Thank you for the writeup and for sharing it with all of us. Love following through your thought process and really appreciate the detailed analysis.
My channel checks (primarily friends who are merchants in the various platforms in Indonesia) are telling me that Tiktok Shop is gaining significant momentum in Indonesia and encroaching Shopee's territory with short form videos being a channel that has/is continuing to grow rapidly and also arguably a suitable and attractive one especially in the categories that Shopee excels in (fashion, beauty, etc). Curious if you've given any thought on this?
In relation to TikTok, I agree with you they're a risk, something I mentioned in my latest Update article. I assumed they would take some share from Shopee in my forecasts. I think it would still be hard for them to penetrate other categories given the format, and they've still got some way to go in terms of closing the e-commerce loop and logistics etc, Shopee and Toko are years ahead on these things. But would like to hear some more details about your friends' experience with them actually, might email through some questions if that's ok? Can certainly also share my latest model - just need to clean it up a little!
Yes, Tiktok will likely be great in the categories that is more suited for short form videos (i.e. discovery shopping) like apparel and cosmetics, which is unfortunately the categories Shopee dominates. It's still nascent and something that needs to be monitored closely. TT is good at the top of the funnel. In China, more than 1 billion mobile users use short-form video apps, with 60% active on a daily basis, spending 120 minutes a day and opening 14 times a day. TT also has large viewer base in Indonesia. They do face their own set of problems such as a high % of unpaid/incomplete orders.
Really good report regarding short form video and live streaming commerce:
Wow, this is such a beautiful, great, deep, and insightful piece of analysis work. Thank you so much for posting this. I've learnt so much from you. Would it be possible to share your valuation model at chaiyapat.song@gmail.com? Thank you again.
thanks so much for the feedback! would be happy to share the model, but just to caveat that i will probably be updating it later this year, mainly on Garena as i was significantly off there on my forecasts in hindsight, and want to refine the exit valuations a bit as well. But will share it as is in the meantime.
Thank you so much. Greatly Appreciate it. However, when you update the model, could you please posting your view about it again? I would very excited and looking forward to reading it.
Thank you for this detailed deep dive. Extremely helpful! I am with you on the Garena and Shopee assessment, but have my skepticism on the Sea money business.
In general, I find that in markets esp. in EMs where banks also have pretty decent wallet or similar offerings, it is tough for tech players to gain a significant share without offering promotions - A good example may be PayTM in India - It may be controversial a comment but I really don't find their business model sustainable if they were to stop offering all the promotions and cash back. Similarly, for digital bank to gain scale - its a big question too! I think the capital arbitrage between banks and digital banks will be closed over time through regulations and I simply find it hard to have faith in tech companies (using balance sheet capital to lend) to survive lending cycles. Time will tell I guess.
But thank you again for this great write up! As well as the scenario assessment.
One suggestion - Since you have looked into the market dynamics already, perhaps take a look at GRAB too? Esp. after the de-spac, stock has come off to more realistic valuations and may be an interesting super app to study :)
Thank you for the great comment. I agree with you that payments/e-wallets on their own in EM is a commoditised service, you cant really make money off it as everyone is capable of offering the same thing on a comparable basis. They are more about just getting users and merchants into the ecosystem and keeping them there. The value-add comes from expanding into things like digital banking, funds mgmt etc.
Interesting comment re comparison to banks - some would argue that the tech companies may actually have even better data on their consumers than the banks given the frequency of transactions on ecosystems like Shopee, Grab etc and thus can price risk better (keep in mind how many people are unbanked in these countries but will have access to a smartphone and apps). But also that's why we see tech companies partnering with banks to gain those capabilities (GoTo and Bank Jago, Sea outright acquired BKE Bank in Indonesia). Very few tech companies are just going at it alone, which hopefully will lead to more prudent lending activities. But as you said, time will tell.
Grab is an interesting one that I'm following somewhat - maybe one day will cover it. I've got quite a few others on my list to write up first!
