Sea Ltd – ReportWire

Shares of Tencent-backed J&T Express fall in lackluster Hong Kong debut

[ad_1]

Courier handing over package asking female customer to do electronic signature, delivering, receiving, efficiency

10’000 Hours | Digitalvision | Getty Images

Shares of Indonesia’s J&T Express fell 1.33% when it went public on Friday.

The logistics service provider traded at 11.84 Hong Kong dollars ($1.51) on Friday morning, after opening at HK$12.

The HK$3.92 billion ($500 million) IPO is the second largest listing in Hong Kong this year, after premium Chinese liquor company ZJLD Group. The Chinese “baijiu” maker, backed by KKR, plunged nearly 18% on their first day of trading on April 27.

Investors include Chinese tech giant Tencent, U.S.-based venture capital firm Sequoia, Chinese private equity firm Boyu, SF Express and Singapore’s sovereign wealth fund Temasek.

J&T Express is listing in an uncertain economic environment, characterized by hiking inflation, high interest rates and ongoing conflict such as the Israel-Hamas war and Ukraine invasion.

“In the third quarter of 2023, global IPO activities remained sluggish due to macroeconomic and geopolitical uncertainties. Hong Kong’s global IPO ranking dropped to eighth following a historically slow third quarter,” said KPMG in a report published on Oct. 9.

“The Hong Kong market has not recovered as much as we would like,” Irene Chu, partner at KPMG China, told CNBC, highlighting that the third quarter “continued to be very soft.”

J&T had initially aimed to raise at least $1 billion in the IPO but halved the target amount on weak investor demand, according to Reuters.

Companies that want to go public have “become more realistic” in their pricing, said Ringo Choi, Asia-Pacific IPO leader at EY. “The IPO pricing is dropping significantly by more than 50% or even 70%.”

China is J&T’s largest market, where it delivered nearly 83% of its total parcels last year, serving the likes ecommerce giants like Pinduoduo and Alibaba’s Taobao and Tmall. It held a 10.9% market share by parcel volume in 2022, the company said in its prospectus, citing Frost & Sullivan.

In May, it acquired China-based Fengwang Express for 1.18 billon yuan from largest domestic player SF Express, building on its acquisition of express delivery business from Chinese logistics firm Best in late 2021.

The Indonesian logistics provider delivered a total of more than 14.5 billion parcels in 2022 across China and Southeast Asia, up from 11.5 billion in 2020. In Southeast Asia, it is the largest operator with a 22.5% market share in terms of parcel volume, based on Frost & Sullivan data. Alibaba-owned Lazada, GoTo’s e-commerce arm Tokopedia and Sea Limited‘s Shopee, are among its customers, the prospectus showed.

‘Immaterial’ impact from TikTok Shop ban

Analysts warn that TikTok Shop’s ban in Indonesia, which disallows social media platforms from facilitating e-commerce purchases, could impact J&T Express.

TikTok Shop is the e-commerce feature of popular short-video app TikTok.

“There is some sharp short-term pain for J&T in Indonesia because of the TikTok Shop ban, as J&T was (profitably) carrying the majority of the TikTok Shop’s millions of orders a day in Indonesia prior to the ban,” said Momentum Works in a Oct. 17 blog post.

J&T Express acknowledged in its filing that “there remain significant uncertainties” on how the new rules would impact different e-commerce and social media platforms in Indonesia, “some of which are our customers.”

But the company said it will not be adversely impacted as the revenue from social e-commerce platforms in Indonesia “remained immaterial” to the business.

In 2022 and the first six months of this year, revenue from social e-commerce platforms in Indonesia contributed only 4% and 6% to the company’s revenue respectively, said J&T.

“We believe that although [the new e-commerce regulation] may have an impact on our customer composition in Indonesia in the near term, this new regulation will not have a material adverse effect on our business operations and financial performance in the long term.”

[ad_2]

Source link

October 26, 2023

Sea pivoted to growth over profits as it faced rising competition from TikTok, Lazada, analysts say

[ad_1]

Forrest Li, chief executive officer of Sea Ltd., in Singapore, on Wednesday, May 3, 2023.

Ore Huiying | Bloomberg | Getty Images

Shares of Southeast Asian tech giant Sea plummeted this week after missing revenue expectations and saying it would focus on growth over profits — a reversal from recent cost-cutting measures in the face of economic uncertainty. But analysts said the pivot is a move to defend market share.

On Tuesday, the company reported revenue that missed analyst expectations, coming in at $3.1 billion versus the $3.2 billion expected, according to a Refinitiv consensus estimate.

