SE looking to gain e-commerce market share amid benign competition in the region
- All major players raised take-rates in Sep 2024, highlighting continued focus on profitability and benign competition
- Shopee is winning market share with merchants consolidating towards Shopee & TikTok Shop, Live-commerce dominance & Gen-AI are key drivers.
- Shopee Brazil achieved positive EBITDA margin for the first time in 3Q24; trend likely to continue
- Maintain BUY with a higher TP of USD157
SE looking to gain e-commerce market share amid benign competition in the region
All players raised major Southeast Asian markets’ merchant fees in September 2024. In Indonesia, Tokopedia / TikTok Shop increased merchant fees to 8%, from its previous maximum of 6.5%, in Sep ‘24. Shopee raised fees for certain sellers in Indonesia to a range of 4.25-8% compared to the previous range of 3.5-6.5%. In Thailand, Shopee and Lazada increased their upper limit from 9% and 7% to 11%, while TikTok Shop raised its maximum rate from 7% to 8%. Malaysia saw notable increases, with all platforms revising their ranges to a higher ceiling, with Shopee and Lazada now at 3.5-14.5%, and TikTok Shop at 3.5-14%. Vietnam's rates also modestly increased, with Shopee and Lazada seeing higher rates (up to 8.2% and 9.1%, respectively) and TikTok Shop rising to 6.4%. In Singapore, Shopee's rate increased from 5.5% to 7%, Lazada rose to 6%, and TikTok Shop expanded slightly to 4-5%. Lastly, the Philippines showed an increase across all platforms, with Shopee reaching up to 9.80%, Lazada at 9.80%, and TikTok Shop extending its range to 4.86-8.16%.
Shopee is winning market share from smaller players including Lazada while TikTok Shop’s market share has been stable in 9M24. Shopee’s target of mid-20% y/y GMV growth in 2024 is based on gaining market share from smaller players, including Lazada. According to Cube Asia, Lazada’s sales in 1H24 decreased by more than 10% y/y, which is in stark contrast to the 33% GMV growth recorded by Shopee in 1H24, in a year when Southeast Asia’s e-commerce market was rapidly growing. Some sellers are gradually shifting their focus away from joint business planning with Lazada to platforms like Shopee and TikTok Shop.
However, TikTok Shop shifted its focus to ROI and profitability in FY24, which has eased the competitive pressure on Shopee. According to Viêt Nam News, Shopee is reported to have held 71% of the market share in August 2024 in Vietnam, compared to 22% for TikTok Shop. However, Lazada’s and Tiki’s market shares declined further to 5.9% and 0.7%, respectively (vs. 14% and 1% in 2023). In Indonesia, TikTok resumed operations of TikTok Shop in Dec 2023, following a halt in transactions in Oct 2023. This was after TikTok acquired a majority stake in Tokopedia, granting it the rights to operate TikTok Shop in Indonesia. As a result of the transaction, Tokopedia will receive a share of profits from future TikTok Shop sales. According to EqualOcean, as of Feb 2024, Shopee commands a market share of 64.2% with a GMV of IDR3.2tn, followed by TikTok Shop and Tokopedia, with market shares of 22.4% and 12.3% with GMVs of IDR1.1tn and IDR631mn, respectively.
In 2Q24, SE noted a trend of market share consolidation, which we believe is allowing the company to raise take rates without significantly impacting GMV growth. This is due to significant investments in e-commerce in FY23, including: (i) Shopee’s dominance in live commerce, (ii) logistics cost leadership, and (iii) enhancements to the user experience, such as on-the-spot returns and handling returns for certain sellers. In 2Q24, SE focused on enhancing live-streaming services by expanding its network of influencers and content creators. Additional measures included the launch of Live Ads in Asian markets and the introduction of a “Change of Mind” returns feature. The return feature boosted user stickiness and repurchase frequency, with Malaysia experiencing a >10% increase in average basket size among users who utilised the return option.
Shopee Live dominates Indonesia's live commerce market with a 74% share; Live commerce in Asia Pacific is expected to see 20% CAGR over 2024-31. According to KBV Research, the live commerce market is Asia Pacific is expected to experience a 20% CAGR over 2024-2031. In Indonesia’s live commerce space in 2023, Shopee Live led with a dominant 74% market share, followed by TikTok Live (20%), Tokopedia Play (10%), and LazLive (9%), according to a survey by Populix. The survey also indicates that Shopee Live is the most popular platform, thanks to its user-friendly features, competitive pricing, frequent free shipping offers, and the largest discounts and cashbacks. Additionally, Shopee’ focus facilitating buying and selling encourages customers to open the app with the intent to spend, leading to higher conversion rates for brands using live shopping. Shopee also incentivises viewers to join live streams by offering rewards, such as coins redeemable for cash or additional coupons.
Shopee Live gains an edge over LazLive with a co-hosting feature and superior user experience. Customers may prefer shopping on Shopee Live over other apps because it allows sellers to co-host live-stream events, facilitating collaborations between multiple sellers. While both platforms offer similar live-streaming functionalities, Shopee distinguishes itself with its co-hosting feature, which could attract a broader audience and enhance the shopping experience. According to Virbo, users frequently complain about insufficient product information on LazLive, forcing them to waste time watching irrelevant products. Additionally, the platform has been criticized for occasionally delivering incorrect items, which are difficult to return. Sellers have also expressed dissatisfaction, citing issues such as the inability to schedule live streams and poor live stream performance that fails to meet basic standards.
SE has significant potential to improve adj. EBITDA through e-commerce profitability. In 3Q24, SE’s e-commerce segment generated an adj. EBITDA of USD34bn, amounting to 0.1% of GMV. GRAB generates adj. EBITDA to GMV of ~4%, and SE has significant potential for improvement. SE can improve profitability by increasing take rates and reducing sales and marketing (S&M) expenses. Looking ahead, we expect S&M expenses to decrease as a proportion of revenue, in line with consensus expectations.
In 3Q24, SE improved monetisation in both the commission and advertising spaces. In advertising, the company improved its ad-tech to attract more sellers to its paid-ad features. In 2Q24, Live Ads were launched in Asian markets, allowing streamers, including both merchants and creators, to insert ads into Shopee Live. In Indonesia, one in four active streamers paid for Live Ads in June 2024, with the feature helping streamers boost sales efficiently while increasing SE’s ad take rate. Commissions saw industry-wide increases. However, we believe Shopee can further increase take rates, as they are still lower compared to global peers such as Meituan and JD.com. We project take rates will gradually rise to 13% in FY25F, from 12.4% in FY24F and 11.5% in FY23. According to our regression analysis, value-added services (VAS) bring in higher take rates of ~14% compared to core marketplace and product take rates of ~6% and 8% respectively. However, due to the costs involved in VAS, such as the provision of free shipping, a higher proportion of VAS revenue is detrimental to SE’s profitability. Reduction in the proportion of VAS revenue to 25% in 3Q24, from 28% in 3Q23, corresponded to an improvement in SE’s’ adj. EBITDA margin from 52.2% to 56.5% in 3Q24.
YouTube partnered with Shopee in September 2024. YouTube has teamed up with Shopee, Southeast Asia’s leading e-commerce platform, to expand its shopping features in Indonesia, Bloomberg reported. This strategic partnership reportedly aims to attract more shoppers and strengthen Shopee’s position in the competitive Indonesian market. Under the agreement, content creators on YouTube can now directly promote and tag products from Shopee in their videos. Viewers can then click on the link to purchase the item on Shopee’s platform. This feature will not only benefit content creators through commissions but also provide a seamless shopping experience for viewers.
Temu was blocked from entering Indonesia in Oct ‘24. Indonesia's Ministry of Communication and Information blocked the Chinese e-commerce app Temu in Oct ‘24, citing its failure to comply with local regulations. The ministry expressed concerns about predatory pricing and price dumping, which could harm Indonesia's MSMEs by driving consumers toward cheaper foreign products. Additionally, Temu was not registered as an electronic system operator (ESO), making its operations illegal in Indonesia. It also failed to meet local tax requirements.
Temu and Shein suspended Vietnam operations in December 2024. Temu and Shein temporarily suspended operations in Vietnam in December 2024 until its applications, now under review, receive approval from the Ministry of Trade. Temu and Shein failed to register their domains in Vietnam before the end-November deadline and are now collaborating with Vietnamese authorities to complete their e-commerce registration and resume services. In October 2024, Vietnam required Shein and Temu to register with the government by the end of November, threatening domain and app suspensions.
Maintain BUY with a higher TP of USD157 (prev. USD126). The upward revision in TP is due to i) a 3% upward revision in FY25F group adj. EBITDA excluding e-commerce and ii) a rise in valuation of combined gaming plus fintech to 15.3x EV/EBITDA (prev. 12.5x), based on a 10% discount (prev. 10%) to peer average multiple of 17x (prev. 13.9x). FY25F e-commerce revenue is valued at a 3.8x EV/revenue (prev. 3.0x), a 35% premium to peers, considering SE consensus expected e-commerce revenue CAGR of 18% over FY24F-26F vs. peer CAGR of 9.4%. We have factored in USD4.1bn (unchanged) net cash.
| FY Dec | 3Q2023 | 2Q2024 | 3Q2024 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 3,310 | 3,807 | 4,328 | 30.8 | 13.7 |
| Cost of Goods Sold | (1,869) | (2,222) | (2,467) | 32.0 | 11.0 |
| Gross Profit | 1,441 | 1,585 | 1,861 | 29.1 | 17.4 |
| Other Oper. (Exp)/Inc | (1,569) | (1,502) | (1,659) | 5.7 | 10.4 |
| Operating Profit | (128) | 82.9 | 202 | (258.5) | 144.2 |
| Other Non Opg (Exp)/Inc | (32.0) | (25.3) | (34.1) | (6.5) | 34.7 |
| Associates & JV Inc | (0.44) | 1.22 | (6.03) | (1,279.6) | (596.2) |
| Net Interest (Exp)/Inc | 77.9 | 81.7 | 83.7 | 7.5 | 2.4 |
| Exceptional Gain/(Loss) | 0.00 | 0.00 | 0.00 | - | - |
| Pre-tax Profit | (82.3) | 141 | 246 | nm | 75.1 |
| Tax | (61.7) | (60.6) | (92.6) | 50.1 | 52.8 |
| Minority Interest | (5.24) | 1.95 | (4.51) | 13.8 | (331.0) |
| Net Profit | (149) | 81.9 | 149 | nm | 81.9 |
| Net profit bef Except. | (149) | 81.9 | 149 | nm | 81.9 |
| EBITDA | (20.6) | 181 | 295 | nm | 63.1 |
| Margins | |||||
| Gross Margins (%) | 43.5 | 41.6 | 43.0 | ||
| Opg Profit Margins (%) | (3.9) | 2.2 | 4.7 | ||
| Net Profit Margins (%) | (4.5) | 2.2 | 3.4 |
Source: Company, DBS
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