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Why Singaporean Tech Firms Grab and Sea Are Seeing Their Stock Prices Tumble

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Pacific Money | Economy | Southeast Asia

Why Singaporean Tech Firms Grab and Sea Are Seeing Their Stock Prices Tumble

Both Grab and Sea have seen share prices plunge, but their outlooks are quite different.

Why Singaporean Tech Firms Grab and Sea Are Seeing Their Stock Prices Tumble
Credit: Depositphotos

In 2017, Singapore’s Sea Limited debuted on the New York Stock Exchange. Prior to its IPO, venture capital from around the globe was pouring into Southeast Asia and backing various tech companies competing in the region’s large and rapidly expanding e-commerce sector. But Sea, which owns mobile gaming company Garena and online shopping platform Shopee, was one of the first to get listed in the United States. The stock did OK, trading around $45 in February 2020.

When the pandemic hit Sea found itself in a favorable position, as a house-bound world was driven into the arms of e-commerce and gaming platforms in ever greater numbers. By November 2021 shares were trading at around $360, an eightfold increase in less than two years. The stock has since hit a snag, falling to under $90. In January China’s Tencent, one of Sea’s early major backers, reduced its stake by selling off 14.5 million shares valued at about $3 billion (the same transaction at today’s share price would be worth roughly $1.3 billion).

What happened to Sea? Well, first of all, the company loses money. Since going public, Sea has never been profitable, and its losses are increasing. In 2020, the company’s net loss was $1.6 billion or a loss of $3.39 per share. In 2021, it lost $2 billion or $3.84 per share. This is not, it must be noted, something that should come as a surprise.

Sea is focused on expansion and therefore accepts burning through cash and taking losses as long as they are growing their market share. The 2020 Annual Report is quite upfront about this, stating: “We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.”

Nevertheless, $360 a share for a company that lost $2 billion and doesn’t see dividends in its foreseeable future does seem a tad high, so it’s not a shock that the stock is coming back down to Earth. The bigger issue for Sea is that growth in its gaming arm, which is its most profitable line of business, has slowed. From the fourth quarter of 2019 to the fourth quarter of 2020, active users of Sea’s gaming apps increased from 354.7 million to 610.6 million, a net increase of 255.9 million. Paying users more than doubled from 33.3 million to 73.1 million.

These extraordinary growth rates are part of what propelled Sea’s stock to such heights. But in the last year, things have cooled off. From the fourth quarter of 2020 to the fourth quarter of 2021 active users grew by a more modest 43.4 million, including an additional 4.1 million paying users. With India recently banning Free Fire, Garena’s most popular game, this slowdown in user growth is obviously spooking investors.

On the other hand, Sea still has a lot of growing to do in other areas. Its e-commerce business is expanding at breakneck speed, with revenue jumping from $822.66 million in 2019 to $4.56 billion in 2021. Sea was also recently awarded a digital banking license by the Monetary Authority of Singapore and had over $9 billion cash on hand at the end of 2021 to continue underwriting its expansion. So even though the stock is being hammered right now, there’s still a lot of upside.

The prognosis for another big Singapore tech company is less rosy. Ride-hailing app Grab went public on the Nasdaq at the end of 2021 via a financial vehicle called a SPAC. I have never really understood what a SPAC is or why they exist, and questioned in a piece last year the wisdom of Grab using one to go public. The IPO was a dud and the stock is currently trading around $3. A cursory glance at their quarterly results tells the story.

Like Sea, Grab is also losing money: $2.75 billion in 2020 and $3.56 billion in 2021, much of it from incentives paid out to attract more customers and drivers. Grab, in partnership with Singtel, was also recently awarded a digital banking license by MAS. But unlike Sea, the user base is shrinking, from 24.5 million in 2020 to 24.1 million in 2021. If you are a tech startup, you can lose money if you’re gaining market share. It’s much harder to explain to investors that you are losing money while also losing market share, especially once your stock is being publicly traded via SPAC with an uncertain regulatory future.

Everyone knows the digital economy is huge and growing in Southeast Asia, and I think the performance of these two companies neatly captures the spectrum of risks and opportunities in the sector. Grabbing market share is no sure thing, especially as the landscape becomes more competitive, and tapping U.S. stock exchanges provides capital but also exposes companies to market pressures from which they were previously insulated when they were being carried by venture capital. Other big tech companies in the region readying their own IPOs, like Indonesia’s Gojek-Tokopedia partnership, are surely watching these events and wondering whether to treat them as instructive examples or cautionary tales.