Sea Limited: Best Contrarian Opportunity For The E-Commerce Leader

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This article was first posted successful Outperforming nan Market connected January 13, 2023.

Investment thesis

With misunderstanding and uncertainty comes opportunity.

I deliberation that Sea Limited's (NYSE:SE) valuation reflects uncertainty. Based connected nan statement estimates connected Bloomberg, Sea Limited is now trading astatine 45x FY2024 EBITDA. This is for a institution pinch starring positions successful gaming, e-commerce and fintech successful nan markets that it operates in. This is for a institution that is lazer focused connected costs cutting and turning EBITDA affirmative connected its e-commerce business. This is for a institution that is still expected to turn astatine a double-digit gross maturation successful nan mean to longer term.

I don't deliberation that investors are pricing successful nan afloat imaginable for Sea Limited's e-commerce business, Shopee. Its e-commerce limb continues to stay nan leader successful its halfway markets and has captured apical mind stock successful customers successful nan region arsenic a consequence of its beardown worth proposition to customers. In addition, Shopee's competitors successful nan region, arsenic analyzed below, are not arsenic competitory arsenic Shopee continues to summation marketplace stock successful nan region.

In an earlier heavy dive article into Sea Limited, I shared pinch members of Outperforming nan Market astir nan immense opportunities nan 3 segments of nan institution (Garena, Shopee and SeaMoney) will bring successful nan semipermanent and really nan company's beaten down banal has reached a valuation that makes consciousness for investors to participate today. While addressing nan members questions connected Sea Limited, I realized that location were galore misconceptions and liking successful Sea Limited's Shopee. As such, successful this article, I purpose to stock pinch readers much astir nan fundamentals of Shopee, really it compares pinch section competitors successful nan marketplace and what Shopee's early looks like.

I person written earlier Sea Limited articles, wherever I stock my heavy dive investigation into Garena here, and why Sea Limited's Garena and SeaMoney are weighted astatine zero astatine existent valuations here.

Deep dive into e-commerce (Shopee)

Brief preamble and history of Shopee

As shared earlier, Shopee is Sea Limited's e-commerce platform. The history of Shopee is comparatively short fixed that it was first launched successful Southeast Asia and Taiwan successful 2015. The e-commerce level past made its measurement into Brazil successful 2019. Subsequently, nan institution moreover expanded its Shopee level to caller markets successful Latin America for illustration Mexico, Chile and Colombia and to Poland and Spain arsenic well. However, nan halfway Shopee markets coming are Southeast Asia and Taiwan, arsenic good arsenic Brazil, arsenic Shopee exited markets which it deemed unprofitable successful 2022 to sphere superior arsenic nan marketplace conditions started to change. This will beryllium discussed further successful a later conception successful this article.

Shopee's business model

Shopee was 1 of nan first fewer e-commerce players successful Southeast Asia successful nan early days of its operating history successful 2015 and gradually emerged arsenic a starring subordinate successful nan region arsenic a consequence of a beardown worth adhd to some customers and sellers.

Value proposition for customers

The first worth proposition, and a comparatively elemental one, was that Shopee's attack of gamifying nan acquisition of e-commerce and online shopping brought a societal constituent to nan e-commerce level that others were incapable to replicate. By having customers triumph coupons, play games to triumph rewards and get rewards for logging successful daily, nan level was capable to build a beardown societal constituent and it became not conscionable a level to these customers, but besides a bully experience. As a consequence of gamifying nan acquisition of shopping online, nan institution really managed to bring greater postulation to its platform, summation personification engagement and it resulted successful much e-commerce income and larger handbasket sizes.

The 2nd worth proposition is arsenic important arsenic customers are yet uncovering nan lowest prices for equipment they wish to bargain and nan champion discounts disposable successful nan market. As a consequence of promotional and trading events for illustration nan 12.12 sale, customers tin get outsized deals and cashbacks done shopping connected Shopee.

The 3rd worth proposition is that customers, arsenic buyers connected nan e-commerce level are protected and nan level is secure. It was very important successful nan early days of Shopee to show that it could supply a unafraid and safe shopping situation for buyers. Especially successful nan early days erstwhile not everything was bought online aliases not everyone has had nan acquisition of utilizing an e-commerce platform, location was a request to guarantee buyers that nan sellers are legitimate, their equipment are arsenic advertised and that location are nary frauds aliases misrepresentation connected Shopee. Features connected Shopee for illustration seller verification helped to make judge that nan sellers connected nan Shopee level person been verified and are taxable to definite position and conditions connected signing up to beryllium a seller. In addition, Shopee does an automated surface based connected nan merchandise categories, names and descriptions to place inappropriate aliases forbidden items and nan listings that are deemed to beryllium inappropriate aliases precocious consequence are removed from nan level until cleared by nan teams successful Shopee. There are different features for illustration Shopee Guarantee, which holds payments made by buyers until nan ordered products person been deemed received by nan buyer. This will surely thief trim colony consequence arsenic buyers tin past beryllium assured that their costs will only spell done if they person nan items that they person bought. Lastly, if each other fails, Shopee has a decent dispute resolution squad that helps to guarantee that buyers aliases sellers tin person a due measurement to resoluteness disputes and activity compensation if necessary.

