Shopee’s long and windy path to profitability has been a well-covered topic over the past years, including in Cube Pulse. After shifting between topline GMV growth and EBITDA profitability – but rarely both at once – the company has finally crossed an important milestone by achieving EBITDA profitability and healthy regional GMV growth in the third quarter of 2024. Furthermore, management indicates that this will continue.
This milestone comes after a year when Shopee has finally cracked its long-time conundrum of how to reach profitability without ceding e-commerce market share to competing platforms. That is because profitability has historically been inversely correlated to Shopee’s Sales & Marketing expense, the bulk of which is invested in consumer and seller subsidies that make Shopee more attractive than other e-commerce platforms.
Rising take-rate has unlocked Shopee’s EBITDA profitability
The solution has been Shopee’s take-rate, a term covering the various listing, payments, marketing, and logistics fees Shopee charges to its marketplace sellers. After years of slow take-rate growth, Shopee chose to materially increase its selling fees in most markets and categories in Southeast Asia from the first quarter of this year.
That gamble – which platforms in the past have refrained from due to the risk of losing upset sellers to competitors – seems to have paid off this time.
The first wave of take-rate increases on Shopee has since been followed by 1-2 additional waves in most markets, and we now estimate that Shopee’s average headline commissions have increased 3~4% over the last year. We now track this important metric on Cube’s Selling Fee Tracker.
Shopee’s take-rate gamble likely paid off for two reasons:
- Shopee has reached clear market leadership in most of its Southeast Asian core markets. While many sellers expressed frustration about the fee increases, very few have left the platform to sell elsewhere – because there are few good alternatives.
- Rather than keep the increased revenue, Shopee has chosen to reinvest the majority of the increased fees in platform subsidies and marketing. This means that most sellers have experienced healthy growth and a high level of promotion support on Shopee in 2024.
A recent Cube survey of 247 Shopee sellers in Indonesia corroborates this picture: While 86% of respondent sellers indicated having seen higher selling fees on Shopee versus last year, an impressive 93% indicated that their sales had grown in the last year.
Shopee’s next moves: Sustaining and growing profitability beyond Q3 2024
Markets are reacting positively to Shopee’s improved profitability. Parent Sea Ltd’s share price has tripled in 2024, buoyed in part by the e-commerce unit’s improved profitability.
So will Shopee continue to raise its take-rate? Probably, but in new and more subtle ways.
We believe Shopee is entering a new stage of take-rate growth, where increases in core selling fees will likely be very gradual, but where the company will increasingly turn its focus to on-platform advertising revenue growth. We also believe Shopee will continue to reinvest most of its revenue gains back into platform subsidies, in order to continue winning market share from competing platforms.
For sellers, this means that while Shopee’s selling fees have indeed risen sharply and will likely continue to rise in the future, a lot of this expense is underpinning robust platform sales growth – something that competitors like Lazada have not been able to deliver recently. On the whole, we expect most sellers to continue to complain about Shopee’s take-rate moves – but to stay nonetheless.
