada revealed that it had achieved positive EBITDA. CEO James Dong mentioned that Lazada will “continue to increase active investment in the Southeast Asian market under a sustainable operating model.” If all the major platforms in Southeast Asia can compete on efficiency, supply chain, customer experience, and low prices – it will be far more interesting and sustainable.
Interestingly, after yesterday’s price surge, Sea Group’s market cap (US$43 billion) surpassed Coupang’s US$40 billion. However, the close proximity in market caps also indicates that the Korean market alone cannot satisfy Coupang. Besides attacking DeliveryHero in domestic food delivery, Coupang still needs to expand beyond Korea.
