Sea Limited – Shopee [Stock Geekout Ep 5.2 – 14 August 2021]

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In Episode 5.2 of Stock Geekout, we geek out on Shopee, the e-commerce platform under consumer internet company Sea Limited with Thomas Chua, founder of

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podcast Transcript

Reggie: Today in TFC Stock Geekout, it will be Part Two of our three-part special around Sea Limited. We’ll be discussing Shopee, one of the fastest growing e-commerce platform. In fact, probably the biggest e-commerce platform here in Southeast Asia today. They have some of the lowest merchant fees currently and that is definitely feeling their massive adoption efforts. It can do so because of their cash cow gaming business, Garena. We discussed that in Part One and about its amazing game, Free Fire. So check that out if you have yet to. It provides great context while understanding how Shopee is bulldozing its way around the e-commerce landscape. 

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This is a sponsored collaboration with and you will be hearing from Thomas Chua, the chief editor and independent analyst. For a limited time only, all of you will get 20% lifetime discount of SteadyCompounding’s premium subscription. Their team have broken down Sea Limited, Starbucks, Facebook, Twilio and will continue to do research in some of the most interesting investing ideas out there. 

With 30 day money back guarantee, head over to and use promo code COCONUT, C-O-C-O-N-U-T for 20% off lifetime subscription. For reference sake, this episode was recorded on the 14th of August, 2021. Our discussion for today is solely for education and entertainment purposes only. It does not serve as any advice or recommendations. Thank you for loving what we do and empowering us financially to do more for you. Let’s geek out!

Thomas: I think this is a good segue to start talking about Shopee. Shopee is actually a game… but I’m not sure this is the right way to put it, but I would say Shopee is game for the ladies. 

Reggie: Whoa, whoa, whoa, whoa, whoa, whoa. Sensitive. 

Thomas: Sensitive. 

Reggie: I know what you’re saying. Shopee is not unique to ladies, it just tends to be… stereotypically more ladies are consuming more on this kind of platform. That’s it. 

Thomas: Because typically, when you look at the traditional household, it is generally the females who are doing the household buying for the entire family. You look at the games Shopee is coming up with, like Shopee Shake or Shopee Farm or Shopee… What’s the other one? Candy Crush, Shopee version of Candy Crush. If you look at the the demographics of the gamers for this platform, you’re going to observe that there are overwhelmingly… the ladies who are playing this. 

Reggie: My reaction is very big because I usually see people play the game and I’m like “oh my god, this thing is working.” I have friends who actually like “等我一下 (Wait for me for a while), I want to claim my credit and play this thing.” I was like “really? You play the games?” “Yeah, so that I can get the credit. I can get the rebate discount”… whatever. I think they got some sort of things going on, some sort of rebate system. But yeah, my goodness, it works. Crazy. 

Thomas: It does work, right? Like in routine timing, I will see my friends logging in to do the Shopee Shake so that they can get the Shopee coins and the funny thing is when I asked them how much rebate does this give you? 1 cent, 2 cent, maximum 10 cent… and they would just login. It creates a lot of engagement this way. 

They really picked this up from the e-commerce companies in China. Because when you look at companies like Pinduoduo all these, the way they overcome Alibaba, when it comes to gross merchandise value, the amount of stuff sold on the platform, it is not just from low prices, but it’s also because they gamified the whole shopping experience.

So when it comes to getting shoppers to keep logging into the app or when it comes to acquiring new customers, you look at their games. Not just through group buying but also… let’s say we take Shopee Farm for example. You need to water your farm in order to get credit. Sometimes you cannot water the farm, you can ask your friend to do it for you and your friend who don’t have a Shopee app will have to install the Shopee app and will have to experience Shopee’s user interface. 

In that way, it’s a very smart way to acquire new users. When you look at the traditional costs for e-commerce companies to acquire new users, it’s somewhere between US$5-10. But with these Shopee coins, which is 1 cent, 2 cents, 10 cents, you’re able to acquire new users that way and keep them engaged on the platform because these games, in order to win, it is not just you log in one time, two time thing. You need to keep logging in every single day. This part is mainly to acquire female users. 

They have another way to acquire male users, which is using Garena. If you have the Garena platform, when they want to acquire new users in Brazil, for example, or in Indonesia, users of Garena, if you login to Shopee every single day, you’ll get a free gun and you’ll get a free armour, get a free gear etc.

Reggie: It works. 

Thomas: People will just log in… 

Reggie: Even I fall into these kind of traps, yes. Sometimes you play a new game, then you’re like “oh, quite engaging” and then they’ll tell you “oh, you want to click this to watch a video and then you get some extra stuff. So I do think people do this kind of very low action stuff to acquire customers and it’s going to be very powerful. My goodness. 