Hi, I learn so much from reading your posts about Sea - Thank you so much. Would you be open to sharing your valuation model at samalex5925@gmail.com? Am a student and think I could learn a lot from the model.
This is really good work. TYSM. I think one part that I'm curious to hear your thoughts on is the competitive intensity in Indonesia. Tokopedia recently overtook Shopee on market share -- albeit with heavy discounting. Arguably this is hurting Shopee's business in Indo, which is the biggest pie as far as Shopee's markets are concerned. What gives you confidence that Shopee will make money in Indonesia?
thank you for the feedback! Re Indo, yes definitely this is the most competitive market for Shopee due to Toko. Toko will have a war chest of several bn in funding from their pre-IPO round and next year's IPO, so they won't have a shortage of capital in the near term. Same with Sea, who has over 10bn of cash on BS. The key advantage that Sea has is their internally generated Garena cash engine, thus they have a greater ability to sustain ('suffer') through an aggressive discounting war than Toko, who does not yet have a profitable core business. Toko is understandably being aggressive now in the lead up to their IPO next year, but you would think at some point over the next few years the market will rationalise. At the end of it all if Shopee does come out as a close #2, whilst not ideal, in a market the size of Indonesia I think this is still a decent outcome (it's not a winner take all necessarily) and doesnt jeapordise the entire business given their big lead everywhere else. My two cents, hopefully that helps!
Do you how Shopee is spending the 700m per quarter in sales and marketing? It seems like it’s stopping the company from being EBITDA positive per order. That’s a lot of money — is it free vouchers, celebrity endorsements, tv ads?
I think all of those things, they'd all fall under S&M but impossible to know the split. What I typically focus on is S&M spend / EBITDA loss per order, that should keep improving over time at an aggregate level. The fact that it stayed flat last quarter despite expansion into all these new markets i think is a good sign as it shows its more mature markets are improving in profitability.
Thank you for sharing such a detailed and comprehensive analysis on Sea. Before my long position in Sea, I was a bit doubt on my though and analysis and now I have conviction in holding this stock after reading your analysis, though the stock price dropped dramatically recently, without any bad news going out. Looking forward you could write more analysis on other stocks as well.
regarding compensation part, please check 144 forms and I am sure you will find something really interesting...and can give you a better idea about its corporate governance
Thank you for this deep dive, it's really great work. Very nice to find such detailed analysis on a company that likes to operate stealthily. I'm a reporter at Bloomberg and would love to chat more if you're open, feel free to drop me an email at opoh@bloomberg.net.
Hi, thanks for the amazing set of write-ups on SE! I was wondering if you would be open to sharing your model. My email is neilnorris377@gmail.com. I was also wondering if you had any thoughts on the recent decline in price since you wrote these. Have you added to your position? Do you think the theses are largely intact?
I think the LT thesis is still very much on track and the sell off is more narrative / market driven than anything else, but will have to watch Garena in particular for the next few quarters to see what is happening with Free Fire. More broadly, as we enter a higher rate environment it may be rough going for the stock for a while. I haven't added as its already my largest position but if it keeps dropping to sub 150 then i might have to as i think it's getting way too cheap in my opinion
it's already about 30% of my portfolio so i'm not adding anymore, but yea at 8.3x revenue it's certainly the most attractive price it's been in the last 18 months or so. Although it may still be rough sailing for a while given how sour the market sentiment is and concerns over Garena
Thank you for the writeup and for sharing it with all of us. Love following through your thought process and really appreciate the detailed analysis.
My channel checks (primarily friends who are merchants in the various platforms in Indonesia) are telling me that Tiktok Shop is gaining significant momentum in Indonesia and encroaching Shopee's territory with short form videos being a channel that has/is continuing to grow rapidly and also arguably a suitable and attractive one especially in the categories that Shopee excels in (fashion, beauty, etc). Curious if you've given any thought on this?
Would also love to look at the model if you can share it. Email is clinton.rezeki@gmail.com
Thank you again. Really appreciate it.
Thank you CR - appreciate it!