The 4th worth proposition is simply a subtle one, but Shopee is centered astir mobile devices, and enabled e-commerce shopping to beryllium done connected nan go. This is pertinent arsenic customers were progressively moving from nan PC to their mobile devices arsenic customers started utilizing their mobile devices for much and much applications.

Last but not least, nan last worth proposition that makes customers for illustration Shopee is nan beardown costs and logistics infrastructure that enables seamless costs and speedy and reliable deliveries. For Shopee payments, arsenic highlighted above, they are protected by Shopee Guarantee, which will guarantee that buyers get their items earlier nan costs goes done to sellers. In position of costs types, location are a wide assortment of costs options, including in installments cards, slope transfers aliases mobile wallet services. Most of nan transactions connected Shopee person been integrated pinch nan Shopee Pay, which is SeaMoney's costs infrastructure, and this is nan lawsuit for astir of its halfway markets. For Shopee, processing nan cardinal logistics infrastructure was cardinal to processing e-commerce successful Southeast Asia and Taiwan arsenic these are markets pinch difficult to entree terrain and underdeveloped infrastructure. Shopee useful pinch nan largest and astir reliable logistics work providers successful its respective markets and are usually capable to get little rates and amended position pinch these logistics work providers arsenic a consequence of Shopee's ample standard of transactions. The buyers and sellers are besides capable to way nan transportation position of their purchased items, which provides added assurance for e-commerce transactions.

Value proposition for sellers

The first worth proposition for sellers has to beryllium nan beardown support that Shopee provides sellers. An e-commerce level is only arsenic bully arsenic nan assortment and value of its seller base. This is apt why Shopee provides beardown support to sellers arsenic it has a ample squad of unit pinch section knowledge that provides speedy and localized assistance to sellers erstwhile necessary.

The 2nd worth proposition is that Shopee provides sellers pinch a one-stop solution for trading needs, including an integrated costs system, logistics and fulfillment services. Although Shopee does not require its sellers to usage its logistics work providers, astir of its sellers take to usage them owed to nan bully pricing and reliable work value of these providers.

Lastly and possibly astir importantly, Shopee has a ample and fast-growing personification guidelines that sellers tin waste to. This is undoubtedly 1 of nan top incentives for sellers arsenic they tin past person a larger marketplace to waste to and a larger addressable market.

Scalability of nan marketplace business model

Shopee has been hugely successful successful scaling up arsenic a marketplace level for reasons highlighted above. It provided buyers pinch a reliable, societal and nosy e-commerce acquisition while sellers are fixed beardown support arsenic Shopee provides one-stop solutions for sellers. That said, nan marketplace business exemplary was nan cardinal successful ensuring that nan business is highly scalable.

Another logic for nan accelerated scaling of Shopee is nan societal and gamification elements that enabled Shopee to get and clasp users better, and summation their clip spent connected nan platform.

As a result, successful 2021, Shopee was nan largest e-commerce level successful Southeast Asia and Taiwan, and it is besides gaining traction successful Brazil.

Success successful trading and promotional activities

Shopee started to summation marque consciousness done its campaigns each month, for illustration nan 11.11 Big Sale and 12.12 Birthday Sale. As a consequence of nan promotional activities connected these typical days successful nan month, buyers are apt to flock to Shopee during these typical promotional events to get larger discounts and prevention money connected their e-commerce purchases. As a result, they subordinate these dates pinch Shopee and ample discounts and savings.

Success successful these trading and promotional campaigns person led to GMV and marketplace stock maturation and helped summation nan mind stock of Shopee successful nan buyers successful its halfway markets.

Monetization opportunities

As Shopee continues to turn successful scale, pinch nan sticky quality of its users owed to its societal and gamification features, nan institution tin look to monetize this ample Shopee personification base. While nan institution is focused connected marketplace stock maturation and GMV astatine nan moment, arsenic nan level continues to scale, I deliberation that we will spot Shopee connection sellers paid advertizing services, complaint transaction-based fees and complaint for much value-added services. These are immoderate ways successful which Shopee tin proceed to monetize nan ample and engaged personification guidelines that it has connected nan platform.

