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Sea Group – bright star in South East Asia’s tech sky

When you think of large innovative companies from Singapore, you probably think of the Grab ride-hailing service. But there are other big names that are worth a look – names that may not be so well-known yet. Sea Group is one of those names.

The global consumer internet company has grown extremely recently. Its total adjusted revenues in the second quarter of 2020 amounted to USD 1.3 billion – almost twice as much, or more precisely 93.4% higher than in the second quarter of last year.

Sea Group runs the most visited e-commerce platform in Southeast Asia, Shopee, and the most downloaded app in the world in 2019, Garena Free Fire. Sea Group’s payment services arm, SeaMoney, develops digital financial solutions for AirPay, ShopeePay, ShopeePayLater, and other related brands.

Forrest Li founded the company in 2009 as Garena, an online games portal and this remains as a core business. It attracted investors like Tencent. Listed on the New York Stock Exchange in 2017, Sea Group is recognised as the most valuable public company in Singapore, having a market capitalisation of $69 billion as of August 19, 2020. The stock rose nearly 300 percent since the beginning of 2020. Some experts see Sea as the Tencent and Alibaba of South East Asia.

Garena games – worldwide success

One of the main drivers of the company’s growth is its online gaming business, Garena. Its multiplayer game, Free Fire, has attracted around 500 million active users by the second quarter of 2020. The game was created for an audience that uses mobile devices in the low to medium segment. It takes up very little space on memory and has simpler graphics. The maximum number of players is 50, who play for only 10 to 15 minutes.

According to analytics plattform App Annie, Free Fire became the most downloaded mobile game of 2019. The game’s popularity boosted Sea’s entertainment revenue which was up 61.6% year-on-year in the second quarter of 2020.

Shopee’s growth

Like Garena, Shopee has hit milestones in the digitally savvy region. Launched in 2015, Shopee became the most downloaded shopping app in Southeast Asia and one of the top three e-commerce sites worldwide in the first half of 2020, according to App Annie.

While considered a late comer in e-commerce, Shopee was able to keep up with multiple competitors, such as Alibaba’s Lazada, Indonesia’s Tokopedia, and Vietnam’s Tiki. One reason for this is considered to be the “Mobile First” approach.

“Back in early 2015, we were looking at e-commerce as an industry and while there were players who had been there, we saw that there was a lot of [potential] growth and many areas that weren’t being addressed well by existing players,” says chief commercial officer Zhou Junjie in an interview with the South China Morning Post.

The e-commerce segment is still unprofitable for Sea, however, it has grown faster than digital entertainment. From a revenue of $24.08 million in 2017, it grew nearly 50-fold to to $1.12 billion in 2019. But operating losses on those sales were at $1.52 billion.

The company’s speedy growth comes with costs, particularly its aggressive marketing expenditure for its e-commerce and gaming business that helps them compete for market share.

“We are focused on investing in growth, in extending our market leadership that will bring us much better return in longer run and profitability,” Yanjun Wang, group chief corporate officer, said during an earnings call in May 2020.

Expanding SeaMoney

Sachin Mittal, technology analyst at DBS in Singapore, told Nikkei Asia the losses are acceptable since growing the market share, not profitability, is the priority at this stage. Mittal expects losses “for another two years due to the intense competition” in terms of adjusted earnings before interest, taxes, depreciation, and amortisation.

Moreover, Sea Group is expected to spend more to increase market share for SeaMoney, which offers micro-lending, payment processing, and other digital financial services and products. SeaMoney is competing with big players like Alipay, which is managed by Ant Group, an affiliate company of Alibaba.

To broaden its reach in the Southeast Asian digital payments market, Sea Group applied for a digital full bank license in Singapore in January 2020. This will allow the company to take consumer deposits and make loans especially for the millennial market and SMEs in Singapore.

The company is focused on growing its three digital segments but is also monitoring opportunities in online food delivery, e-learning, and telemedicine. The CEO said that the company is open to serving more users worldwide, but Southeast Asia remains its priority.