Another Godzilla movie is slated to be released later this month, but it looks like we're going to see a battle against real monsters in the e-commerce market in Southeast Asia today.
Shopee's parent company, Sea Ltd. recently released its 2020 financial results and makes for an interesting read.
Regardless of what you might have been thinking, with all the talk about how the Covid-19 pandemic is boosting digital businesses, the numbers aren't quite as clear-cut, at least compared to traditional standards.
While Sea doubled its revenue, it also nearly doubled its costs, posting the largest loss ever of $ 1.6 billion (S $ 2.1 billion).
In this very special reality of the IT startup world, 2020 can be seen as an exceptionally good year.
Sea Vs. Lazada
The company's shares continued to rebound, currently hitting nearly $ 120 billion in market cap (up from $ 140 billion briefly in February) – up from around $ 25 billion last year and just $ 5 billion in 2019.
In other words, $ 1,000 invested in Sea early in 2019 would be worth nearly $ 24,000 today – all while the company continues to bleed money.
Photo credit: Companiesmarketcap.com
The high valuation allowed the company, with a $ 2.6 billion issue in December, to raise more capital in the stock market and provide the funds it needs to run away in 2021 to meet the company's stated goal of increasing its e- Commerce revenue to double further (as before) in 2020).
This time to around 4.5 billion US dollars or 112 percent more than last year, as announced in its publication.
The funds are also to be used to expand the range of financial services after a license for digital banking was acquired in Singapore last year.
Shopee continued its stratospheric ascent in just over five years, leaving Alibaba-based Lazada behind. It is clear, however, that the Rocket Internet Child, while unavailable, is not yet available.
With a new CEO appointed in 2020 and deep pockets offered by the Chinese parent company, the war is likely to intensify.
While Lazada hasn't released separate results since it was acquired in 2016, it's pretty certain that it too will have to bleed to keep up with its main competitor.
In one corner of the ring is the current market leader who is able to raise significant funds thanks to its large market capitalization.
On the flip side, we have a challenger backed by a Chinese giant who is making money and trying to dominate their geographic backyard.
As a result, there is currently no risk of either losing steam.
Your fight is for long-term dominance in a growing market of more than 600 million ever richer customers. So don't expect towels to be thrown in the near future.
Challenges that Shopee has to overcome
Despite the excellent results and clearly successful management, Sea Ltd. continued to be exposed to external factors.
A stock market crash could limit (or make relatively expensive) its funding options, and its current market cap of $ 120 billion to $ 140 billion seems inflated compared to Alibaba's $ 635 billion or even Amazon's $ 1.5 trillion.
Sea is worth eight to 10 percent of Amazon's market cap, while its revenue is just one percent. Almost half of this comes from the Garena digital entertainment sector.
The stock market situation remains difficult to predict as governments around the world seek to support economies with both fiscal and monetary measures that have contributed to inflation in stock prices.
Whether these rallies will continue or face a painful correction remains to be seen and is unclear as we have never been in such a situation.
Any volatility can hurt Sea more than Alibaba, and a major economic downturn could cause Lazada to gain the upper hand.
It's also uncertain whether the pace of e-commerce growth – fueled by the 2020 pandemic – will stay as strong this year to allow Shopee to double its revenues again as Sea Ltd. announced in his report.
Regardless of how these internal and external factors play out, it is very unlikely that the value of the stock will increase fivefold for the third year in a row.
Sea's market cap is more of a vote of confidence for investors seeing continued growth over competitors than a reflection of current results.
What does it mean for buyers and sellers in SEA?
Expect even more aggressive promotions, discounts, deals, shipping options, and low commissions for all merchants as both giants continue to trade blows for years to come.
Sea has so far established itself very well as a native Southeast Asian brand, but it is strategic for Alibaba to dominate the region.
It is only natural for the Chinese company to want to be in control of the closest environment. It also takes visible success across national borders to prove to investors that it can do well globally, not just in China (a curse that plagues many Chinese companies).
The Covid-19 market rally has increased Sea's market cap beyond any acquisition prospect, and the company can hold its own stronger.
In fact, it can use its capital to acquire smaller competitors and thereby strengthen its e-commerce position faster.
But if an economic crisis hits and drives stock prices down, the tables could turn and step onto the radar of wealthier companies, much like Lazada was picked up by Alibaba in 2016. The acquisition for just $ 2 billion earlier this year seems like spending money today.
Right now, expect both companies to continue bleeding in hopes of being the last man.
In the meantime, everyone should take advantage of shoppers' paradise with discounts and other incentives to end this rivalry. Enjoy it while it lasts – no company can lose billions forever each year.