The value of goods sold by the Shopee division will rise in the “mid-20%” range this year, Sea said, rather than the “high teens” pace predicted in March. — Reuters
SINGAPORE: Sea Ltd raised the outlook for its main online retailing arm, signalling the South-East Asia eCommerce leader is effectively encountering intense competition from the likes of TikTok and Lazada.
The value of goods sold by the Shopee division will rise in the “mid-20%” range this year, Sea said yesterday, rather than the “high teens” pace predicted in March.
Singapore-based Sea also posted second-quarter profit and sales that topped analysts’ estimates.
The forecast alleviates some concerns about the prospects for Shopee, which is trying to fend off competition from ByteDance Ltd’s TikTok and Alibaba Group Holding Ltd’s Lazada.
Investors are watching closely if Shopee’s higher merchant fees can boost its margins without hurting its lead against the deep-pocketed tech conglomerates.
Newer contenders like Shein and PDD Holdings Inc’s Temu are also targeting South-East Asia, a region of about 675 million people where more shoppers are moving online.
In a show of its dominance, Shopee has raised the commissions it charges merchants in many core markets by about a third since the start of the year.
The hikes, which bring Shopee’s fees far above its rivals, showed that Sea feels secure in its own efforts to become a crucial partner to merchants, helped by the eCommerce pioneer’s broad user base and well established delivery services.
Sea’s American depositary receipts rose as much as 8.3% after trading opened in New York.
After plunging over the past two years, Sea’s stock has gained about 65% in 2024 as investors have assessed the company’s chances against tough competition. Still, the shares remain far below their historic highs.
Sea swung back into the black in the three months through June with a net income of about US$80mil, after losses in the preceding three quarters.
Analysts estimated US$60mil on average. Sales rose 23% to US$3.8bil.
Shopee’s gross merchandise volume, or the value of goods sold, climbed a higher-than-estimated 29% to US$23.3bil in the second quarter.
Sea also said it expects Shopee to post earnings before interest, taxes, depreciation and amortisation in the third quarter of this year – it previously expected Shopee to reach that milestone within the second half.
The company as a whole is targeting its second straight annual profit this year.
Investors have also focused on Sea’s efforts to improve its profitability in the cut-throat market, after it slashed thousands of jobs in a brutal cost-cutting drive in recent years.
Second-quarter sales and marketing expenses rose to US$774.8mil and the company has also boosted research and development spending to add live-streaming and artificial intelligence features.
The company’s gaming arm Garena, known for its hit Free Fire, has helped Sea’s profit margins.
Yet it has struggled to come up with new titles to increase sales. Revenue at the unit fell 18% to US$435.6mil, missing estimates. Bookings, which measure the amount of products and services sold during the period, climbed 21% to US$536.8mil.
Analyst Nathan Naidu said intensified eCommerce rivalry after the entry of PDD’s Temu into Thailand, South-East Asia’s second-largest market, means Sea’s eCommerce bottom line might linger in the red in the second quarter.
“But its digital entertainment and financial technology segments should help it sustain a net profit. Temu typically uses deep discounts to lure shoppers, which might prompt Sea to up its incentive spending to retain users.
“Yet Sea’s scale advantage in logistics, product pricing and established marketplace might stem user churn.”
Sea’s digital banking division has become one of its key pillars of expansion. Revenue at its financial services arm grew 21%, as it battles the region’s incumbents as well as new entrants including Standard Chartered Plc’s Trust Bank and a venture owned by Grab Holdings Ltd and Singapore Telecommunications Ltd called GXS Bank.
Last month, it appointed a new chief to steer its budding Singapore bank. — Bloomberg
