SEA's IPO noteworthy on many fronts

THIS month, Singapore-based Internet company SEA Ltd, formerly known as Garena, debuted a US$884 million initial public offering (IPO) on the New York Stock Exchange (NYSE) - a noteworthy development for Singapore, South-east Asia, and the tech industry on so many fronts.

First, SEA is said to be the first Singapore-based tech unicorn to go public in the United States. Founded in 2009 by China-born Singaporean Forrest Li, SEA was a pure gaming company before diversifying into e-commerce and digital payments. By 2016, it was valued at some US$3.75 billion, making it South-east Asia's most valuable tech startup. Today, its market cap is about US$4.58 billion.

SEA's IPO is also believed to be the largest ever by a South-east Asian tech company. Tech IPOs in the US out of South-east Asia have been rare and smaller in scale. Malaysian payments firm MOL, for instance, listed on Nasdaq in 2014, raising US$169 million. Notably, it got delisted in 2016 after failing to meet the minimum bid price of US$1 per share.

In another example, Vietnamese online gaming and messaging firm VNG Corp, which in May signed an agreement with Nasdaq to explore an IPO, has a valuation of at least US$1 billion as of last year. This was only about a third of SEA's valuation then.

Moreover, SEA joins a growing list of Singapore tech companies that have opted to list overseas. Anacle Systems, a property and energy management systems startup, in December listed on the Hong Kong Stock Exchange (HKSE). Razor, a gaming and e-sports company headquartered in the US, in June submitted a preliminary prospectus also to the HKSE.

Key player in proxy war

The Business Times understands that SEA did not list in Singapore or in the region (where its operating markets are) because NYSE is a "highly liquid exchange" with a "strong track record as a venue for high-growth tech companies".

To boot, SEA has become a key player in the proxy war between Chinese Internet giants Tencent and Alibaba for South-east Asia. Tencent, SEA's largest shareholder with a nearly 40 per cent stake in the company as at June 30, earlier this month indicated an interest to purchase at least US$100 million worth of shares in SEA's IPO.

Alibaba, on the other hand, controls and owns Lazada, a Singapore-based e-commerce player that is a rival to SEA's e-commerce platform, Shopee. In June, Alibaba upped its stake in Lazada with a US$1 billion investment, intensifying the e-commerce war between Lazada and Shopee. Both parties have, in the last two years, claimed to be the top e-commerce player in the region.

SEA, in its F-1 filing to the US Securities and Exchange Commission, said that Shopee was "No 1 in Greater South-east Asia" in the first half of 2017 by gross merchandise volume (GMV) or total value of goods sold, and total orders. SEA also said that Shopee had about 2.2 times the number of total orders in the same period as that of its "closest competitor", which it did not name.

Lazada - which BT understands is that competitor - has refuted SEA's claim. Lazada CEO Max Bittner told tech blog Tech in Asia: "I am very confident that Lazada is No 1 both when it comes to GMV and unique customers in 'actual' South-east Asia - when comparably defined."

He added: "This is the first time I hear about the 'Greater' South-east Asia, why did they not call themselves Gsea?". Mr Bittner, in an email response to Tech in Asia, had been referring to SEA's recent change in name from Garena to SEA.

It is worth noting that SEA's markets are Taiwan, Indonesia, Singapore, Malaysia, Vietnam, Thailand and the Philippines. In fact, Taiwan (SEA's only market outside of South-east Asia) was SEA's second-largest e-commerce market after Indonesia for January-June this year, during which Shopee recorded US$1.47 billion in GMV and 80.6 million in total orders.

Lazada, interestingly, operates in all of the above South-east Asian countries but not Taiwan. So in a way, SEA has carved out a niche space in which it is the only player with three business lines (gaming, e-commerce and digital payments) and seven markets. No single competitor operates in all of SEA's business lines and across all of its markets, BT understands.

While that in itself could be a strategic, even enlightened entrepreneurial decision by SEA - in fact, the concept of "Greater South-east Asia" or a self-designed expanded region is increasingly common among tech companies - it must be considered when comparing SEA's performance against that of other players, whose operating markets are different.

Long-term view needed

Investors should also adopt a long-term view when betting on SEA. The company - which has lost more than half a billion US dollars over the past few years - could continue to swim in losses as it deepens its investment in Shopee to compete with Alibaba's Lazada and Amazon, both of which have been in the e-commerce game for longer and come with much-deeper pockets.

SEA, however, is not worried - not even when its shares have had a lacklustre ride since their first trading day on NYSE. While they opened at US$16.25 (higher than the IPO price of US$15) and closed some 8 per cent higher at US$16.20, SEA shares have mostly been trading below the US$15 mark since. Nonetheless, SEA stands by its "truly long-term view" to building its business - and therefore, so must its investors.