Sea’s E-Commerce Downsizing as Profitability Looms

With its stock prices skyrocketing 800% from March of 2020 to November 2021, Sea Limited, the Singapore-based tech conglomerate, is decelerating rapidly while its bottom line continues to worsen. Referring to data from S&P Global Market Intelligence, shares of Sea Limited declined by 19.7% in August 2022 from US$77 to US$62 - resulting in a massive 72.2% slump for the year-to-date. The contributing factors for said downfall include weak company operating metrics, a sharp decline in the number of active users, and the seem-to-be ending pandemic, which makes the gaming and digital businesses appear less attractive. Although the company’s subsidiaries are rightfully diverse, including the Southeast Asia giant e-commerce Shopee, the infamous gaming studio Garena, and its newly-bloomed fintech branch SeaMoney, the wide assortment of products doesn’t guarantee equal profitability. Garena’s number of paying users has faced its consecutive quarter-to-quarter decline, failing 8.6% from 1Q22 to 2Q22. In 2Q22 Gross orders soared 42% year-on-year and gross merchandise value zoomed 27% year-on-year on the e-commerce platform, while a 53% year-on-year jump in quarterly active users was seen in its digital financial division. The company’s on-surface increasing numbers, reflected upon its 2022 fiscal earning report, prove optimist top-line growth. However, net loss doubled year-over-year from US$433.7 million in the second quarter of 2021 to US$931.2 million in 2Q22 year-over-year.

Despite Shopee's impressive figures, several news organizations claimed it had withdrawn several job offers for positions at its Singapore headquarters. This action shows that the department is reducing hiring in preparation for a decline in consumer demand and expenditure due to the world's high inflation rate projections and the imminent prospect of a recession. In Sea Group’s annual report for 2021, the corporation is recorded to have employed over 63.000 people. The Singapore-based company is preparing to lay off 3% of employees across the division in Indonesia to curb ballooning losses and win back investors. Around 180 employees are threatened by layoffs, ranging from the head of the department to junior staff. They will start notifying affected staff at its cash-burning arm as it affects marketing and operations units. Amid this economic slowdown, top management will forgo their salaries and tighten company expense policies, as the company, which counts Tencent Holdings Ltd. as its biggest investor, tries to shield itself. The company decided that they will not take any cash until the company reaches self-sufficiency. These strategies are executed to optimize Shopee’s operating efficiency with its objectives to achieve self-sufficiency across the business. Approximately US$170 billion of market value makes its prospects questionable in an era of rising interest rates and intensifying competition from Alibaba Group Holding Ltd. in its Asian stronghold.

With the stock price falling more than 80% from its all-time high (US$366), Shopee Indonesia's Head of Public Affairs, Radynal Nataprawira, said this efficiency-based decision is in line with the company's focus on achieving independence amid worldwide economic uncertainty. According to Radynal Nataprawira in a statement released on Monday (9/19), current global economic conditions require companies to be more adaptive and implement priorities in order to make Shopee more efficient. Furthermore, the Indonesian E-commerce Association (IDEA) predicts that the efficiency trend of technology companies engaged in online shopping will continue. However, they assert that this does not imply that growth has halted. Regarding customer acquisition, According to figures from the Indonesian Internet Service Providers Association (APJII), the population of Indonesia who has used the internet until mid-2022 is 220 million people. This figure jumped about 77% before the COVID-19 pandemic, reaching 175 million users. Meanwhile, the number of online merchants, especially SMEs, reached 11 million from May 2022 to June 2022. Reflecting on said data, growth and online sales are expected to continue rising both in the short and long term. Despite that, for the time being, the company's priorities must be adjusted. Fixing even the pivot will be done by start-ups as their survival strategy to get out of the uncertain post-pandemic economic turmoil.

Sources:

Bloomberg

Tech in Asia

Tempo

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