Sea Limited's (SE +0.58%) investors have had a great time in the last 12 months, as the stock has more than doubled.
While many factors have contributed to the stock's performance, solid performance by Shopee -- its e-commerce business -- has been the biggest factor. In particular, the business has transformed from a hyper-aggressive but loss-making growth company to one that's more balanced and sustainable.
This article will highlight three important things that investors should know about Shopee's achievements.
Image source: Getty Images.
Shopee reports its first profitable year
2024 is a crucial year for Shopee. It delivered a solid 33% growth in orders, a 28% increase in gross merchandise value, and a remarkable 38% surge in revenue. While 2024's double-digit growth was nothing to be excited about -- considering that the e-commerce company used to grow at triple-digit rates -- it is a critical inflection point as Shopee delivered its first profitable year based on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $156 million.
This milestone is critical as Shopee has been on a roller-coaster ride over the last few years. In the early days, it was a hyper-aggressive grower that consumed enormous cash from the parent company. But that strategy was unsustainable, so it had to pivot by cutting costs, exiting certain markets, and raising take rates. The pivot enabled Shopee to report profits for a while, but it came at the expense of Shopee's market share. So again, Shopee went into offensive mode, but in a more sustainable manner.
So far, Shopee's decision to return to growth mode has been the right one, as it helps sustain its leadership in key markets (more in the next section) and also delivered its first annual adjusted EBITDA.
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Key Data Points
Sustained leadership position in all key markets
One of the significant concerns that investors have is whether Shopee can sustain its market leadership as it faces ongoing competition from incumbents like Lazada and Tokopedia and newcomers like TikTok.
So far, Shopee has lived up to investors' expectations by delivering record revenue and maintaining its market share. For example, according to Momentum Works, Shopee has a 48% market share in the region it operates in. Sea CEO Forrest Li confirmed that Shopee is the "clear e-commerce market leader in all seven of our Asian markets with a sizable and growing presence in Brazil" on its latest earnings call.
Shopee's ability to sustain its market share is vital for various reasons. One is that it shows that the company's efforts at defending its market share against competitors -- such as subsidizing shipping costs -- are working. Second, it suggests that Shopee is doing many things right in retaining the mindshare (and ultimately the wallet share) of consumers in this region.
The company's leading market share provides an enormous advantage, as the it can exercise its scale to continuously improve its services while lowering its cost structure over time. Lower costs and better services would, in turn, improve customer satisfaction, giving customers good reasons to come back and spend more money on the e-commerce platform.
In short, scale begets even bigger scale over time.
Well-positioned to sustain its growth momentum
While Shopee just delivered a solid performance in 2024, there are good reasons to expect the company to sustain its momentum into 2025.
One thing is that the e-commerce platform is continuously executing its strategy of enhancing price competitiveness, improving service quality to customers, and strengthening its content ecosystem. These efforts should lead to better customer experience, retention, and, ultimately, higher spending over time.
For instance, Shopee is relying on its in-house logistics, Shopee Express (SPX Express), to provide a seamless service experience to users while continuously reducing the cost per delivery. SPX Express already delivers around 50% of its orders in Asia within two days of order placement, which should improve further in the coming quarters. Besides, the logistics cost per order fell by $0.05 year over year in the fourth quarter of 2024.
Another area that could see further improvement is Shopee's live-streaming business. In Southeast Asia, live streaming contributes around 15% of Shopee's overall order volume for physical goods, with room for further improvement. The e-commerce platform also partners with YouTube, enabling viewers on YouTube to make seamless purchases on Shopee.
In short, Shopee expects GMV to grow at around 20% in 2025.
What it means for investors
Shopee has always had a love-hate relationship with its investors. On one end, growth investors love the e-commerce business due to its enormous growth prospects. Yet, they have concerns since the e-commerce business has not been able to deliver sustainable profits despite its rapid growth.
So Shopee, by delivering its first profitable year (albeit based on adjusted EBITDA), has reached a new milestone, suggesting to investors that Sea Limited is on track with its sustainable growth strategy. If it can maintain or improve its profitability in the coming quarters, it will give investors confidence in the sustainability of its newfound strategy.
