Is Shopee’s flywheel still flying?

Hi friends 👋,

Happy Wednesday and welcome to the 3rd edition of Weekly Olio.

Many thanks for all your support and feedback so far, we hope it continues the same in the coming days and weeks. 😊 

Let’s get to it.

P.S. With today’s edition, we are introducing an additional column called Publisher’s Parmesan that will carry original thought pieces on some interesting and relevant developments around the world. This time, we bring you commentary on the current operations of Shopee. 🛒

For context, Shopee is the e-commerce arm of the Singapore based SEA Group - South East Asia’s largest Internet company with a strong presence in gaming and fintech, in addition to e-commerce. 🌏

Publisher’s Parmesan 🧀

Is Shopee’s flywheel still flying?

In mid-2021, SEA Group looked (seemingly) invincible. It acquired an Indonesian bank (now SeaBank Indonesia), launched ShopeeFood, and entered into new markets like India, Chile, France and Spain with Shopee’s e-commerce offering.

As you see above, the markets seemed to love this aggressive expansion with SEA’s stock almost doubling in 2021. A large part of this growth was driven by Shopee with order volumes doubling from 1 Bn per quarter to a cool 2 Bn by Q4’22 🤯 

How did Shopee manage to do this? Let’s see…

Shopee, in the past, has followed a three-pronged strategy:

1. Building a strong core of scale using free shipping to spin the flywheel: Free shipping has allowed the company to drive scale and customer experience, which in turn drives value across the flywheel from merchants to end customers.

2. Leveraging last mover advantage: Shopee is okay to wait for existing players to educate the market and come in to reap the benefit later. This played out when they launched Shopee Fresh, Shopee Express etc.

3. Adopting proven models and tactics from China: In Southeast Asia, it has been well established that Chinese e-commerce models work very well. What Shopee does well is adapting and managing the local team effectively while running the Chinese playbook.

However, starting in 2022, there was a complete reversal of fortunes. With broader tech indices falling, we heard about Shopee’s exits from these new markets and more recently, layoffs.

So, is the mojo gone already?

Though Shopee continues to lose money, there are signs of promise. Losses per order have improved, while in most mature markets, it is operating close to a break even.

In Q3’22, Shopee’s combined Asia markets recorded positive contribution margin with Malaysia and Taiwan turning adjusted EBITDA positive. All of this while maintaining market leadership and growing marketplace revenue by 40% YoY.

There is another factor at play. SEA Group is a skilled driver, and knows when to seize the moment and when to capture opportunities across its ecosystem of companies.

But being part of the SEA group is a double-edged sword in itself. Till recently, SEA used cash generated through its gaming arm (Garena) to fund a part of Shopee’s growth. But of late, Garena has been dealing with a drop in Active Users. And that’s the reason for the push towards cost reduction in Shopee’s key markets.

So far, analysts have given a thumbs up to the renewed focus on profitability instead of outright, blistering growth. However, how it plays out, in the long run, remains to be seen.

The Quote 💭

The Tweet 🐦

All said and done, time is our most precious asset. Better spend it wisely. 🦉

The Infographic 💹

On 15th November, the world population hit the 8 Bn mark!!! How far the humanity has travelled, just makes us wonder 😵

Credits: Livemint

The Short Read 📝

Meet the company that sells your lost airplane luggage - by The Hustle 

If you’ve ever permanently lost a checked bag, your stuff probably ended up for sale at a store somewhere in the world. Yes, there is a secondary market for lost luggage. Bizzare, right? 😅

The Long Read 📜

The Image Society: How Nasir Ahmed Shaped Image-based Life - by Steven Johnson

Steven Johnson is the bestselling author of 13 books, including Where Ideas Come From. He’s the host of the PBS/ BBC series Extra Life and How We Got to Now.

Fifty years ago, computer scientist Nasir Ahmed came up with a brilliant idea for compressing data, laying the groundwork for Zoom, Youtube, Instagram, and all the other cornerstones of today's image-based online life. Here’s a testament to his path-breaking work that makes video-calling, image-sharing and remote work a reality.

That’s all for this week. If you enjoyed this edition, we’d really appreciate if you shared it with a friend, family member or colleague.

We’ll be back in your inbox 2 pm IST next Wednesday. Till then, have a productive week!

Peeyush and Mohit

Disclaimer: The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual.