The largest internet conglomerate in Southeast Asia has been on our International Equities Hitlist since March, with their ability to ‘tweak’ the cost base in their business to drive profitability the main reason for inclusion. They have three key business lines in digital entertainment (online games), e-commerce & digital payments. Recently, however, they highlighted an important consideration for the broader technology sector, that while managing the cost side can drive profitability in the short term, the challenge is achieving it without impacting growth, and for now, growth from SE US has underwhelmed.
The markets they operate in are highly competitive, and while they are profitable, they are competing against others that are prioritising growth over profitability. At their 2Q23 results recently, their gaming division (Garena) which focuses on eSports underwhelmed while they targeted a more aggressive pivot towards growth in their eCommerce division (Shopee), which is likely to hurt the bottom line, in the short term at least. Shares fell ~30% following this update.
- We are removing SE US from our Hitlist, believing there are too many variables in the picture for now.
