Despite Upbeat Guidance in 2024, Risks and Questions on Bridge to Profitability Remain for Sea

We expect the Shopee e-commerce platform to be Sea’s main growth driver for the long term; the company’s valuation will be predicated on this business. We estimate Shopee has 30% share of its main market, Indonesia, and we estimate about 30%-35% share in the rest of Southeast Asia. It has built leading market share quickly using subsidies, free shipping, and incentives that attracted consumers to its platform, but in the process it incurred heavy cash burn and has not yet seen positive EBITDA. While positive macro signs exist and Shopee enjoys a market-leading position currently, we believe that it is too early to tell who the ultimate long-term winners will be. E-commerce is still in the early stages in Southeast Asia, and outside of a slight lead in market share, we do not see obvious distinct advantages for Shopee. As user growth has been highly contingent on subsidies that heavily increased sales and marketing expenses, we are concerned that growth could decelerate sharply once these incentives stop and when Sea becomes more focused on profitability.