Thomas: That’s the thing. When people start to engage with the platform more, subconsciously they will start shopping on the platform as well. When it comes to Shopee, just within two years, they’re able to overtake their competitors who were there for decades already.

So when you look at Tokopedia, Bukalapak or Lazada… Lazada used to be the most dominant one and they really just overtook all their competitors within a short period of two years. Not just through gamification, but also through their mobile first approach. Back in 2016 and 2017, all their competitors are fighting on the web and just like Garena, a lot of folks in these developing countries, they don’t own a PC, but what they do have is a mobile phone. 

Shopee came in at just the right time and on day one, they decided that Shopee is going to be a mobile first shopping app. This gave them a leg up when it comes to acquiring the amount of users in their region. By being an app, you’re able to offer a much more robust experience. This is where all the games and the social… making the shopping online social… effects come in.

For example, when you shop on Shopee in Asia or in Brazil, people are very used to shopping as a social experience. When you go to Thailand, when you shop, you confirm will haggle. You will not buy something from the roadside without haggling. So when it comes to Shopee, you can chat with the buyer directly. It’s not just chatting with buyers in your country. In Singapore, you can chat with someone from Indonesia, from Thailand, from China and they have an auto translation software embedded inside, which is world class. They’ve actually won several awards for how accurate the translation is. 

There’s also Shopee Feed. So you see a lot of… I would hate to use the word youngsters, but okay. You will see a lot of people on social media posting their shopping experiences. Let’s say I buy LV bag today, I’ll start posting. Shopee also integrated the whole shopping experience inside. When shopping on Shopee, you’re able to see a Shopee Feed, meaning whatever your friend buys, you’re able to see what they buy if they’re willing to share and you’re able to post what you think about the product to your friends on the platform. You are able to chat with your friends on the platform as well.

So they really try and make the shopping experience in Asia… really a social event, which is again catering to consumers. When we go to Amazon or Etsy platform, you are not able to see functions like this coming up. But again, in China, you’re going to see all the e-commerce having this social function because they recognize how important is this for Asians to shop together. You don’t want it to be just a solo event. When it is social, more people would come on and you become a more sticky platform. 

Reggie: I think Shopee is trying all sorts of strategies. Everything that everyone else has, they’re also doing it but they’re also doing more with the games and everything. With your celebrity endorsement, your own merchant and all that jazz, everything else that every other platform is doing, they are also doing it. Or did they start some of these things or are they just adopting what other people are adopting also? 

Thomas: Similar to what we see in Garena, they hyper localized as well. When we look at Lazada, you’re going to see… even Grab, when we look at Grab and Lazada, you’re going to see one app being applied to the whole Southeast Asia region. When I went to Thailand or to Indonesia, Malaysia the same Grab app that will work in Singapore will work in all those countries because they are the same. There’s no customization for each country. 

But when it comes to Shopee, they have a separate app for each country: Shopee Indonesia, Shopee Vietnam, Shopee Philippines because they want to hyper localize and they do this using a lot of data analytics. For example, in Singapore, a big part of sales is going to be done through flash sales, which we probably are all very familiar. At 10 o’clock, they have one. At 12 o’clock, 2 o’clock, 6 o’clock and 10pm again and then the last one at midnight. 

Singaporeans… our shopping habit is to buy through flash sales because we need a very strong call to action. But Indonesians, they need a different sort of categorization for their consumers to work. So by having a separate app for every single country, it allows them to hyper localize and customize to whichever UX works best for the country. This is something Lazada cannot do because all their consumers are already on one app and if you want them to download a separate app, you’re going to start losing a lot of users if you do that. In that way, Shopee have a leg up against its competitors and not just when it comes to UX design. 

Also, when it comes to marketing, it is also hyper localized. When it comes to the Singapore users, you see a lot of social media marketing. You’re going to see advertisements on YouTube, on Facebook. The Shopee jingle, Phua Chu Kang is going to come up and he’s going to start singing. Mark Lee is going to come up, he’s going to start singing. 

But when it comes to Philippines and Indonesia, they use the traditional TV. In Singapore, you see the traditional Sheng Siong show. 

Reggie: Sheng Siong show, yes. 

Thomas: Every Saturday, there’ll be a Sheng Siong show. In Indonesia, in Philippines, they are going to have a Shopee show equivalent because that is what works in those countries. Because traditional media is still… and they’re very adaptable in that sense.

One big thing though that gave them a super leg up against Lazada, who was the most dominant player back in 2017 and 2018, was their willingness to use celebrity. Back then, Lazada… after it was acquired in 2017 by Alibaba, their marketing strategy became a lot more rigid because all the orders were coming from Hangzhou. They have different ways of measuring success for their employees. 

But when it comes to Shopee, they were willing to spend big on celebrity’s endorsement because it’s not just about driving the traffic to the platform for that day. It is about brand awareness. So they started to use Blackpink. They started to use Phua Chu Kang for Singapore. For Malaysia ,they used Ah Niu. For Indonesia, Philippines, they used celebrities of their own. 

But Lazada back in 2016 and 2017, including Tokopedia, they were very into using social media. When you browse a bag on the website, you’ll start seeing advertisements for that particular bag on your Instagram feed, on your Facebook feed. Those are good for converting one time sales, but it is not as good for raising brand awareness and this is where Shopee do things differently from their competitors early on.

Reggie: You know my friend’s kids can sing the Shopee song and he was freaking out. 

Thomas: It is addictive, right? 

Reggie: “I come back and I see my kids Shopee-pee-pee What the hell?” But yes, yes. Exactly, it’s a celebrity thing. Because of these celebrities and all these jingles and they dump the ads everywhere strategic to the local market, it’s building a brand identity rather than individual… every time you want to get people to buy something, you do a social ad. I think… exactly that’s the interesting part about Shopee’s rise. They’re even training the next generation, just saying. 

Thomas: When I asked my friends who’re teaching in kindergartens, their kids… the students they are teaching, they will be singing this Shopee jingle. I think they first started the Shopee jingle with the Baby Shark song and they got Ronaldo to do that Baby Shark dance. So that is just how they operated. It may not be the most brilliant thing in terms of being appealing… 

Reggie: It’s quite brilliant what. It’s so cheesy that it’s brilliant. It’s like the classic… you cheesy until a certain level, people appreciate. It’s actually quite funny. It’s quite a thing. 

Thomas: It’s brilliant in getting stuck in your head but when you measure it from a quality song per se, it’s not… but it definitely works in getting the Shopee jingles stuck in our head. In that way, whenever consumers want to buy things, usually Shopee is the first to come into their mind. So they have a very strong leg up when it comes to raising their brand awareness. 

The next step they have to do to solve the e-commerce puzzle in Asia is really to build trust with the consumers. Back in 2016 or 2017, I saw a lot of surveys as to why consumers in Indonesia per se or Malaysia are unwilling to buy… or even Singapore, unwilling to buy merchandise on e-commerce platform. Trust was one of the biggest reason. 

When it comes to buying milk powder for example, consumers would worry about buying milk powder that have late expiry dates, whether it’s authentic or not, or whether the product is damaged. Shopee works very fast when it comes to implementing these solutions. To resolve the milk powder problem, they actually came up with Shopee Milk Guarantee which certify that every product that you receive is going to be authentic and it is at least six months to its expiry date. 

They also launched a Shopee Guarantee, where payments are held in Shopee escrow account to make sure the orders are fulfilled before the payment is released to the seller. What it means is… when it comes to platforms like Pinduoduo, you see a lot of imitation, a lot of fraud going on which the Chinese government is trying to clamp down now because consumer trust is getting very low for Pinduoduo. There’s a lot of people buying things but they don’t receive the product or they receive things that are entirely different. On Shopee’s platform… 

Reggie: Quite classic. When e-commerce first started, a lot of this kind of rubbish happens. Yes, I know what you mean, I vividly experienced it. You order… wah, look very nice. Come in like “what the hell is this shit?” 

Thomas: Yeah, totally different. So the thing about the escrow account for our listeners, it is actually a third party account maintained by Shopee. You first have to make payment there and then only when you receive it then you release these payments to the merchant. It also helps the merchant because traditionally, in places such as Indonesia where banking penetration is super low, people generally pay cash on hand. Then you get a lot of problems such as payment counterfeit or people don’t show up, that kind of stuff. So buyers are also unwilling to get on the platform. When there’s Shopee Guarantee, Shopee as a third party hold the payment first, buyers are also guaranteed that’s actually a payment waiting for them if they fulfill their responsibility properly. 

Reggie: Yeah. All these are features and strategies that Shopee has done so far and I think for a lot of people listening, they probably know what is Shopee as an app from a user experience standpoint. But what is the business model then? They build all these things, how do they actually make money by building this whole marketplace with all these different features? What is Shopee’s business model? 

Thomas: That’s a great question. The way they make money is through a take rate. In other words, it is through a commission. For example, if I were to sell you a webcam right now, it costs $100. Shopee is going to take $6. Their current take rate is 6%. When we look at the very matured e-commerce players like Amazon or JD, it’s above 20% to 30%. 

When we look at 3P (third party) companies… Amazon and JD, they are a mixture of 1P (one party) and 3P. 1P means Amazon is selling you directly from its warehouse, so you’re buying from Amazon. 3P means you’re buying from an independent third party. For example, when you buy on Taobao, you’re buying from another guy in China. You’re not buying directly from Alibaba. That is the 3P model. 

Shopee is also a mixture of 3P and 1P, but largely 3P for now because their logistics and warehouse capabilities is not as strong as what Amazon and is having at the moment… so largely 3P. When we compare apple to apple, we compare 3P to 3P. Matured internet companies like eBay and Etsy, they’re commanding take rates of between 12 to 15%. 

So there’s actually a lot of room for Shopee to start increasing its take rate, but it is intentionally underpricing its services now. The take rate is going to come from a mixture of things like payment transaction fees, advertisement fees, logistics fees, shipping fees. Shopee is subsidizing a lot of that at the moment which is why it is still unprofitable. 

But the thing about the e-commerce platform is you need to start the flywheel effect, meaning when more buyers come online, then you attract a lot of buyers and buyers are naturally attracted to platforms which have a lot of sellers. So by attracting a lot of participants into your platform, you can start to raise your take rate over time, which is what Amazon, Etsy and eBay have done over the years.

Even within Shopee, they have different rates for different countries. When it comes to Taiwan, they’re actually cashflow positive already because they are already the most dominant player. They’re three times bigger than the next guy… than the next e-commerce player in Taiwan.

Reggie: They can turn up their take rate already because they don’t have to fight for market…

Thomas: Exactly, they can start turning on the profit machine already. For countries like Indonesia or even Brazil, when we look at the amount of e-commerce penetration as a percentage of total retail spend, it is still extremely low. When we look at places like Latin America, currently it is only 10.8% and when we look at places like China, it is more than 50% already. 

So actually, Shopee is still extremely nascent in this way and what they should be focusing on now is acquiring users which inevitably will show a net loss on their profit statement. But the good thing for them going is Garena is making a truck load of money, which is why they are able to fight their competitors extremely strongly before they turn on the profit making machine for Shopee.

But inevitably, it will reach that stage because when we look at their gross margins, when we look at all the financial segments, all their metrics, they are all trending in the right direction from negative cashflow to actually breaking even on a gross profit level already. They’re starting to slowly turn up the take rate in Indonesia. So they started off with 1%, I think now they’re about 4%, whereas their competitors like Tokopedia and Lazada, they are not able to turn on the take rate yet. 

Even after Shopee have started increasing their take rate, the amount of traffic they are getting is still number one when it comes to comparing against their competitors. When it comes to the game of e-commerce, you need to gain size first. Once you gain size first, then you will start to be able to monetize. So it’s common for e-commerce, you start to see them bleed heavily when they’re first starting out, acquiring users. 

Reggie: Would you say that when we’re looking at e-commerce, the fundamentals is first, we’ll look at users: MAU (Monthly Active Users) or DAU (Daily Active Users), active users on the platform, depending on what metrics they use. After that, then we talk about GMV, right? Gross Merchant Value… based on all these users, how much do they transact and buy on the platform? Then you look at the take rate, which is where the platform actually makes money. Is that kind of the process? 

In the early days of e-commerce, they have to essentially burn money to get users. After that, then the flywheel comes in and it’s amazing how e-commerce can use traditional these days. That’s how you look at traditional e-commerce businesses going forward to analyze any other e-commerce business. Is that how you would do it? 

Thomas: I thought that is an excellent point. There’s other points also, because gross merchandise value can be misleading. When you look at gross merchandise value, it is relatively easy for an e-commerce company to start turning it up. I just start offering discounts or vouchers that’s targeted at big ticket items like washing machines or laptop for example, those are super big ticket items. Then I can raise the gross merchandise value in the short period. 

But what we want to see… and this one you can only get from listening in to the earnings call is how well they’re doing in very recurring items. So the recurring categories we want to pay attention to is fashion, on health and beauty, and on home and living and on baby products, because these are much more recurring in nature compared to electronics or wholesale items.

Apart from also looking at the order basket, we also want to look at order number, the number of app downloads and the amount of time spent in app. When it comes to order number, a good e-commerce company will generally have about 4 orders per active user. Shopee is generally hovering around 6 orders per user, so they are doing quite well in that sense. 

