FB Pixel no scriptSingapore e-tailer Shopee takes Latin America by storm | KrASIA

Singapore e-tailer Shopee takes Latin America by storm

Written by Nikkei Asia Published on   3 mins read

Sales and games vault Sea brand to top of Brazil app stores in just two years.

Social media feeds in Brazil were deluged Thursday with ads trumpeting huge discounts on the Shopee e-commerce platform: 65% off Adidas sneakers, 49% off wireless headphones, and more.

The promotions for Shopee’s 9.9 Super Shopping Day sale, while new to South American consumers, are a familiar sight in Southeast Asia, where Shopee operator Sea has used such gambits to become the region’s largest online retailer.

Now the Singapore-based company is pouring money into Central and South America, where the e-commerce market is wide open.

New York-listed Sea, which focuses on online retail, games, and finance, was valued at USD 175 billion as of Friday, the highest market capitalization of any Southeast Asian business. The company said this week it is raising more than USD 6 billion through offerings of American depositary shares and bonds for its expansion effort.

Sea, which entered Brazil’s e-retail market in late 2019, already led in downloads across Apple app store there in July, beating out the likes of WhatsApp and Instagram.

The company’s strategy for achieving this meteoric growth has been simple: marketing.

Sea has invested heavily in advertising to boost name recognition of the Shopee brand, while luring new customers with a variety of coupons. The Shopee app includes simple games through which customers can win virtual currency usable on the platform, encouraging users to open it every day and boosting long-term retention.

Read more: Sea Group seeks to raise up to USD 7.2 billion in Southeast Asia’s largest ever equity round

These techniques, honed by Sea in Southeast Asia, are still novel in South America, where they have caught the eye of many young users. The company is accelerating its expansion in Latin America, entering Mexico in February and Chile and Colombia in June.

The choice of Latin America as Sea’s second big market owes partly to the region’s growth potential.

A survey by Facebook and Bain found that online retail penetration in Brazil was about 8% in key categories, similar to the 9% rate in Southeast Asia. And the Brazilian market is forecast to expand faster than Southeast Asia’s, averaging annual growth of 20% through 2026 compared with 14% for Southeast Asia.

Argentina-based Mercado Libre holds some of the Latin American market, and Amazon.com has increased investment there as well. But the region lacks a dominant player like Amazon in North America and Alibaba Group Holding in China, making it attractive to upstarts like Sea.

“These are ‘blue ocean markets’ to us, and we see large opportunities and very long runways for these markets,” a Sea executive said.

Sea also benefits from the popularity of its Free Fire mobile game in the region. Many young consumers buy in-game items in Free Fire, and the company hopes to boost both its gaming and e-commerce businesses at once.

Latin America already ranks as Sea’s second-largest market behind Southeast Asia. The region generated 18% of the company’s roughly USD 4.4 billion in sales last year, up from 13% in 2019, mainly from in-game purchases. Further growth is expected this year with the push into e-commerce.

But competing on more fronts means higher costs. Sales and marketing expenses for the e-commerce segment more than doubled on the year last quarter to USD 650 million. While the gaming segment turns a profit in terms of adjusted earnings before interest, tax, depreciation and amortization, e-commerce logged a USD 580 million loss that quarter alone.

Upfront investment is especially high in the relatively new market of Latin America.

“New businesses such as Latin America e-commerce … will be burning cash for quite a number of years for market share gains,” said Sachin Mittal, an analyst at DBS Group Holdings.

The USD 6 billion-plus being raised by Sea, combined with its USD 4.6 billion in cash at the end of June, gives the company a substantial war chest for investment. This will let Sea keep going for some time even if it stays in the red.

Investors have supported its strategy of prioritizing sales growth over profitability, lifting Sea’s valuation ninefold since the end of 2019—standout performance for a global tech company, though it remains a long way off from behemoths like Amazon.

This article first appeared on Nikkei Asia. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei.


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