<article>As <a href="http://dealstreetasia.com/tag/sea-group" target="_blank" rel="noopener">Sea Group</a> &#8211; formerly Garena &#8211; prepares for its public listing on the New York Stock Exchange (NYSE) to raise $1 billion, the company is looking to grow and monetize its user base and develop the fintech platform.</article>

As <a href="http://dealstreetasia.com/tag/sea-group" target="_blank" rel="noopener">Sea Group</a> &#8211; formerly Garena &#8211; prepares for its public listing on the New York Stock Exchange (NYSE) to raise $1 billion, the company is looking to grow and monetize its user base and develop the fintech platform.
And, the tech firm has no qualms accepting that with its &#8220;history of net losses,&#8221; it may remain challenging to achieve profitability in the future.
The firm believes its three key businesses, digital entertainment (Garena) , e-commerce (Shopee) and digital financial services (AirPay), are likely to see substantial growth in the region&#8217;s growth markets.
In a recently released prospectus the SEA Group noted: &#8220;We had net losses of $90.9 million, $107.3 million, $225 million and $165.2 million in 2014, 2015 and 2016 and for the six months ended June 30, 2017, respectively.&#8221;
It further added that the net losses in the last three years &#8212; 2014, 2015 and 2016 &#8212; and for the six months ended June 30 this year, were primarily due to significant sales and marketing expenses, in particular promotions, which include subsidies for shipping for Shopee users, in order to expand our e-commerce business.
Despite this, the Sea Group also believes it maintains a strong market position, with the regions&#8217; underlying fundamentals being drivers for future growth. The proceeds from the listing will be used by the company for growing our business, including user acquisition, content procurement and research and development while the remainder will be deployed for working capital and other general corporate purposes.
&#8220;The amounts and timing of any expenditures will vary depending on the amount of cash generated by our operations, and the rate of growth, if any, of our business, and our plans and business conditions. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management will have significant flexibility in applying and discretion to apply the net proceeds of the offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus,&#8221; the prospectus has said.
Meanwhile, the company may also grapple with <a href="https://www.dealstreetasia.com/stories/china-tech-giants-southeast-asia-73934/" target="_blank" rel="noopener">competition from Alibaba and Tencent through their web of investments in Southeast Asia</a> and a history of net losses, with the potential for these losses to continue as it grows the depth and reach of its footprint in Southeast Asia. China&#8217;s Alibaba already owns Southeast Asia&#8217;s leading e-commerce player Lazada and and recently pumped in a $1.1 billion investment in Indonesia-based e-commerce platform Tokopedia.
In terms of fintech as well, it is partnering with local players in the region while Alipay is already present in some countries. Meanwhile, JD.com has partnered Thailand&#8217;s Central Group pooling millions to create e-commerce and financial tech joint ventures.Moreover JD is also learnt to be looking at e-commerce assets in the region to grow its footprint. Not just that, US-based Amazon is also slowly trying to make inroads into the region.
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<figure id="attachment_82883" aria-describedby="caption-attachment-82883" style="width: 700px" class="wp-caption aligncenter"><a href="https://media.dealstreetasia.com/uploads/2017/09/sea_group-business-segments.jpg"><img loading="lazy" decoding="async" class="wp-image-82883 size-full" src="https://media.dealstreetasia.com/uploads/2017/09/sea_group-business-segments.jpg?resize=640,807" alt="" srcset="https://media.dealstreetasia.com/uploads/2017/09/sea_group-business-segments.jpg?w=700 700w, https://media.dealstreetasia.com/uploads/2017/09/sea_group-business-segments.jpg?resize=238,300 238w" sizes="(max-width: 700px) 100vw, 700px" data-recalc-dims="1" /></a><figcaption id="caption-attachment-82883" class="wp-caption-text">Credit: SEA Group Ltd. </figcaption></figure>
In their <a href="https://www.sec.gov/Archives/edgar/data/1703399/000119312517291352/d363501df1.htm" target="_blank" rel="noopener">prospectus</a>, the firm explains: &#8220;We believe we are the leading internet company in Greater Southeast Asia, or GSEA, based on our number one market share by revenue in the region’s online game market, our number one market share by GMV and total orders in the region’s e-commerce market, and our position as a leader in the region’s digital payments market by e-wallet GTV, each in the first half of 2017.&#8221;
With an &#8220;integrated platform consisting of digital entertainment (focused on online games), e-commerce, and digital financial services (focused on e-wallet services), each localized to meet the unique characteristics of GSEA [Greater Southeast Asia],&#8221;the firm believes that it can leverage on the rapid economic growth and the early stages of internet penetration present in the region&#8217;s markets to offer investors a compelling business narrative.