In relation to TikTok, I agree with you they're a risk, something I mentioned in my latest Update article. I assumed they would take some share from Shopee in my forecasts. I think it would still be hard for them to penetrate other categories given the format, and they've still got some way to go in terms of closing the e-commerce loop and logistics etc, Shopee and Toko are years ahead on these things. But would like to hear some more details about your friends' experience with them actually, might email through some questions if that's ok? Can certainly also share my latest model - just need to clean it up a little!
Yes, Tiktok will likely be great in the categories that is more suited for short form videos (i.e. discovery shopping) like apparel and cosmetics, which is unfortunately the categories Shopee dominates. It's still nascent and something that needs to be monitored closely. TT is good at the top of the funnel. In China, more than 1 billion mobile users use short-form video apps, with 60% active on a daily basis, spending 120 minutes a day and opening 14 times a day. TT also has large viewer base in Indonesia. They do face their own set of problems such as a high % of unpaid/incomplete orders.
Really good report regarding short form video and live streaming commerce:
https://www.goldmansachs.com/insights/pages/gs-research/china-lessons/report.pdf
Sure, feel free to email some questions and I can even forward it to my friends. Cheers.
Wow, this is such a beautiful, great, deep, and insightful piece of analysis work. Thank you so much for posting this. I've learnt so much from you. Would it be possible to share your valuation model at chaiyapat.song@gmail.com? Thank you again.
thanks so much for the feedback! would be happy to share the model, but just to caveat that i will probably be updating it later this year, mainly on Garena as i was significantly off there on my forecasts in hindsight, and want to refine the exit valuations a bit as well. But will share it as is in the meantime.
Thank you so much. Greatly Appreciate it. However, when you update the model, could you please posting your view about it again? I would very excited and looking forward to reading it.
i plan to do an update piece later this year with latest thoughts etc, as a lot has changed with the business since i did the deep dives last year
Thank you. I'm really looking forward to reading your updated work.
Thank you for this detailed deep dive. Extremely helpful! I am with you on the Garena and Shopee assessment, but have my skepticism on the Sea money business.
In general, I find that in markets esp. in EMs where banks also have pretty decent wallet or similar offerings, it is tough for tech players to gain a significant share without offering promotions - A good example may be PayTM in India - It may be controversial a comment but I really don't find their business model sustainable if they were to stop offering all the promotions and cash back. Similarly, for digital bank to gain scale - its a big question too! I think the capital arbitrage between banks and digital banks will be closed over time through regulations and I simply find it hard to have faith in tech companies (using balance sheet capital to lend) to survive lending cycles. Time will tell I guess.
But thank you again for this great write up! As well as the scenario assessment.
One suggestion - Since you have looked into the market dynamics already, perhaps take a look at GRAB too? Esp. after the de-spac, stock has come off to more realistic valuations and may be an interesting super app to study :)
Thank you for the great comment. I agree with you that payments/e-wallets on their own in EM is a commoditised service, you cant really make money off it as everyone is capable of offering the same thing on a comparable basis. They are more about just getting users and merchants into the ecosystem and keeping them there. The value-add comes from expanding into things like digital banking, funds mgmt etc.
Interesting comment re comparison to banks - some would argue that the tech companies may actually have even better data on their consumers than the banks given the frequency of transactions on ecosystems like Shopee, Grab etc and thus can price risk better (keep in mind how many people are unbanked in these countries but will have access to a smartphone and apps). But also that's why we see tech companies partnering with banks to gain those capabilities (GoTo and Bank Jago, Sea outright acquired BKE Bank in Indonesia). Very few tech companies are just going at it alone, which hopefully will lead to more prudent lending activities. But as you said, time will tell.
Grab is an interesting one that I'm following somewhat - maybe one day will cover it. I've got quite a few others on my list to write up first!
Thank you! Would it be possible for you to share your model with me? ltstockinvestor@gmail.com
Sure - will send through
Many thanks! Would much appreciate it :)
Hi, I learn so much from reading your posts about Sea - Thank you so much. Would you be open to sharing your valuation model at samalex5925@gmail.com? Am a student and think I could learn a lot from the model.