While Forrest Li, Sea’s chairman and group CEO, said the company has “achieved self-sufficiency” and is “now on firmer footing,” he said Sea will now “reaccelerate investments in growth.”

The stock plunged after Tuesday’s earnings report, ending the session 28% lower.

Just last year, Sea overhauled its business to focus on profitability amid high inflation and interest rates. At the same time, investors were pressuring tech firms to move toward profitability. Other regional tech giants like GoTo and Grab slashed costs by conducting mass layoffs and reducing customer incentives.

Sea’s top management gave up their salaries, while the company froze salaries for most employees and paid out lower bonuses. Local media reported the company laid off more than 7,000 employees in six months.

Defending your market share is the right strategy in e-commerce. You don’t want to give a foot in the door to the new player. That’s what we think Sea’s doing.

Sachin Mittal

Head of telecom, media and technology researh, DBS Bank

As a result, Sea posted positive net income for the first time in the fourth quarter of 2022 and that figure has remained in the black since. Before that, Sea was largely unprofitable, amassing billions of dollars in losses since its inception.

“The good news for them is that they have built up sort of a buffer to increase some of its spending, with all of its segments now profitable,” said Woo.

Boosting e-commerce

In particular, Li said the company has “started, and will continue, to ramp up our investments in growing the e-commerce business across our markets.” JPMorgan said those investments could take the form of expensive shipping subsidies and discount vouchers.

“Given the weakening macro environment and increasing competition from Lazada and TikTok Shop, Sea probably did not have much of a choice but to start spending to at least maintain its market share in the region,” said Jonathan Woo, senior research analyst at Phillip Securities Research.

Sea’s decision to accelerate ecommerce investments in growth is likely to materially weigh on its earnings and share price in the near-term.

JPMorgan

Head of telecom, media and technology research, DBS Bank

Shopee remains the market leader in the region, with a gross merchandise volume of $47.9 billion in 2022, according to a report from Momentum Works. Lazada’s GMV came in at $20.1 billion in the same year.

“In our view, the pivot could be driven by competition along with Sea positioning itself for an increase in consumer spend, and to grow live-streaming and in-house logistics,” said JPMorgan analysts.

Right strategy?

But Sea’s decision to ramp up investments is likely to impact earnings, said JPMorgan. The bank downgraded Sea’s rating from “overweight” to “neutral” with a price target of $40.50, representing 2.56% upside from the stock’s Thursday close of $39.49.

“Sea’s decision to accelerate ecommerce investments in growth is likely to materially weigh on its earnings and share price in the near-term,” said JPMorgan.

“Sea could potentially incur heavy investments in second half of 2023 (a busy campaign period) resulting in earnings decline in second half.”

Sachin Mittal, head of telecom, media and technology research at DBS Bank, is bullish on Sea. The firm has a price target of $90 for Sea, representing roughly 160.9% upside.

“Defending your market share is the right strategy in e-commerce. You don’t want to give a foot in the door to the new player. That’s what we think Sea’s doing,” said Mittal.

But TikTok Shop is “not such a large threat” to Shopee, he said.

“TikTok doesn’t have in-house logistics. They use third-party players to provide e-commerce packages,” Mittal said on CNBC’s “Squawk Box Asia” on Wednesday. Unlike TikTok Shop, Shopee and Lazada have their own logistics networks of warehouses and fulfilment centers around the world.

“This is one of the ways to compete with TikTok. TikTok is still very small. It’s not such a large threat,” said Mittal. TikTok Shop’s current GMV is only a fraction of Shopee and Lazada’s.

— CNBC’s Michael Bloom contributed to this report.

[ad_2]

Source link

August 18, 2023

Here are Friday’s biggest analyst calls: Amazon, Tesla, CVS, Microsoft, XPO, AT&T, Spotify & more

[ad_1]

[ad_2]

Source link

April 21, 2023

Singapore’s digital banks dangle incentives to win new customers — is it sustainable?

[ad_1]

Singapore’s new digital retail banks are offering lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks. But how viable is this in the long run?

Bloomberg | Bloomberg | Getty Images

SINGAPORE — Digital retail banks in Singapore are pulling out all stops to win new customers.

Trust Bank and GXS Bank — two online retail banks launched last year — are offering lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks.

But how viable is this in the long run?

“It is tremendous returns, but there’s no way that is sustainable. It has to be subsidized in some way,” Zennon Kapron, founder and director of research and consulting firm Kapronasia, told CNBC.

