Sea Group rides on payments play to superapp status

Photo: Sea website

Sea Ltd.’s disparate pieces – gaming, e-commerce and its nascent financial services – are showing signs of integrating toward becoming another Southeast Asian superapp.

In an October report, Morgan Stanley, citing a survey it conducted in urban Indonesia in September, said Shopee had become Indonesia’s most popular e-commerce site. Indonesia represents around 50 per cent of Shopee’s gross merchandise value, the report said. The survey indicated ShopeePay had become Indonesia’s third most popular e-wallet.

“We think the next big debate among investors will be if Sea can win the fintech market and become a superapp,” the report said. “Central to this thesis is the rise of its fintech arm SeaMoney (ShopeePay).”

Morgan Stanley has projected ShopeePay was set to take around 20 per cent of Indonesia’s fintech market by 2025.

In its third-quarter results released Tuesday, Sea pointed to strong growth in the SeaMoney division, with total payment volume topping $2.1 billion in the quarter. The division had 17.8 million paying users in the quarter.

More than 30 per cent of Shopee’s total gross orders were paid using Sea’s mobile wallet services in October. Shopee has offered users shipping incentives for using the e-wallet.

For the quarter, the digital financial services segment reported unaudited revenue of $14.4 million, up from just $1.66 million in the year-ago period.

Rickin Thakrar, a global equity research analyst who publishes on SmartKarma, also pointed to Sea’s potential to create an “ecosystem” via its financial services.

“This type of business is hard to build and requires perseverance but as adoption increases, this becomes a one-way street in our view,” Thakrar said in a report published late Tuesday. “Sea has astutely recognised this by developing a new growth module through payments which we believe can further entrench its ecosystem with robust long-term growth prospects.”

The superapp has largely been an Asian phenomenon, offering a single smartphone app as a portal to multiple, often interrelated, services. China’s superapps, including WeChat and Alipay, provide a wide range of services including social media, messaging, shopping, financial and other services.

The success of the superapp in Asia may be in part due to lower banking penetration. In a 2019 report, KPMG noted ride-hailing companies in Indonesia, which has relatively low banking penetration, have come up with ways to tap customers, such as using ride-share drivers as mobile bank tellers.

Sea is generally viewed as among the front-runners for one of Singapore’s digital bank licenses; analysts have said previously that winners of the licenses would likely be able to “export” their digital banking services to other countries in the region. The Monetary Authority of Singapore is expected to announce the license winners this year.

During the conference call to discuss Sea’s third-quarter results, Chairman and CEO Forrest Li said Sea’s financial service arm SeaMoney – which includes payment services, e-wallets and credit options – has shown deeper integration with the e-commerce arm Shopee, with 30 per cent of Shopee’s October gross orders paid with the mobile wallet.

In addition, Li pointed to his company’s use of content creation and social media-like features to drive user stickiness. That can help tie the company’s offerings up as an ecosystem.

Li said Garena’s hit game Free Fire has tied up with celebrities to create playable characters, such as one based on a Bollywood star, and to release a song exclusive to the game.

“We also continued to expand our suite of online and off-line third-party use cases and partnerships in the third quarter. This has further increased the usage and brand awareness,” Li said.

Shopee also uses gamification features in promotions to its users.

To be sure, Sea has both pushed back against the idea its offerings are coalescing into a superapp, while also offering indications it might be an eventual goal.

“Superapp as a concept, it is a concept people talk about, but I think there are a lot of execution of details. It’s not about lumping everything together in one app and just hoping that users will somehow use all of those,” Yanjun Wang, Sea’s group corporate officer said in the second quarter earnings call in August.

“You need to make sure from a user experience, operational, business model perspective, everything makes sense together and can ask each other and create synergies across different functionalities. And that’s what we are very much focused on,” she added.

On Tuesday, Sea reported total revenue of $1.2 billion for the third quarter of 2020, up 98.7 per cent year-on-year, boosted by growth in the digital entertainment and e-commerce sectors, and sales of goods. Several analysts on the conference call referred to the results as “strong.”

The company has been a beneficiary of the lifestyle and work changes caused by the global COVID-19 pandemic as lockdowns have created an increased demand for e-commerce, digital payments, and home entertainment, including gaming. Unlike many industries, gaming can be considered counter-cyclical, as unemployment may boost the time spent playing online games.

For the digital entertainment segment, which includes Sea’s games offerings, bookings climbed to $944.7 million, up 109.5 per cent year-on-year, while its revenue under generally accepted accounting principles (GAAP), came in at $569 million, up 72.9 per cent year-on-year.

Sea’s e-commerce division, Shopee, reported GAAP revenue of $618.7 million, up 173.3 per cent on-year.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.