Sea, the Southeast Asian tech giant, has announced a significant shift in its strategy, opting to prioritize growth over profitability. This decision comes after months of cost-cutting measures aimed at achieving profitability in the face of economic uncertainty. However, Sea’s recent earnings report revealed a missed revenue expectation and a subsequent 28% drop in its stock. The company’s chairman and group CEO, Forrest Li, stated that Sea will now "reaccelerate investments in growth," with a particular focus on e-commerce. This move is seen as a defensive measure to protect market share, as competition from rivals such as Lazada and TikTok Shop intensifies. Despite concerns from analysts about the impact on earnings, some experts believe that Sea’s decision to defend its market share is the right strategy in the highly competitive e-commerce industry.
Sea, the Southeast Asian tech giant, saw its shares plummet after missing revenue expectations and announcing a shift in focus from profitability to growth. The company reported revenue of $3.1 billion, falling short of the expected $3.2 billion. Sea’s chairman and group CEO, Forrest Li, stated that the company has achieved self-sufficiency and will now "reaccelerate investments in growth." This move is seen as a strategy to defend market share in the face of increasing competition.
Sea had previously undergone a business overhaul to prioritize profitability amidst economic uncertainty. The company implemented cost-cutting measures, including layoffs and reduced incentives. However, Sea’s pivot towards growth indicates a shift in strategy, likely driven by competition and the need to maintain market share. The company’s decision to ramp up investments is expected to impact earnings in the near-term, according to JPMorgan analysts.
One area of focus for Sea is e-commerce, with Li stating that the company will increase investments in growing its e-commerce business across its markets. This includes potential spending on shipping subsidies and discount vouchers. Sea faces competition from TikTok Shop, the e-commerce marketplace of the popular short video app, which is aggressively expanding in Southeast Asia. Alibaba’s Lazada is also vying to catch up with Sea’s Shopee, the region’s largest e-commerce platform.
While Sea’s decision to prioritize growth may impact earnings, some analysts view it as the right strategy to defend market share in the competitive e-commerce landscape. Sachin Mittal, head of telecom, media, and technology research at DBS Bank, is bullish on Sea and believes that defending market share is crucial in e-commerce. Mittal also downplays the threat posed by TikTok Shop, noting that it lacks in-house logistics compared to Sea’s Shopee and Lazada.
In conclusion, Sea’s shift towards prioritizing growth over profitability is seen as a move to defend market share in the face of increasing competition. The company’s decision to ramp up investments in e-commerce comes as it faces challenges from TikTok Shop and Lazada. While this shift may impact earnings in the short term, some analysts view it as the right strategy to maintain a strong position in the market.
