Improved GMV growth momentum in 4Q23F
- We believe Shopee’s reinvestment drive bore fruit in 4Q23F with improved GMV growth momentum (+28% yoy) while its rate of cash burn eased.
- We see early signs of e-commerce competition in ASEAN normalising but will continue to follow developments post the TikTok Shop-Tokopedia merger.
- Reiterate Hold in view of Shopee’s FY24F earnings risks given the uncertainties in the Indonesia e-commerce space.
4Q23F: Strong e-commerce GMV growth; losses narrowed
With Shopee’s strategic pivot to reinvigorate its topline growth since 3Q23, coupled with growing traction of its live-commerce initiatives, we believe its gross merchandise value (GMV) rose 15% qoq and 28% yoy to US$23.1bn in 4Q23F. Meanwhile, we expect narrower cash burn for Shopee qoq, helped by improved economies of scale for its live commerce business and temporary absence of TikTok Shop in Indonesia in 4Q23. Overall, we estimate SE recorded 4Q23F GAAP revenue of US$3.55bn (+7% qoq, +3% yoy) and adjusted EBITDA of US$58m (3Q23: US$35m; 4Q22: US$496m), vs. Bloomberg consensus forecasts of US$3.50bn GAAP revenue and US$90m adjusted EBITDA.
Rapidly evolving competitive landscape remains top of mind
We see early signs of a normalising competitive landscape for the ASEAN e-commerce industry amid 1) Lazada’s recent mass layoffs (c.30% of employees), suggesting a strategic pivot; 2) TikTok Shop turning less aggressive in promotions and raising its monetisation in recent months, and 3) Temu pausing market expansion in the region, which could bode well for Shopee and allow a faster pace of narrowing losses for its e-commerce segment (base case: 1H25F). How competitive dynamics evolve in the Southeast Asia ecommerce industry in CY24F remains top of mind for investors, we believe, especially given the completion of merger between TikTok Shop Indonesia and Tokopedia in Jan 2024. Rather than adopt an aggressive stance, such as its strong marketing investment to drive market share gain in 2H23, we believe Shopee will in FY24F shift towards a more nimble approach in a bid to narrow its cash burn while protecting its market share.
Reiterate Hold with higher TP of US$46
Reiterate Hold on SE in view of Shopee’s earnings uncertainty in FY24F amid a rapidly evolving competitive landscape for ASEAN e-commerce. Valuations look undemanding to us (current share price implies 0.5x FY25F P/S for Shopee vs. median global e-commerce peers’ 2.2x). However, we believe its share price could stay volatile and be newsflow-driven in the next three months as investors look out for how the Southeast Asian e-commerce competitive landscape evolves with TikTok Shop recently having completed its merger with Tokopedia in Indonesia. Our SOP-based TP rises to US$46 as we roll over our valuation base year to FY25F. Upside risks include strong Shopee topline growth as SE ramps up reinvestment efforts, and strong Fintech traction outside of Indonesia. Downside risks include prolonged Shopee losses on intense market competition.