Shopee Increases Merchant Commission Rates

Shopee, the e-commerce arm of Sea Limited (NYSE:SE), has increased merchant commission rates across seven countries, effective July 2024. This decision reflects a broader trend among e-commerce platforms aimed at enhancing profitability and industry discipline.

Indonesia Implementation

In Indonesia, the commission rate change took effect on September 1, 2024. This strategic shift aims to bolster Shopee’s unit economics, particularly through its live streaming services. Projections indicate an improvement in Shopee’s core marketplace take rate from 7.6% in Q2 2024 to 7.8% by Q4 2024.

Garena’s Revenue Growth

Garena, another subsidiary of Sea Limited, has experienced favorable revenue trends. According to data from Sensor Tower, daily gaming revenue rose by 20% in Q3 2024 compared to Q2. This increase is linked to investments aimed at enhancing the in-game experience of its flagship game, Free Fire. Consequently, Garena’s Non-GAAP revenue is forecasted to reach $487 million in Q3 2024, marking a 9% year-over-year rise.

Industry Trends

Shopee’s commission increases align with similar actions by competitors Lazada and TikTok Shop, demonstrating a collective focus on profitability within the industry. The higher fees compared to its peers underline Shopee’s market leadership and competitive edge, backed by the largest user and merchant base among the platforms.

Financial Outlook

The financial outlook for Sea Limited remains robust. HSBC has reiterated a Buy rating on the company’s stock, maintaining a price target of $96. The firm’s adjusted EBITDA is expected to more than double to $2.5 billion by 2025, supported by Shopee’s improved unit economics and a projected 17% compound annual growth rate for SeaMoney’s EBITDA from 2023 to 2026, driven by an expanding loan book and user base.

Growth Projections

Shopee’s strategic adjustments, including commission rate hikes and investments in live streaming and customer service, aim to accelerate gross merchandise volume growth to 24% year-over-year in 2024, strengthening its competitive position in the e-commerce sector.

Currently, Sea Limited’s stock trades at 19.2 times its projected 2025 enterprise value to EBITDA, with a price target set at a multiple of 23.8.

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