1/ My thoughts on $SE and why I believe right now is a very important period for the company.
Here's a 22-tweet thread for ya 😁
⬇️
Here's a 22-tweet thread for ya 😁
⬇️
2/ The main bear case I've been seeing is:
"if southeast Asia is still such a big market, then why is $SE trying to get into so many markets?"
"if southeast Asia is still such a big market, then why is $SE trying to get into so many markets?"
3/ And it's true, $SE is getting into A LOT of markets.
It started in late 2019 when Shopee launched in Brazil on the back of really high engagement with Free Fire in Latin America.
After 2 years, Shopee was one of the most-downloaded shopping apps in Brazil.
It started in late 2019 when Shopee launched in Brazil on the back of really high engagement with Free Fire in Latin America.
After 2 years, Shopee was one of the most-downloaded shopping apps in Brazil.
4/ Now, Shopee is the second most-downloaded app in Brazil. Overall.
Yes, it is directional but downloads don't equate to revenue. MercadoLibre is still clearly the leader. Just as another data point, MELI has 14 million downloads on Android vs. 2.5 million for Shopee.
Yes, it is directional but downloads don't equate to revenue. MercadoLibre is still clearly the leader. Just as another data point, MELI has 14 million downloads on Android vs. 2.5 million for Shopee.
5/ Shopee is also incredibly mobile-centric so MELI has a huge share of desktop users.
But Brazil was only the first foray outside of southeast Asia.
Over the past year, Shopee has quietly (or not so quietly) moved into many other geographies.
But Brazil was only the first foray outside of southeast Asia.
Over the past year, Shopee has quietly (or not so quietly) moved into many other geographies.
6/ Let's see here:
• In 2/21, it entered Mexico
• In 6/21, it entered Chile and Colombia
• In 9/21, it entered Poland and rumblings started about India
• In 10/21, it entered Spain and France
• In 2/21, it entered Mexico
• In 6/21, it entered Chile and Colombia
• In 9/21, it entered Poland and rumblings started about India
• In 10/21, it entered Spain and France
7/ That's a lot of locations beyond their 7 core southeast Asia markets:
• Indonesia
• Singapore
• Taiwan
• The Philippines
• Vietnam
• Thailand
• Malaysia
• Indonesia
• Singapore
• Taiwan
• The Philippines
• Vietnam
• Thailand
• Malaysia
8/ One thing $SE has done incredibly well is provide localized solutions. Rather than a one-size-fits-all approach like Lazada, Shopee is personalized for each geography.
This was one of my initial worries the first time I looked at $SE. Would they be spread too thin?
This was one of my initial worries the first time I looked at $SE. Would they be spread too thin?
9/ Over the past 5 years, it hasn't been a problem. The balance between top-down and bottom-up execution has been nothing short of incredibly impressive.
But now they are attacking Europe on top of Latin America and now adding India which is a notoriously difficult market.
But now they are attacking Europe on top of Latin America and now adding India which is a notoriously difficult market.
10/ So what is the deal? Why so much expansion?
Well, it's not like Shopee is new to the game. They work magic with app downloads because they have such a strong base with Free Fire users all over the world.
Look at these rankings from 4 different geographies.
Well, it's not like Shopee is new to the game. They work magic with app downloads because they have such a strong base with Free Fire users all over the world.
Look at these rankings from 4 different geographies.
11/ It's quite amazing to see how they can get downloads right away.
Of course, that comes at a cost. This is the second layer of the bear argument ⬇️
Shopee needs to spend tons to subsidize all of these markets and we don't even have huge profitability with the SEA market.
Of course, that comes at a cost. This is the second layer of the bear argument ⬇️
Shopee needs to spend tons to subsidize all of these markets and we don't even have huge profitability with the SEA market.
12/ At the same time, Free Fire user growth is slowing immensely. Quarterly active and paying users only grew 1% sequentially in the latest quarter.
So the main base of users that Shopee is leveraging into all of the markets is slowing.
So the main base of users that Shopee is leveraging into all of the markets is slowing.
13/ And of course, Shopee needs to spend more money to penetrate these global markets while the Free Fire cash cow isn't growing at the same astronomical rates.
That's the main, legit, bear case.
That's the main, legit, bear case.
14/ But I think the undervalued thing here is that Shopee has a clear playbook that has worked.
We've seen it 7 times in the core SEA markets. And Shopee Taiwan and Malaysia are already EBITDA profitable despite spending tons in the early days.
We've seen it 7 times in the core SEA markets. And Shopee Taiwan and Malaysia are already EBITDA profitable despite spending tons in the early days.
15/ Free Fire has provided a huge base of users that Shopee wants to capitalize on.
But I think that there is a difference between entering a geography and going all-in on it...
But I think that there is a difference between entering a geography and going all-in on it...
16a/ ...for example, this is from last call:
"On one hand, our core focus remains managing our efficient and sustainable growth in Southeast Asia, Taiwan and Brazil, where we have established and are continuing to grow our strong presence serving local sellers and buyers...
"On one hand, our core focus remains managing our efficient and sustainable growth in Southeast Asia, Taiwan and Brazil, where we have established and are continuing to grow our strong presence serving local sellers and buyers...
16b/ ...On the other hand, the opportunities we can address through efficiently leveraging the Shopee platform in existing markets and expanding into new markets have increased."
17/ SEA & Brazil are still the main priorities but these other geographies are being tested right now. It's not like a legacy bank where you need a physical location. Shopee outsources logistics so the real cost is acquiring users which they have an advantage in w/ Free Fire.
18/ So why not capitalize on this advantage if you have the capital to do so? Wouldn't it be suboptimal to not expand if the NPV is very positive? Should management be dissuaded because of the perception that they are over their skis?
19/ Now, I'm not one to hope that my thesis is playing out without real numbers attached.
The way I see it is that Shopee is still growing like mad and there is a clear path to profitability because they have proven it in other markets.
The way I see it is that Shopee is still growing like mad and there is a clear path to profitability because they have proven it in other markets.
20/ While the SEA lockdowns have aided growth, e-commerce + services w/o goods, has grown sequentially at:
18%
29%
31%
for the last 3 quarters. If that growth drops off a cliff despite all of the expansion activities, I'll be worried.
18%
29%
31%
for the last 3 quarters. If that growth drops off a cliff despite all of the expansion activities, I'll be worried.
21/ To put some more numbers around that, if sequential growth drops below 20%, I'll likely be questioning what's going on.
I won't be surprised to see the company continue to lose money but I'd like to see gross margins be somewhat constant.
I won't be surprised to see the company continue to lose money but I'd like to see gross margins be somewhat constant.
End/ All in all, it feels like $SE is in a very important period. Either they execute as they have been & increase the TAM an insane amount or they get over their skis.
I'm betting on the former but willing to update my views if the numbers tell me otherwise.
Thx for reading!
I'm betting on the former but willing to update my views if the numbers tell me otherwise.
Thx for reading!
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