The company plans: &#8220;GSEA’s markets are increasingly interdependent, particularly for internet business models. From a consumer behaviour perspective, these markets exhibit distinct characteristics from North Asia and South Asia, and consequently require dedicated focus and local market knowledge, which gives us a “home court advantage.”
According to the prospectus, the firm has increased its total revenue from $160.8 million in 2014 to $345.7 million in 2016, a CAGR of 46.6 per cent, with total revenue increased by 17.3 per cent from US$166.7 million in the six months ended June 30, 2016 to $195.5 million in the same period in 2017.
Meanwhile, its gross profit increased from $36.2 million in 2014 to $113.1 million in 2016, a CAGR of 76.8 per cent, though its&#8217; gross profit decreased by 5.5 per cent from $56 million in the six months ended 30 June 2016 to $52.9 million in the same period in 2017.
It reported net losses over three consecutive years of $90.9 million, $107.3 million, and $225.0 million in 2014, 2015, and 2016 respectively, with $87.1 million and $165.2 million of losses in the six months ended 30June 30 2016 and 2017, respectively, due to investments into expanding its e-commerce business.
Also Read: <a href="https://www.dealstreetasia.com/stories/southeast-asian-e-commerce-firm-sea-says-applies-nyse-listing-82835/" target="_blank" rel="noopener">Southeast Asian e-commerce startup Sea Group to list on NYSE in potential $1b IPO</a>
<a href="https://www.dealstreetasia.com/stories/for-sun-india-offers-potential-but-it-comes-with-challenges-says-chua-kee-lock-68497/">Exits are a problem in Southeast Asia and India: Chua Kee Lock, Vertex Venture Holdings</a>
<h3>Challenges?</h3>
Internet firms in Southeast Asia and other emerging markets, as well as internationally &#8211; with <a href="http://dealstreetasia.com/ta/uber" target="_blank" rel="noopener">Uber Technologies</a> being the prime example &#8211; often <a href="http://knowledge.wharton.upenn.edu/article/growth-vs-profits-ubers-cash-burn-dilemma/" target="_blank" rel="noopener">sacrifice profitability to accelerate their growth</a> and build their market share.
It adds, &#8220;In 2014, 2015 and 2016 and for the six months ended June 30, 2017, our sales and marketing expenses equalled 42.8%, 30.5%, 54.2% and 70.6% of our total revenue, respectively. As we seek to monetize the user base and gradually reduce these promotions, we cannot assure you that doing so will not adversely affect user experience, or that our users will not leave our platform.&#8221;
The firm adds that it expects its operating expenses to &#8220;continue to increase as we invest in marketing efforts, hire additional local employees, and continue to invest in the development and expansion of our platform, including offering new content and services,&#8221; while adding that projections regarding increases in revenue may not be adequate to offset such expenses
Notably, the firm adds that intends to engage in actions that may not be beneficial to its short-term finances and boost short-term operating losses, with no assurance of long-term benefits or profitability.
<figure id="attachment_82884" aria-describedby="caption-attachment-82884" style="width: 700px" class="wp-caption aligncenter"><a href="https://media.dealstreetasia.com/uploads/2017/09/sea-group-business-factors.jpg"><img loading="lazy" decoding="async" class="wp-image-82884 size-full" src="https://media.dealstreetasia.com/uploads/2017/09/sea-group-business-factors.jpg?resize=640,746" alt="" srcset="https://media.dealstreetasia.com/uploads/2017/09/sea-group-business-factors.jpg?w=700 700w, https://media.dealstreetasia.com/uploads/2017/09/sea-group-business-factors.jpg?resize=257,300 257w" sizes="(max-width: 700px) 100vw, 700px" data-recalc-dims="1" /></a><figcaption id="caption-attachment-82884" class="wp-caption-text">Credit: Sea Group Ltd. </figcaption></figure>
The IPO comes at a time when <a href="https://www.dealstreetasia.com/stories/chinese-internet-majors-compete-to-dominate-asean-tech-ecosystem-78535/" target="_blank" rel="noopener">Chinese technology majors are seeking to expand their footprint into Southeast Asia</a>, with a major focus on Indonesia, the regions&#8217; largest economy by population and GDP.