Expansion into caller markets

Shopee started its operations successful Southeast Asia and Taiwan and later, Brazil. In 2021, Shopee looked to grow its occurrence beyond these markets and move to different markets, which included markets successful Europe, India, and different markets successful Latin America. It was not meant to beryllium for Shopee's world description strategy, arsenic I person highlighted successful my Sea Limited article, arsenic nan institution started exiting markets which it deems non-core to sphere superior and Shopee dipped its toes into nan India market, a ample marketplace pinch reliable competitors successful March 2021, and pinch nan occurrence of Free Fire successful India, saw India arsenic a imaginable marketplace for its e-commerce business. However, fixed nan prohibition of Free Fire arsenic highlighted successful portion 1 of my heavy dive series, nan institution yet realized that location were precocious regulatory and authorities risks successful entering nan India market. As a result, successful March of 2022, nan institution exited India and fixed nan comparatively early shape of nan operations successful India and nan cautious description successful nan country, location was a comparatively constricted effect to existent Shopee business. The effect came from nan nonaccomplishment of a ample and fast-growing addressable marketplace arsenic a consequence of exiting from India.

Shopee aggressively expanded successful Europe arsenic it entered France, Spain and Poland successful 2021. However, successful March 2022 and June 2022, Shopee exited France and Spain respectively. As nan institution was successful France and Spain for a comparatively short play of time, during nan preliminary aviator shape of operations successful some countries, Shopee decided to beryllium prudent and disciplined successful expanding into caller markets and only put resources into a marketplace which it thinks that it tin compete meaningfully successful nan long-term.

While Shopee saw beardown traction successful Brazil based connected information from, suggesting that nan institution is classed first by mean monthly progressive users successful nan Shopping class successful Brazil, nan institution tried to replicate its e-commerce strategy successful different Latin America markets, which resulted successful expanding into Mexico, Chile and Colombia successful 2021. In 2022, arsenic a consequence of expanding world macro uncertainty, Shopee needed to attraction its operations connected halfway markets and decided that they will usage a transverse separator exemplary successful Mexico, Colombia and Chile, downsizing its operations location to cross separator operations.

Shopee rationalization efforts

Shopee rationalization efforts (Author generated)

In my view, nan determination to exit markets successful which it has not yet had a heavy and beardown beingness successful earlier nan move of nan tides is simply a bully move by guidance arsenic that enabled nan preservation of superior successful early 2022 and prevented nan institution from needing much money to money description into caller markets. In particular, nan exit from India was a awesome 1 successful my position arsenic nan e-commerce marketplace successful India is saturated and highly competitive, pinch players for illustration Amazon (AMZN), Meesho and Flipkart competing pinch Shopee. The rate pain needed to make Shopee a occurrence successful India would not person been imaginable fixed nan simplification of liquidity successful nan later portion of 2022 arsenic nan superior markets started to consciousness nan jitters of higher liking rates and nan imaginable of a recession. I deliberation that nan expertise to exit markets to guarantee nan semipermanent sustainability of nan business and grow into caller markets prudently gives maine much assurance successful nan guidance of Shopee.

Shopee operational metrics

Shopee saw immense maturation successful 2021 arsenic nan pandemic helped to substance nan maturation and take of e-commerce successful Shopee's cardinal markets. With activity restrictions and lockdowns, consumers needed to get equipment and shop online. The beardown maturation fueled by nan pandemic is apt to origin a precocious guidelines effect successful 2022 arsenic consumers spell backmost to activity and schoolhouse and are capable to bargain from brick-and-mortar stores. That said, nan inclination that nan pandemic accelerated will apt enactment successful nan early and nan pandemic brought a nett affirmative effect to summation nan penetration of e-commerce successful Shopee's cardinal markets. As a result, successful 2023, we are apt to thigh that precocious guidelines effect and I americium of nan sentiment that Shopee tin reaccelerate its maturation successful halfway markets and proceed to summation penetration successful these markets.

Shopee operational metrics

Shopee operational metrics (Author generated)

Shopee competitory landscape

While Shopee is simply a leader successful nan Southeast Asia and Taiwan markets, location are different players vying for marketplace stock successful these regions. In particular, Alibaba's (BABA) Lazada has been operating successful nan region since 2012. Despite its longer operating history and backing from Alibaba, nan institution continued to way down Shopee. In my opinion, this is because of nan societal and gaming constituent that Shopee has brought into its level that brought higher personification engagement and thus, it attracts and retains users connected nan level better. Also, nan trading and promotional campaigns launched by Shopee look to person created amended mind stock successful its halfway markets of Southeast Asia and Taiwan astatine least, resulting successful amended capacity successful income events and trading and promotional campaigns. Lastly, nan level that is amended capable to supply buyers pinch nan champion discounts and savings, arsenic good arsenic a amended personification acquisition will yet person nan larger progressive personification base. As a consequence of efforts by Shopee to protect buyers and ample discounts connected nan platform, Shopee has been capable to get amended mind stock from customers and consequence successful amended marketplace stock successful nan region. This results successful a alert instrumentality effect arsenic nan larger purchaser personification guidelines attracts much sellers connected nan Shopee platform, which brings astir amended deals and much assortment connected nan Shopee level compared to Lazada.

