Sea Ltd., the parent company of Southeast Asia’s largest e-commerce player Shopee, released results for the third quarter of 2023 last night.
This is the second quarterly earnings release since Shopee pivoted back from profit focus to topline growth focus after achieving its first profitable quarter in Q1-2023. Here are our main take-aways:
1. Shopee has managed to accelerate quarterly GMV growth, posting a quarter-on-quarter increase of 11.2%; this is a material improvement since last quarter where we estimate Shopee’s q-o-q GMV growth at just ~3%
2. This GMV growth has not fallen through to revenue where the quarter-on-quarter growth is only about 5%; this is not surprising given Shopee’s change in strategy earlier this year to defend its market share more aggressively, and immediately impacts profitability
3. Furthermore, it appears that the increase in GMV has come at a significant expense to Shopee; Sales & Marketing expense for the relevant business unit grew a whopping 99% versus the previous quarter to 862mn USD, indicating that each new GMV dollar cost ~21 cents in Sales & Marketing expense to generate
4. The market reaction to these latest quarterly results has been swift and punishing with the stock down -22% since yesterday – a cruel repetition of the reaction to last quarter’s results which sent the stock down more than -28%; the promise of future riches from market domination clearly does not weigh up against investors’ immediate concern for Shopee’s and Sea’s path to profitability
We believe Shopee will stay the course and maintain its commitment to topline growth and market share gains despite the share price punishment from investors. If the company’s leadership were to waver, it would have made more sense to do so a quarter ago.
This will be good news for both sellers and buyers on Shopee, as the company will likely continue to invest heavily in subsidies, promotions, and marketing to continue to distort growth. The investors, it seems, will just need to play along.
What do you think Shopee will do next?