Unlike traditional banks — like DBS, OCBC and UOB — which operate physical branches and automated teller machines, digital banks operate entirely online.

Singapore’s new digital banks

The city-state gave out four digital bank licenses in December 2020.

Two digital full bank licenses went to Grab–Singtel‘s GXS Bank and Sea Group‘s MariBank which serve retail customers. The other two digital wholesale bank licenses were bagged by Ant Group’s ANEXT Bank and Green Link Digital Bank, catering to small-and-medium enterprises and other non-retail segments.

GXS Bank currently offers its service to customers and employees by invite only, while MariBank is only available to employees of Sea Group.

Trust Bank, on the other hand, did not have to jump through the hoops to apply for a separate digital full bank license as it’s backed by banking giant Standard Chartered, which secured an additional full bank license to establish a subsidiary to operate a digital bank.

A partnership between Standard Chartered and Singapore’s largest supermarket chain FairPrice Group, Trust Bank appears to be making some headway since its Sept. 1 launch.

It is useful for a short-term customer acquisition story but it will be a big challenge to keep these customers coming back.

Zennon Kapron

director, Kapronasia

Trust Bank claims to have reached more than 450,000 customers and achieved 9% of banking market share in Singapore within five months, based on data shared with CNBC.

New credit card customers receive vouchers worth 25 Singapore dollars ($18.80) to spend at FairPrice supermarkets, and can continue to accumulate reward points when they purchase groceries there. During their first month of launch, Trust gave out almost 60 tons of rice and over 11,000 breakfast sets – each worth more than S$2, according to the bank.

The bank wouldn’t divulge its customer retention rate nor profit margin to CNBC.

“While it is common in the market today to offer high-ticket and big rewards which are either complex to understand or have a poor experience, Trust offers simple, easy to understand rewards which are always tangible, which help bring down the cost of living and importantly, are in real time,” Dwaipayan Sadhu, CEO of Trust Bank, told CNBC over email.

“It is useful for a short-term customer acquisition story but it will be a big challenge to keep these customers coming back,” Kapron from Kapronasia said.

Trust Bank does not charge any annual fees or fees for foreign transaction, cash advance nor card replacement to credit card customers. It also does not require a minimum balance for its savings account, unlike traditional banks.

Its rival GXS Bank also does not require minimum balances for holders of savings accounts, currently the only product the bank is offering. GXS is a consortium between ride-hailing and food delivery giant Grab and Singapore’s largest telco provider Singtel.

The company says it targets the “underserved segment” — which includes the gig economy workers, self-employed entrepreneurs and those new to the workforce.

The bank has removed certain fees, such as fall-below fees that are usually charged when the balance drops below the minimum daily average.

The bank has “a low cost of acquisition and low cost to serve,” its CEO Charles Wong told CNBC.

“As a digital bank, we are unencumbered by the cost of maintaining a physical network such as branches or physical ATMs, resulting in cost savings on our overheads,” Wong explained.

In addition, Grab and Singtel have a combined customer base of over 3 million and the bank is “leveraging on [the] two giants for retail customers.”

“We also don’t provide gifts for customers. When you sign up, you sign up because it’s relevant to you or you are a Grab or Singtel customer and it is going to make it easy for you to make payments,” said Wong.

“Yes, you get additional rewards as you spend which makes sense because you’re spending within the ecosystem.”

GXS Bank, however, expects its bottom line to be largely driven by interest income, said Wong.

I think it’s going to be difficult for these banks to really have an impact, especially in the retail [banking] space on the Singapore market.

Zennon Kapron

director, Kapronasia

A 2022 analysis by Simon-Kucher revealed that 25 of the largest neobanks, also commonly known as digital banks, found out that only two of them — less than 10% — have achieved profitability. It also showed a majority earning less than $30 in annual revenues per customer.

Kapron said that traditional banks offering credit card products give out welcome gifts, like travel luggage or Apple watches, because they expect to be profitable after a certain period.

Those banks have already worked out how much they have to spend to gain a customer, and expect to recoup the costs when the customer starts missing payments or incurring interest, he explained.

Tough competition

Observers have previously raised questions about the need for digital banks in a largely banked population, where only 2% do not have bank accounts.

There’s also strong competition among the more established traditional banks.

I think the digital banks would have a higher rate of success if we were in a severely underbanked place like the Philippines.

“If you look at DBS Bank, it’s not like their digital offerings are [lousy],” said James Tan, managing partner of Quest Ventures, a VC company headquartered in Singapore.

