Thread by @CapitalWiseman

Wiseman Capital #Research on Cross Border eCommerce – a $100B worldwide TAM will benefit

SEA Limited $SE
Price: 236.45
Mcap: 122.8B
52WKL – 52WH 43.72 – 285

Other stocks covered: $MELI $BABA $WISH

Cross Border eCommerce is transactions beyond country borders.

Sellers from one country sell & ship to buyers in another country.

E.g., $BABA China sellers ship to US consumers.

Pros: Lower costs.

Cons: International logistics, slow shipping.

The worldwide leaders in cross border eCommerce are $BABA, $WISH, $AMZN and $MELI but opportunity is growing offering opportunities for others.

We evaluate the best positioned company in this growing market - $SE

Cross-border eCommerce is providing an entryway for international operators into many regions;

For e.g., just in LatAm it is a US$19 billion market by 2025, ~20% of Brazil/ Mexico eCommerce

Cross border eCommerce is growing quickly in LatAm and can be the next leg of growth from a broad category adoption

Currently $BABA AliExpress and $WISH have more transactions, but $SE is poised to grow

The biggest consumer driver for cross-border eCommerce is lower prices for consumers and products that are not available “locally”

<source: reports from Brazil consumer survey 2020>

The most purchased categories in cross border ecommerce are electronics, cell phones and apparel – which suits $SE – less bulky, lower shipping costs

<source: Brazil consumer survey 2020>

But the biggest barrier is Shipping time (not shipping costs), since it takes 3-5 weeks to get international deliveries

$SE Shopee secrets to success in Asia is free shipping + a mobile-first strategy + and hyper-localization

It leverages its Gaming installed base to promote Shopee, promotes heavily on social apps and offers free shipping and lower commissions (hence lower costs)

$SE has the opportunity to grow to 25% of cross border commerce in Brazil and Mexico in 5 years since they have low take rate (5%), and free shipping

$SE Shopee is showing more momentum, leading in Brazil for preference on where to buy over $WISH and $BABA

<source: analyst reports from MS, GS>

Even though $SE Shopee started in LatAm after $WISH and $BABA it has passed them both in active users

$SE Shopee's revenue growth has been explosive (+231% CAGR in 2017-22E) compared to $MELI (+102%), because of free shipping + gaming brand recall, and is using that same formula in Brazil

$SE Shopee has reached 50 million accumulated downloads in Brazil, versus $MELI/B2W each at ~120 million

$SE Shopee downloads have skyrocketed and are now comparable to $MELI because of heavy advertising on TikTok and cross promotion from Garena (Free Fire)

But $SE Shopee has slow shipping - 30 days for cross-border goods and $MELI’s has already invested $400M in logistics & increasing to $700M annually through 2025

For logistics, Brazil's postal carrier Correios is the primary service provider for $SE Shopee and is subsidizing its Correios deliveries in Brazil

ShopeePay is not available as a consumer solution in the country, and they use 3rd party payments. This is a significant difference and compared to $MELI (which has $MELI Pago Wallet

$SE Shopee has much lower fees than $MELI and other competitors, which is leading to wide adoption because of lower prices

To gain in LatAm, $SE will have to spend significant $ on building a logistics network & distribution centers to provide free shipping comparable to $MELI

<source: $MELI filings quarterly reports>

But Brazil is a lot less dense than the traditional countries where $SE operates in South East Asia, so they will have to spend more than $500M over 3-4 years

By 2025, $SE can grow GMV significantly while keeping take rates constant, while $MELI will have reduced margins and take rate. Looking at historical growth rates and projecting for the next 5 years, $SE can gain at the expense of $WISH and $BABA AliExpress

This implies an additional $100+ increase to $SE Price Target by 2025 (+ 24% CAGR) with 50% probability

That implies a 35% uplift from the current estimates, taking the price target from $500 to $700 by 2025

Summary:
Cross border commerce is growing to over $100B globally
$SE playbook of a) cross promotion from gaming, b) free shipping and c) lower take rate (commissions) helps it grow LatAm
$SE will have to spend over $500M in building out logistics

PT: $675 at 9X EV/NTM by 2025

Would appreciate your thoughts🙏
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