In the summer of 2005, Apple co-founder Steve Jobs delivered his iconic commencement speech at Stanford University.
For Forrest Li Xiaodong, who was sitting in the audience with his then-girlfriend (and future wife), the commencement address was life-changing. Jobs’ closing remarks, “Stay hungry, stay foolish,” would spur him to embark on his entrepreneurial journey.
Over the next decade, Li poured himself into his work, which eventually culminated in Sea Group, a Singapore-based consumer internet company covering e-commerce, games, and fintech. By March 2021, Sea was the biggest public company in Southeast Asia. In August last year, Li had also become Singapore’s richest man, with a fortune of USD 19.8 billion.
But less than six months later, Sea lost USD 130 billion in market value from its peak in 2021. How did the company end up with a dramatic turn of fortunes?
“Stay hungry, stay foolish”
Born in 1978 in Tianjin, a major city adjacent to Beijing, Li studied engineering at Shanghai Jiao Tong University. It was there when he adopted the name Forrest after an American lecturer couldn’t pronounce his name. Upon graduation, he joined Motorola as an HR manager.
Four years later, he quit his well-paying job to pursue an MBA degree at Stanford. Upon completion of the program, he joined a startup, GGgame, which was founded by a fellow alumnus, Chen Ou. GGgame was an online real-time gaming platform that allowed players across Europe and Asia to participate in online games and connect with each other.
Although the company grew, Li and Chen disagreed on how to run the business and had a falling out. In 2008, Chen sold his 35% stake in GGgame for USD 700,000.
Following Chen’s departure, Li pivoted the short-lived venture to focus on game publishing and changed the business’s name, officially founding Garena in 2009.
In 2010, after a string of meetings with Pony Ma, co-founder and CEO of gaming giant Tencent, Li secured the exclusive publishing rights of global hit title, League of Legends, in Southeast Asia. Not long after, Tencent also handed over to Garena the publishing rights for three other popular games in the region, namely Honor of Kings, Crossfire, and WeFire.
In 2017, Tencent upped the ante and became a strategic investor in Garena. At that time, the technology giant was the largest shareholder in Garena, owning 39.8% of its shares, while Li held 20.7%.
As his gaming empire thrived, Li branched into e-commerce and financial services. In 2015, he launched Shopee, an online platform retailing consumer goods ranging from electronics to beauty products.
The e-commerce retailer was competing directly with Alibaba-backed Lazada, which was founded three years earlier. Luring online shoppers with its concept of affordable pricing and free shipping, Shopee found its footing in the market and soon gained an edge on Lazada.
By Q1 2019, Shopee had overtaken Lazada to become the most-visited platform in Southeast Asia. According to iPrice, Shopee’s surge was largely driven by web users in Indonesia and Thailand. Shopee was also more popular than Lazada in countries such as Malaysia, Thailand, and the Philippines, based on a TMO Group’s 2021 report.
Sea also ventured into digital payments. In April 2014, the group launched a digital financial services arm with AirPay, a digital wallet and mobile payment solution which is similar to Ant Group’s Alipay in China. Later rebranded as SeaMoney, the app had 32 million users as of Q2 2021.
In May 2017, Garena officially rebranded itself as Sea Group. This was followed by an initial public offering (IPO) on the New York Stock Exchange in October.
In 2019, the company’s e-tailer, Shopee, pushed into Latin America, targeting the region’s USD 105 billion market, starting with Brazil.
By December 2020, Sea’s share price had surged to USD 180, which gave the company a market cap of about USD 98 billion. In November 2020, the company’s share price reached an all-time high of USD 358.
A brewing storm
Despite Sea’s stellar growth, a crisis was brewing behind the scenes as the company suffered several setbacks in 2022.
First, on January 4, Tencent announced that it was reducing its equity interest in the group from 21.3% to 18.7%.
About a week later, Sea’s digital entertainment unit, which was the company’s major revenue source, was sued for copyright infringement. Krafton, the developer of PlayerUnknown’s Battleground (PUBG), had filed a lawsuit against Garena. It alleged that Sea’s lucrative title, Garena Free Fire, was a copy of PUBG.
On February 14, Garena Free Fire was banned in India. As a result, the group’s share price tanked 18% within the day, wiping out over USD 16 billion from its market value. Garena Free Fire was among 54 apps that were blocked in India due to security concerns amid high tensions between India and China.
Then the company announced that it was shuttering Shopee in France from March 6, only four months after the French website had been launched, reported 36Kr.
Finally, there was the disappointing fourth quarter and full year 2021 earnings report which was released in early March. While Sea Group reported revenue of USD 9.95 billion for 2021, more than double the previous year, its net loss widened to USD 2.04 billion, from USD 1.61 billion in 2021.
Sea’s digital entertainment business reported a revenue of USD 2.8 billion for the full year 2021, while e-commerce and financial services reported losses of USD 2.6 billion and USD 600 million, respectively.
While its gaming arm was profitable, there were signs that Sea was in trouble. For Q4 2021, the number of active users fell to 654 million from 729 million in the previous quarter, while paying users dropped from 93.2 million to 77.2 million over the same period.
On top of this, bookings for Sea’s gaming business, a metric the company employs to estimate cash spent by users, was expected to drop to around USD 3 billion in 2022 from USD 4.6 billion in 2021, which marked the first ever decline for the digital gaming unit.
The latest figures indicated that the group’s gaming arm might have hit a growth plateau and that the company was too dependent on gaming.
While it remains to be seen how Sea will navigate its way through choppy waters, investors still see value in the tech company. In February this year, investment powerhouses such as Ark Invest and Hillhouse Capital increased their holdings in Sea Group—Hillhouse now owns over 1 million Sea shares, making the consumer internet giant one of the private equity firm’s top ten holdings.
This article first appeared on Zimubang. KrASIA is authorized to translate, adapt, and publish its contents. The original text was translated and adapted by Mo Jiao and Julianna Wu.