In Lazada's fiscal twelvemonth of 2021 ending connected March 31st, nan institution reported revenues of $556,000, down much than 65% from 2020 erstwhile it recorded $1.6 cardinal successful revenue. In 1Q21 alone, Shopee recorded revenues of $922 million.

Lazada recorded $21 billion successful GMV successful 2021 while Shopee recorded $63 billion GMV successful 2021, implying that arsenic of nan afloat twelvemonth of 2021, Shopee's e-commerce business seems to beryllium almost 3 times larger than that of Lazada.

This goes to show nan beardown marketplace stock summation that Shopee has been experiencing, astatine nan disbursal of Lazada, and really Shopee is capable to compete and summation stock successful nan competitory landscape.

Tokopedia is different institution that competes successful nan e-commerce space, but pinch a larger attraction connected Indonesia. Tokopedia merged pinch Gojek, which resulted successful nan mixed entity being called GoTo Group. With nan ample organization and accelerated maturation floor plan of nan Indonesia market, nan threat of GoTo Group successful Indonesia remains relevant. In 2021, GoTo Group recorded 6,264 cardinal Indonesian Rupiah successful revenues, which translates to astir $401 cardinal successful revenues for nan year. This compares to nan $5.2 cardinal successful revenues that Shopee generated successful 2021. As a result, Shopee is almost 13 times larger than GoTo Group's e-commerce operations. The larger standard does bring benefits for illustration economies of scale, amended portion economics and attracting much buyers and sellers to nan platform. At nan extremity of nan day, Shopee needs to proceed to guarantee that it remains applicable and charismatic successful Indonesia by continuing to amended personification acquisition and bring invention that adds worth to some buyers and sellers.

In its existing markets, arsenic tin beryllium seen below, Shopee has a standard advantage arsenic it is importantly larger than that of Lazada's aliases GoTo's revenues. This implies that Shopee's marketplace stock by gross is astatine slightest 9 times much than Lazada and Shopee's marketplace stock by gross is almost 13 times much than GoTo Group. The competitory scenery successful Shopee's halfway markets does look favorable fixed nan large-scale benefits that Shopee tin bask pinch its marketplace stock successful these markets. In addition, Shopee continues to beryllium capable to compete meaningfully and summation stock successful these markets arsenic it looks to break moreover successful nan Southeast Asia and Taiwan markets.

Major e-commerce companies revenues comparative to Shopee

Major e-commerce companies revenues comparative to Shopee (Author generated)

The world e-commerce marketplace is becoming very competitive, successful my view. The largest e-commerce player, Amazon, continues to look to grow internationally and remains a well-capitalized subordinate pinch beardown branding. Other players successful circumstantial markets for illustration MercadoLibre (MELI) successful Latin America and Coupang (CPNG) successful South Korea are good established players successful their ain respective markets. As a result, world description for Shopee needs to beryllium done prudently successful markets successful which it tin compete and adds beardown worth to. While I deliberation that Shopee whitethorn grow to world markets successful nan long-term, nan near-term extremity is still turning profitable, focusing connected halfway markets and ensuring sustainability of nan business.


As highlighted before, Sea Limited is now trading astatine 45x FY2024 EBITDA. Considering nan important EBITDA description to travel arsenic a consequence of a leaner costs building arsenic a consequence of its costs optimization initiatives and improving economies of standard arsenic nan business grows, I deliberation that we will apt spot a very beardown play of EBITDA maturation successful nan near-term.

To worth Sea Limited, I usage a sum of nan parts model. I presume Garena to beryllium weighted astatine 11x FY2024 P/E, Shopee to beryllium weighted astatine 3x FY 2024 P/S and SeaMoney to beryllium weighted astatine 4x FY2024 P/S.

My 1-year target value for Sea Limited is frankincense $94.51. This implies 41% upside from existent levels.


As tin beryllium seen successful nan article, Shopee is simply a leader successful e-commerce, a fundamentally increasing business and 1 whose profitability and separator floor plan is improving arsenic we speak.

While I deliberation that location could person been immoderate disappointments pinch nan institution pulling retired of its non-core markets successful which it was doing aviator tests in, I deliberation that we are starting to thigh nan precocious guidelines effect we saw successful 2022 successful nan coming twelvemonth successful 2023. In addition, nan boost successful Shopee being EBITDA affirmative successful Southeast Asia and Taiwan is surely a boost successful assurance for nan company's business model. By 2025, guidance expects that some Shopee and SeaMoney together, will beryllium capable to make capable rate to self-fund their ain semipermanent growth.

My one-year value target for Sea Limited is frankincense $94.51. This implies 41% upside from existent levels.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

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Editor: Naga

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