DO gaming and e-commerce belong under the same company, especially if one is greatly profitable, and the other still in the red - as is the case with homegrown Internet giant Sea?
Even though the combination may seem "counterintuitive" to some, having a finger in both pies, along with a nascent fintech unit, is helping Sea thrive, the New York-listed firm's head honcho Forrest Li tells The Business Times in an early November interview.
Gaming unit Garena has already been steadily in the black, and Mr Li says that profitability is not far off for Shopee, the e-commerce business. Sea's fintech segment SeaMoney, which operates e-wallet ShopeePay, adds further value, he said.
"We are in a very good situation because Garena has been profitable - actually it's pretty profitable, and this gives us the resources to invest in Shopee, invest in SeaMoney. I think pretty soon, Shopee will turn to (be) profitable as well. In certain markets, like Taiwan, it's already profitable," Mr Li said. "And then we will have more resources; two cashflow generators: Garena and Shopee. This allows us to continually invest in future opportunities."
When asked how soon Shopee could turn profitable, he added: "Let me put it this way, it can be profitable anytime. But I think what's really important to us is we think it's still very early days for e-commerce development."
Even though the pandemic has spurred more online shopping, Mr Li said that e-commerce as a percentage of total retail in this region is only a fraction that of more advanced markets, such as the US and China. "So there's still a long way to go. What we are trying to do, the most important thing, is that we capture this growth opportunity. We care more about the growth and we care more about the market share. That's why we are willing to continually invest for the future, rather than just be a bit short-sighted… We really aim big," he said.
Mr Li was speaking to BT ahead of the Singapore Business Awards, where he was named Businessman of the Year. Held on Nov 24, the awards recognised his vision in growing Sea into a regional consumer Internet powerhouse.
The 43-year-old entrepreneur started the firm in 2009 as Garena, a video game distributor, with co-founders Ye Gang and David Chen. In 2015, the trio expanded into e-commerce with Shopee. In recent years, Sea has also poured more resources into fintech with SeaMoney.
Why house three distinct businesses under the single parent entity Sea? Mr Li cites capital synergies as one rationale. Garena broke even within five or six years from inception, Mr Li said. Its profits have since served as a "major source of funding" for Shopee. "This is a big advantage… We always have our very predictable and certain funding source for whatever the new business we'd love to invest in. We don't have to rely on external investors, the capital markets. This has allowed us to have a very long-term view," he said.
Retaining talent is the other consideration. Rather than defining Sea purely by its business units, Mr Li hopes for the company to stand out in building the best talent pool and organisational culture, so that "we can happily say that we are the best company". He explained: "By having multiple businesses, it allows us to attract talents with various interests. If we think we are only an e-commerce company, then we are going to lose all the talents that are interested in working for a game company."
Of course, as a listed company, Sea faces scrutiny from observers who think differently. A March TechinAsia commentary, for instance, called for Sea to sell Shopee, so that more cash could be invested in Garena instead.
When asked what he thought about the suggestion to spin off Shopee, Mr Li said: "We still see the synergy between the businesses. Actually if you look at the synergy between Shopee and SeaMoney, it's also very obvious, most of our mobile wallet adoption is driven by Shopee transactions. This is very important."
"Later, in terms of digital financial services, one part is payments and the other is financial services we can offer in terms of credit, wealth management products (and) insurance products. For those products, the e-commerce business gives us a lot of data points to better design those products."
He summed up: "It's not a question at the top of our mind, if we should separate it."
Nevertheless, Mr Li said that he welcomes a diversity of opinions. He mused: "Everytime we have these conversations, it helps us to really have deeper thinking on all these decisions that we need to make. From this perspective, I do enjoy being a public company."
For its earnings in the third quarter ended September, which came out after this interview, Sea's net loss doubled year-on-year to US$425.3 million, while revenue near-doubled to US$1.2 billion. The e-commerce segment posted a US$338.1 million operating loss, while the digital entertainment segment registered US$278.6 million in operating income. Accounting for deferred revenue and other factors, the digital entertainment segment posted US$584.5 million in adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation).