HONG KONG (Reuters Breakingviews) - Amazon can afford to indulge in some Southeast Asian shopping. The U.S. e-commerce titan pushed into Singapore in 2017 with two-hour deliveries, but has yet to tackle larger and faster-growing markets in the cutthroat region. Buying Sea’s Shopee arm would be a fast way to establish a presence.
The youthful population of 640 million stretching from Thailand to Indonesia is a prime online retail target. Significant obstacles, including lumpy logistics and costly subsidies, have been difficult to overcome, however. Japan’s Rakuten retreated in 2016, while China’s JD.com and Alibaba have been unable to dominate the way they have at home.
Ambitious investors, including private equity, have kept the industry from consolidating as it has in India. Alibaba alone, directly and through affiliate Ant Financial, backs Tokopedia, Lazada and Bukalapak.
The splintered market offers opportunities for the likes of Amazon. It could snap up a substantial competitor to help counteract cooling growth elsewhere, just as it did in the Middle East by acquiring Souq two years ago. Marketplace operator Shopee is one option.
Its $14 billion parent company is a motley collection of video games, payments and e-commerce. After a bumpy start, the success of Free Fire, its first self-developed game, has helped Sea’s stock price triple since January. Shopee, however, is burning cash. It spent almost $150 million on sales and marketing in the first quarter to generate roughly the same amount of revenue.
There’s plenty for Amazon to like, though. Shopee would provide an instant regional presence. It also has enough clout in Indonesia to challenge local champion Tokopedia, recently valued privately at $7 billion.
Sea expects e-commerce revenue to more than double this year, to as much as $660 million. Apply the 6 times multiple on which China’s Pinduoduo trades and Shopee would be worth almost $4 billion. Using comparative multiples of gross merchandise value, which exceeded $10 billion in 2018, could take the valuation even higher.
Selling Shopee would allow Tencent-backed Sea to focus on its more successful gaming operation. And the business may be better suited for Amazon’s basket.
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