When it comes to evaluating e-commerce companies, increasing take rate, GMV is important, but it’s also important to study other metrics to make sure that the platform is actually sticky and not just a one-off place for consumers to buy. An example of this would be Capitaland. They’re pushing hard on their e-commerce strategy also but I’m quite sure it’s not recurring. 

I bought something from Capitaland e-commerce platform two weeks back because they offered $40 off $100 purchase. But will I continue to buy from Capitaland? I will not. It’s just not as sticky for me as… the range of products Shopee offer and the prices Shopee is able to give. So when you have a lot of sellers on the platform, when you have a range of products, including food related, including movie tickets, I’m more likely to buy from Shopee. 

The way to get a hint of stickiness is really to look at the various metrics we discussed, like active users, time spent, order number per basket, average basket size. It’s important as investors, we tune into these earnings calls to get a sense of how sticky the platform is. 

Reggie: Yup, yup. Important. I have a friend who worked… quite senior in Lazada, cannot say who and what, but yeah. The person was saying that “you know, Capitaland, all these companies, they’re trying to do all these things. They really don’t know how to play the game. They should just use the platform.” 

So I think some of the traditional companies like Japan Home or… I can’t remember who else, but Japan Home specifically, they are using all the platforms: Shopee, Lazada, Qoo10 and what have you. They are just focusing on their main business which is to funnel products, move products and sell, move products and sell. They don’t need to build out their whole e-commerce strategy. They don’t need to build out their infrastructure, they just tap on it whereas a lot of these other bigger companies, they… e-commerce! “We’re going to do a new business vertical.” 

As an investor I think you really got to vividly ask yourself: can these people do it? It’s a very different business. Are they willing to burn? I think that’s fundamentally very important because they will have to dedicate a lot of capital to burn through this business in the early days. I think a lot of these traditional big companies are not willing to do it. They don’t understand this game and they’re not willing to spend so they will never succeed in the e-commerce strategy in my view. 

Thomas: Yeah, I agree. When you look at Capitaland, I agree with what your friend said. Do they know how to play the game? If I were Capitaland, I would not give a $40 one-off voucher. I would spread it like $5, $5, $5… so that consumers will build a habit of coming back to the platform. For companies like Japan Home, as investors when we look at companies, they say they want to have a e-commerce strategy, they’re going digital. Should we be excited? We first ask ourseleves: will we install that app? How often will we go to Japan Home app to buy things? 

If it doesn’t get you excited because it doesn’t carry that range of products you are looking at, then probably not. Probably they should be selling on these 3P marketplaces because consumers can buy a range of things on food related, groceries, everything, fashion… everything you need, they will be on this platform.

Reggie: Exactly. So shout out to Japan Home and support local. But also, I do think… we segue a little bit. I think Capitaland, if they really want to play this game, they should make use of their local infrastructure because they got all these malls, they can do a lot of gamified experiences in the mall. They can get people to go and find certain things, do certain hunts. They can build up a traction on their apps physically with their infrastructure at the mall, at the space. But I think recently… also a bit hard for them. 

Thomas: Yeah, it’s tough. 

Reggie: Yeah, Covid and all that shit. But I think that the main idea is not to give them ideas, the main idea is to let the listeners know that all these companies that are trying to tell you they’re going to go e-commerce, they are going to go digital, be very cautious about what they are telling you. Because every management would tell you all the upside, the beautiful, the total addressable market, all that shit, but do they know how to play the game? Do they understand that they’re going to be spending a lot of money? Do they specifically tell you they are capital vested, ready to pump in and what is their strategy? I think all these are things that we need to be very, very aware of. Okay, any last things for Shopee?

Thomas: I thought the last thing I’ll bring up is the rate at which they’re executing is really world-class. When you look at how fast they’re growing in Indonesia,it has been triple digits for over 100% for the last 1-2 years. As investors, we get used to it. I was starting to take it for granted until I saw the prospectus for Bukalapak because they just came IPO this year. During Covid, they only grew 20+% whereas Shopee, even though they’re already the biggest, Bukalapak is coming from a smaller base, but still they only grow 20+%, but Shopee grew over 100% in 2020. 

It just outlines how well management is executing with their localization strategy, with their use of celebrities’ endorsements etc.

Reggie: Very important. We cannot take good execution as the benchmark. We must recognize this is a well executed company…

Hey Coconuts! So I hope you learnt something useful today and definitely recognize that investing is a personal decision. We’re not giving you any recommendations here but we’re always happy to geek out with you about different, interesting companies and trends for the future. 

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