It is also competing in the payments space with the likes of Grab, Go-Jek and Ant Financial &#8211; alongside established incumbents in the various countries &#8211; as well as e-commerce players with either a regional presence or substantial depth in various markets, such as Alibaba Group, Amazon, Carousell and Tokopedia.
In an interaction with DEALSTREETASIA, <a href="http://linkedin.com/in/joo-seng-wong-1a864996" target="_blank" rel="noopener">Wong Joo Seng</a>, the co-founder and CEO of Spark Systems &#8211; Singapore-based trading platform &#8211; and a venture partner with <a href="http://dealstreetasia.com/tag/vickers-venture-partners" target="_blank" rel="noopener">Vickers Venture Partners</a>, noted: &#8220;This is a very real challenge. The e-commerce markets operate on a basis of &#8216;familiarity&#8217;. Once familiar with purchasing (or selling) on a particular website there is often a reluctance to make a purchase (or sale) on another less familiar one.  The incumbents know this. Inertia of client is real and that&#8217;s why even giants like Alibaba will consider buying significantly smaller local outfits (like Lazada).&#8221; 
In an <a href="https://www.dealstreetasia.com/stories/we-are-close-to-hitting-1b-valuation-mark-steve-melhuish-propertyguru-75995/" target="_blank" rel="noopener">interaction</a> with this portal discussing listing options, Steve Melhuish, the founder of a digital property listings portal <a href="http://dealstreetasia.com/tag/propertyguru" target="_blank" rel="noopener">PropertyGuru</a>, noted that the regions&#8217; largest local bourse for the moment &#8211; the Singapore Exchange (SGX) &#8211; has challenges with regards to the listing of technology and internet enterprises. It ended <a href="http://www.straitstimes.com/business/companies-markets/leaving-a-rough-2016-behind-moving-on-to-an-uncertain-new-year" target="_blank" rel="noopener">2016 with uncertainty in its market</a>, with the bourse <a href="http://www.businesstimes.com.sg/companies-markets/sgx-lures-tech-sector-but-getting-firms-to-byte-will-be-tough-observers" target="_blank" rel="noopener">recently making changes</a> to build its technology listings pipeline.
He explained: “The US is the most obvious choice for tech IPOs, especially in terms of valuations and liquidity.  But you are under the billion (dollar) mark there, then you will be under the radar screen of analysts and liquidity.”
Prior to a <a href="https://www.dealstreetasia.com/stories/72067-72067/" target="_blank" rel="noopener">$550 million Series E round</a> earlier this year, the firm was valued at $3.75 billion as at 2016. It&#8217;s listing on the NYSE is likely to represent a liquidity event for technology startups in the region, with the potential to arouse the interest of Western investors in the potential of Southeast Asia&#8217;s growth markets.
The public listing of Sea Group also has the potential to impact the regions entrepreneurial ecosystem through heightening awareness of the regions&#8217; growth opportunities among the Western investment community.
Wong elaborates: &#8220;Hopefully it will heighten investors in the West&#8217;s focus on and their understanding of Southeast Asia. Many firms aspire to list in major European and US exchanges believing that the liquidity available there (and PEs of course) will be beneficial to them.&#8221;
&#8220;There is a risk they become &#8216;orphans&#8217; because they are listed on an exchange where the community doesn&#8217;t understand the specific vertical they are operating in Nor to mention the markets they are engaged in. In time and with numbers hopefully, the market participants there develop a deeper understanding of these companies.But firms should also consider listing in local and regional bourses as well.&#8221;
Also Read:
<a href="https://www.dealstreetasia.com/stories/matthew-koertge-telstra-ventures-interview-august2017-81207/">Lots of opportunities in SEA for tech innovation, entrepreneurship: Matthew Koertge, Telstra Ventures</a>
<a href="https://www.dealstreetasia.com/stories/investors-interested-e-commerce-start-ups-cant-find-right-bet-82800/">Investors bullish on Indian e-commerce startups, but can’t find the right bet</a>
<a href="https://www.dealstreetasia.com/stories/southeast-asia-ride-hailing-service-grab-says-open-to-more-acquisitions-72478/">Southeast Asia ride-hailing service Grab says open to more acquisitions</a>

The firm's three key businesses now are digital entertainment (Garena) , e-commerce (Shopee) and digital financial services (AirPay), all of which are segments that the firm believes  are likely to see substantial growth in the region's growth markets.

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