Thank you Sam! Can definitely share the model, just let me clean it up a little and I’ll email it through
Hi, would you also share the model to me for my study, thank you so much！！kennethwu123@gmail.com
will do!
Thank you so much!! - I look forward to receiving it
This is really good work. TYSM. I think one part that I'm curious to hear your thoughts on is the competitive intensity in Indonesia. Tokopedia recently overtook Shopee on market share -- albeit with heavy discounting. Arguably this is hurting Shopee's business in Indo, which is the biggest pie as far as Shopee's markets are concerned. What gives you confidence that Shopee will make money in Indonesia?
thank you for the feedback! Re Indo, yes definitely this is the most competitive market for Shopee due to Toko. Toko will have a war chest of several bn in funding from their pre-IPO round and next year's IPO, so they won't have a shortage of capital in the near term. Same with Sea, who has over 10bn of cash on BS. The key advantage that Sea has is their internally generated Garena cash engine, thus they have a greater ability to sustain ('suffer') through an aggressive discounting war than Toko, who does not yet have a profitable core business. Toko is understandably being aggressive now in the lead up to their IPO next year, but you would think at some point over the next few years the market will rationalise. At the end of it all if Shopee does come out as a close #2, whilst not ideal, in a market the size of Indonesia I think this is still a decent outcome (it's not a winner take all necessarily) and doesnt jeapordise the entire business given their big lead everywhere else. My two cents, hopefully that helps!
Do you how Shopee is spending the 700m per quarter in sales and marketing? It seems like it’s stopping the company from being EBITDA positive per order. That’s a lot of money — is it free vouchers, celebrity endorsements, tv ads?
I think all of those things, they'd all fall under S&M but impossible to know the split. What I typically focus on is S&M spend / EBITDA loss per order, that should keep improving over time at an aggregate level. The fact that it stayed flat last quarter despite expansion into all these new markets i think is a good sign as it shows its more mature markets are improving in profitability.
Thank you for sharing such a detailed and comprehensive analysis on Sea. Before my long position in Sea, I was a bit doubt on my though and analysis and now I have conviction in holding this stock after reading your analysis, though the stock price dropped dramatically recently, without any bad news going out. Looking forward you could write more analysis on other stocks as well.
Thanks so much for the feedback Kenneth! glad you found it helpful. Will definitely be covering more interesting companies in the new year.
regarding compensation part, please check 144 forms and I am sure you will find something really interesting...and can give you a better idea about its corporate governance
Thank you for this deep dive, it's really great work. Very nice to find such detailed analysis on a company that likes to operate stealthily. I'm a reporter at Bloomberg and would love to chat more if you're open, feel free to drop me an email at opoh@bloomberg.net.
Hi, thanks for the amazing set of write-ups on SE! I was wondering if you would be open to sharing your model. My email is neilnorris377@gmail.com. I was also wondering if you had any thoughts on the recent decline in price since you wrote these. Have you added to your position? Do you think the theses are largely intact?
Hi Neil - sure i can email it to you. Re the stock, I wrote a Twitter thread with some thoughts a few weeks ago - https://twitter.com/punchcardinvest/status/1478523975172980736
I think the LT thesis is still very much on track and the sell off is more narrative / market driven than anything else, but will have to watch Garena in particular for the next few quarters to see what is happening with Free Fire. More broadly, as we enter a higher rate environment it may be rough going for the stock for a while. I haven't added as its already my largest position but if it keeps dropping to sub 150 then i might have to as i think it's getting way too cheap in my opinion
Se has dropped more than 40% compared to highest price 370...will you invest more in se in this moment？
it's already about 30% of my portfolio so i'm not adding anymore, but yea at 8.3x revenue it's certainly the most attractive price it's been in the last 18 months or so. Although it may still be rough sailing for a while given how sour the market sentiment is and concerns over Garena