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Games, e-commerce and e-finance: Which one can save Sea Group

Updated:2022-03-14 10:53:02   

Controlling games, e-commerce and financial services is what Chinese Internet giants have racked their brains to achieve, but they have never made it.

Li Xiaodong, founder of Sea Group (Business Times/file photo)

Sea Group, an internet firm in Singapore, however, has made the impossible possible. Founded in 2009, Sea Ltd. has grown to be a most influential tech company in Southeast Asia via its Garena online games, Shopee e-commerce platform and SeaMoney financial services.

With personal assets of 19.8 billion US dollars, the group founder Li Xiaodong, a Chinese Singaporean native of Tianjin, was listed as the richest man in Singapore on August 31 last year, surpassing Zhang Yong, another Singaporean billionaire who founded of the Haidilao chain of hot pot restaurants.

In spite of this, Sea Group, featuring business modes like those of Tencent and Alibaba, has seen a sharp fall of its share price in the past half a year, from 200 billion US dollars at its peak to 54 billion at present. So what happened?

Game in difficulties

The financial report released by Sea Group on March 1 shows that in the past year, the total revenue of the group was 9.96 billion US dollars, a year-on-year increase of 127.5%, and the net loss was 1.57 billion US dollars, an increase of 17.9%.

In 2021, online games won the group a revenue of 2.77 billion US dollars, while e-commerce and financial services reported losses of USD 2.55 billion and USD 600 million respectively.

So Sea Group’s sustainability is defined by the development of its online game business.

The firm’s success began with games. In 2010, Sea Group invited in Tencent's investment. With its Garena holding proxy of League of Legends in Southeast Asia, the group began to make profit in the gaming business two years later.


League of Legends -- a multiplayer online battle arena (Photo/Sea Group)

Holding 39.7% of the monthly equity, Tencent later granted Garena the proxies of its games, such as Arena of Valor and QQ Speed, making Garena a most influential game publisher in Southeast Asia.

In January, Tencent reduced its shareholding in Donghai Group from 21.3% to 18.7%. Besides, it also intends to convert Class B shares with super voting rights into Class A shares, via which Tencent's voting rights in Sea Ltd. will drop to less than 10%.

Tencent said it would remain top stake holder in Sea Group, but its recent moves already sent a negative signal to the market, and the share price of Sea Group fell like accordingly.

In February, India banned a number of Internet apps related to China, and Sea Group was also affected, with its most popular game Free Fire on the Indian ban list.

As a free-to-play multiplayer mobile action battle royale game, Garena Free Fire is played by millions of smartphone users.

Sea Group's share price dropped by as much as 18.39% amid the Indian ban, and its market value evaporated by about 16 billion US dollars. The impact of Indian ban showed the group relied too much on this game.

Free Fire is Garena's only self-developed game with great success, and it contributed the income bulk of the online game publisher at present.


Poster of Free Fire (Photo: official website of the game)

In 2021, Free Fire ranked second in terms of monthly active users on Google Play, and India's market has seen a monthly download of 67 million times, accounting for nearly 30% globally.

Losses in e-commerce

In 2015, Sea Group launched the Shopee e-commerce platform, in a bid to boost business growth in Southeast Asia.

Back then, the e-commerce market in Southeast Asia had been dominated by Lazada under Alibaba and Tokopeida invested by JD.COM. Facing the e-commerce giants, Sea Group has no obvious advantages in competition, for it was basically a online game company.


Potential of digital economy in Southeast Asia (Photo/Nikkei News)

Based on such realities, the group didn't use the same operation mode in different countries and regions. Instead, it set up local teams for stronger localized operation capability.

After several years of hard work, Shopee has become the most downloaded shopping APP in Southeast Asia, with its GMVs and orders maintaining a three-digit growth for quite a while.

However, the number of Shopee users would soon reach its up-limit and Sea Group was to be faced with decrease of marginal revenue.

To maintain growth, Shopee began to step out of Southeast Asia and entered the broader world market.

Shopee went online in Brazil in October 2019, and through localization and cost-effective operation, the shopping app topped the download list in a month.

At present, Shopee's market share in Brazil has exceeded Mercado, the local e-commerce platform. In addition, it has also opened branches in Mexico, Chile, Colombia, Argentina and others.


Shopee tops the Brazilian shopping apps. (Photo/JJ teahouse)

The rapid expansion resulted in sharp rise of costs in logistics and operating. As a result, Shopee has not yet made profit. On the contrary, it has consumed most of the group’s profits from Free Fire and others.

What’s the future in store?

The pressure of game business, high expansion cost and deep binding with Tencent are the limiting factors of Sea Group's business development.

In the increasingly turbulent global market, profitability in the short run makes key to enterprises, but Sea Group has had big deficits, resulting in falls in stock prices.

Sea Group has also launched the SeaMoney financial services, linking up its games and e-commerce. The 2021 data showed the quarterly active users of SeaMoney reached 45.8 million, up 89.7% year on year.

Although SeaMoney is still losing money, the group’s CEO Li Xiaodong believes that it will begin making profit next year. By then, SeaMoney and Shopee will inject impetus into the long-term development of Sea Ltd.

Taken as whole, the business pattern of "games, e-commerce and finance" is promising. If Sea Group is able to balance well between profit and development, it may make a difference in the business world.


A tri-polar business configuration of "games, e-commerce and finance" (Photo/Sea Group) 

Writing by Kou Dayong (South Reviews); Trans-editing by Wang Shixue 

Keywords:   Games e-commerce Sea Group