Priced at more than $ 100,000 billion, Sea Ltd – the parent company of Shopee and Garena – is the largest company in Singapore in terms of market capitalization.
However, just three months ago, in mid-October, it was worth about $ 200 billion, more than all the Singapore banks (DBS, OCBC and UOB) combined.
As I reported before, Sea’s main growth driver, Shopee, has done very well in 2021, surpassing expectations and even more so. eclipsing Alibaba’s international (traditional China) full e-commerce business, with brands like AliExpress, Lazada and Trendyol (combined).
So what about the Sea? Is the company losing steam trying to live the world with Covid-19? Has it lost the confidence of investors to move money to greener pastures? Does this cause problems for Shopper?
By no means.
His situation, however, provides an excellent lesson as to why companies should not be judged on the capitalization of their stock market.
It is a far cry from what bank analysts announced just two months ago, with expected prices hovering Between $ 380 and $ 416 until the middle of November per share.
In fact, the decline is so bad that it has completely wiped out the profits recorded for the whole of 2021, putting the company below 20 percent of the level it started the year in mid-January 2021.
By 2022, then, Sea was roughly back in place in 2020.
That is, despite the good behavior of the company throughout the year, and no new information has been released that would significantly change that. At least no new information about the sea …
The rising tide lifts all the boats …
… But it is also the reverse. When the tide goes down, all the boats go down with him.
The share price depends in part on the performance of the company. Another big factor is the overall market environment, and most of the last two years have, paradoxically, been very favorable.
Since the fall in early 2020, governments around the world have released fiscal and monetary stimuli in an effort to boost the economy.
A large portion of this newly withdrawn money went mainly to America, the stock market and cryptocurrencies (for lack of other good investments).
Between the bottom of the pandemic in March 2020 and its current highs, the index, which tracks America’s top 500 companies, rose more than 100 percent. That’s less than two years.
How long before it took to record a similar gain, reaching its peak in February 2020, we should return to the fall of 2013.
In other words, the American stock market has risen as much as it did between 2020 and 2022, as much as it did before, between 2013 and 2020, and has done so in the worst disruption of the global pandemic and human activity in a century.
Some of the companies have clearly performed well, benefited from the provision of digital services, and have locked millions of people at home or severely curtailed many of their outdoor activities. But overall, the shares have largely been disconnected from the underlying economic problems.
Where does that put Sea, exactly?
Sea Ltd. it is one of the biggest winners of the pandemic, as both its digital entertainment and e-commerce arms have benefited from the pandemic, as the Internet was the only window to a world open to the public.
His performance confirmed that sales figures were growing rapidly, even though the company was still losing money to gain market share.
Shopee’s quarterly sales more than tripled in a year and a half / Data source: Annual reports
However, as its growing sales and Shopee’s debut in new markets in Europe and India have sparked interest in the company, it has certainly taken advantage of the excess money in the market, which has brought its shares closer to $ 400 per share.
As inflation bites many developed markets today – including the US, where it reached seven percent in 2021, the highest since 1982 – money seems to be slipping away from the stock market, especially as the US Fed is raising interest rates and is likely to start moving. The quantitative easing program launched after the 2008/09 crisis (which was mostly a non-orthodox operation to print money).
As a result, Bloomberg’s headlines began to appear in January:
As you can see, the sea is not alone. In fact, nearly half of the Nasdaq index companies (40 percent of them so far) have lost 50 percent or more of the highest recorded in 2021, a few months ago.
In other words, it’s not the Sea that has a problem complete The stock market.
How does this affect the future of the Sea?
If the company is doing well, quite frankly, what does it mean for the coming years? If so, it has successfully raised about $ 9 billion by the end of 2020, which is enough to keep it going for years to come.
He has made full use of his high valuation, raising capital around the highest stock prices, avoiding unnecessary dilution of ownership before immersing himself in the markets.
At this time, current stock prices will not be their main concern, especially as all others are also affected.
The biggest challenge, even if it still affects everyone, is the possibility of an economic downturn, as governments around the world feel the weight of high inflation and have to deal with it.
A stock market crash that is not out of the question for the next year or two would likely lead to a bigger economic crisis that would undoubtedly affect millions of people, leading to a reduction in spending, long before Shopee reached parity (or profit).
So far, the platform is doing well in positioning itself in its new markets, as indicated by the traffic figures on the respective websites:
Time is everything
Success in business is not about being first or foremost, but about giving your moves the right amount of time.
Eventually, some of the biggest brands in the world have collapsed. Some of the first ones on the market went bankrupt before they were taken over by Facebook (Facebook was not the first social networking site, Google was not the first search engine, Apple was not the first or largest personal computer company).
In Sea’s case, it’s certainly not the first e-commerce platform, but it seems to be running its business perfectly over time, even though its big competitors are fighting (like Alibaba’s Lazada and Alibaba itself).
The Singapore startup has taken advantage of the pandemic by catapulting it among the world’s largest companies and raising large sums of money before closing the cheap opportunity to do so.
As a result, the immediate future is one of the most well-prepared (young) businesses in the world.
Featured Image Credit: Reuters