What's the story with Shopee in South America? It launched an assault on a market dominated by MercadoLibre and was making ground. Then it scaled back. I'm not sure why. What happened. What are its plans beyond Asia?
In 2021, when capital was free during ZIRP, Shopee expanded too aggressively beyond Southeast Asia, entering Mexico, Chile, and Colombia in Latin America, as well as Poland, Spain, and France in Europe. This proved to be a costly mistake, as the company spread itself far too thin. By 2022, Shopee had withdrawn from all of these markets, leaving Brazil as its only operation outside of Southeast Asia today.
What's special about Brazil? It seems odd - either be focused exclusively on SE Asia or expand internationally, yet it seems to be floating somewhere between these two options. Do management have a solid plan in this regard, or are they making it up as they go along?
The Brazilian market has been extremely successful for Shopee, where it now holds a larger market share than Amazon. A key driver of this success was the popularity of Free Fire, which Shopee leveraged when it entered Brazil in 2019. Since 2023, management’s execution has been flawless, applying lessons learned from the missteps of 2021. Write them off at your own peril.
Sea is a challenging business to value because of its three very different segments. I believe that to value it properly, you need to assess each segment individually. As you mentioned, the fintech business significantly distorts the view of free cash flow. If you're looking for a shortcut, EBITDA isn't a bad starting point to work from.
What's the story with Shopee in South America? It launched an assault on a market dominated by MercadoLibre and was making ground. Then it scaled back. I'm not sure why. What happened. What are its plans beyond Asia?
In 2021, when capital was free during ZIRP, Shopee expanded too aggressively beyond Southeast Asia, entering Mexico, Chile, and Colombia in Latin America, as well as Poland, Spain, and France in Europe. This proved to be a costly mistake, as the company spread itself far too thin. By 2022, Shopee had withdrawn from all of these markets, leaving Brazil as its only operation outside of Southeast Asia today.
What's special about Brazil? It seems odd - either be focused exclusively on SE Asia or expand internationally, yet it seems to be floating somewhere between these two options. Do management have a solid plan in this regard, or are they making it up as they go along?
The Brazilian market has been extremely successful for Shopee, where it now holds a larger market share than Amazon. A key driver of this success was the popularity of Free Fire, which Shopee leveraged when it entered Brazil in 2019. Since 2023, management’s execution has been flawless, applying lessons learned from the missteps of 2021. Write them off at your own peril.
Insightful article!
Glad to hear you enjoyed it
Would you open a position at this levels?
What metrics do you use best to assess their value. Ebitda? Similar like meli they have a credit portfolio.
I still find it attractive below $150.
Sea is a challenging business to value because of its three very different segments. I believe that to value it properly, you need to assess each segment individually. As you mentioned, the fintech business significantly distorts the view of free cash flow. If you're looking for a shortcut, EBITDA isn't a bad starting point to work from.