Tan said he signed up for Trust Bank to see how different it will be to traditional banks. “I found no difference,” he told CNBC, adding that he eventually closed his Trust Bank account.

“I think the digital banks would have a higher rate of success if we were in a severely underbanked place like the Philippines,” said Tan.

Digital banks in Singapore unlikely to affect traditional banks in the short term: Strategist

Kapron added that it is going to be difficult for these banks to have an impact, especially in the retail banking space in the Singapore market.

“The market is just over-banked and the differentiator of these new digital banks doesn’t really move the needle much in terms of what they are offering.”

“Until that happens, you are having bags of rice, high promotional discounts or rewards, which are useful for acquiring customers but then, how do you keep them coming back?” asked Kapron.

[ad_2]

Source link

February 20, 2023

Tech layoffs in Southeast Asia mount as unprofitable startups seek to extend their runways

[ad_1]

Shopee reportedly conducted three rounds of layoffs this year as its parent Sea Limited struggles towards profitability.

Lauryn Ishak | Bloomberg | Getty Images

More tech startups in Southeast Asia laid off workers this year, as macro headwinds widened losses and venture capitalists pushed startups to extend their runways.

Last week, online marketplace Carousell announced it was letting go of about 10% of its headcount — or approximately 110 positions.

In November, Indonesia’s GoTo Group — a merger between ride-hailing giant Gojek and e-commerce marketplace Tokopedia — cut 1,300 jobs or about 12% of its headcount.

Both companies cited challenging macroeconomic challenges.

There are signs that we are entering into a recession, if we are not already in one. Therefore, customer demand is likely to be slower in 2023.

They join Sea Group and other companies in the region in downsizing headcount. Sea Group, according to local media, laid off more than 7,000 employees over the past six months.

“Founders are being prudent by managing costs in this environment to ensure there is sufficient runway till late 2024,” Jia Jih Chai, co-founder and CEO of Singapore-based e-commerce brand aggregator Rainforest, told CNBC. Chai was previously a senior vice president at Carousell and a managing director at Airbnb.

“There are signs that we are entering into a recession, if we are not already in one. Therefore, customer demand is likely to be slower in 2023,” said Chai.

More sustainable growth

Quek also said it’s only prudent that the company get to profitability as a group as quickly as possible, as it is unclear if market conditions will improve.

Carousell posted a slower revenue growth of 21% in 2021 at $49.5 million, compared to a tripling of its revenue in 2020. Meanwhile, GoTo saw its losses swell from the January to September period.

“I was astonished that companies predicted that the Covid behavior changes would last forever,” Alex Kantrowitz, a Silicon Valley journalist, who also runs an independent newsletter and podcast called Big Technology, told CNBC’s “TechCheck” Monday.

“Clearly, once you are allowed to go out to restaurants, hang out with friends outside, your usage of Netflix, Facebook, Shopify and Amazon would go down. So why do all of them build as if that would last forever?”

“Previously, the companies were designed for fast growth. So there needs to be changes made when the organization is shifting from strong growth to sustainable growth. For example, you may not need too many marketing people if the marketing budget is cut,” said Jefrey Joe, co-founder and managing partner at Indonesia-based Alpha JWC Ventures.

Tech startups in Southeast Asia are still largely unprofitable, with names like Sea Group and Grab amassing billions of losses annually.

Existing investors in the company are also actively advising founders to prepare for winter, Jussi Salovaara, Antler’s co-founder and managing partner for Asia, told CNBC. Venture capitalists are pushing founders to have a longer runway, he said.

Southeast Asia tech layoffs in 2022

Startup	Employees affected
Glints	18% of total headcount
Sea Group	7,000+
GoTo Group	1,300
Zenius	200+
Carousell	110
Foodpanda	60
Carsome	Less than 10% of total headcount
iPrice Group	50
StashAway	31
*this list is not exhaustive

Source: CNBC research

“We say to the founders that they need to be prepared that next year is not going to be easier than this year,” said Joe.

“These companies may be doing well operatively. They still have some growth. They might be close to profitability, but they need to make sure that they’re sustainable for the future,” added Salovaara.

Tech companies are only seeing the beginning of layoffs, said Kantrowitz.

Globally, tech companies have been conducting mass layoffs, especially the U.S. tech giants. For example, Meta cut about 11,000 jobs while Microsoft reportedly laid off less than 1,000 people due to a slowdown in growth.

[ad_2]

Source link

December 7, 2022