p for monthly active users (MAU). This has been a developing story since the beginning of 2020, when it trailed Lazada in Singapore, the Philippines, Malaysia and Thailand, and Tokopedia in Indonesia.  Shopee caught up and overtook both of them in little more than two years, while extending its lead in Vietnam. It was a masterful demonstration of rapid systems and logistics development, and a good diplomatic effort, too, in the sense of co-ordinating with governments and marketplace partners to operate efficiently during all the lockdowns.  In the first half of this year, growth was still strong, but there are some clear warning signs around, clear enough for the parent company, which is listed on the New York Stock Exchange, to cease giving guidance for the remainder of the year. That came despite a robust 29 per cent year-on-year revenue growth in the latest reporting quarter, and with e-commerce revenue growing by an even faster 51 per cent, to US$1.75 billion. Marketplace revenues grew at a 62 per cent clip, while gross merchandise value (GMV) was up 27 per cent and the total number of orders grew 42 per cent to 2.0 billion. Moreover, revenues in the company’s financial services business, which is closely tied to e-commerce, more than tripled, to $279 billion. Fintech consists of multiple activities with e-commerce synergies: digital payments, credit lending to both consumers and its marketplace partners, and insurance.  Sea’s chairman and CEO, Forrest Li, said in an August conference call that “Synergies between Shopee and SeaMoney also expanded, as we continue to cross-sell more financial products and services to our underserved user base across more markets. Close to 40 per cent of Shopee’s quarterly active buyers in Southeast Asia used SeaMoney products or services during the quarter.” But Sea’s other business units are acting as a drag on the top and bottom line. Its digital entertainment unit took a hammering, with revenues falling 12 per cent, year over year. Challenges for the e-commerce business Even in the Shopee e-commerce business, there are challenges. The problem, as usual, is profitability: expenses climbed in the second quarter, resulting in a net loss of $931.2 million, compared with a loss of $433.7 in the same quarter a year ago. And it is not all the fault of general conditions in the market. With Covid-19 now in the rearview mirror, more or less, the rate of growth of e-commerce has reverted to a more normal clip.  The company’s growth projections have tended to be over-optimistic and it is already making material layoffs to compensate for ambitious hiring in the past. Shopee has also toned down its marketing, which had included big spending on celebrities like Kpop band Black Pink and footballer Cristiano Ronaldo to push the brand. While marketing costs have been cut, however, spending has been soaring in the R&D and general and administrative departments, and now chews up more than a quarter of revenues. Not all doom and gloom In the e-commerce business, the take rate – or percentage of GMV Shopee takes as revenue – is still less than 8 per cent. Shopee’s take rate mostly consists of transaction fees and advertising. It is set low to attract new sellers to its marketplace and retain the ones already there. At some point, though, something has to give, because at this low percentage there is too much money being left on the table.  Commissions are set variably in accordance with local market tolerance, but if you consider that Amazon’s average commission of about 15 per cent is a kind of industry benchmark, then it suggests there is considerable scope for Shopee to push up its own commissions. Still, as at most businesses, the executive suite is looking at macro conditions in the global economy and worrying.  The strategy, Li says, is to pull the horns in on burning cash for growth: “Our focus for the rest of the year remains very clear, which is to continue to improve efficiency by both deepening monetisation and optimising our cost structure. We will be more tightly managing our operating expenses, such as marketing costs and logistics costs, while also gradually increasing monetisation across various income streams, with a focus on the high-margin ones.” This clear strategic refocus on profitability and away from growth, at least in the short-to-medium term, has failed to mollify investors. The company’s share price has been battered. After peaking at $366.99 on October 19 last year, it has alternated between slow descents and rapid nose-dives over the past year, to land at nearly $56.05 when the gavel came down on trading on September 30.  Part of the problem, though, is less the company’s fault than a structural one: although overall e-commerce penetration in Southeast Asia is about 25 per cent, the penetration for groceries and fresh food is still well under 10 per cent. This is where a lot of the upside is in the e-commerce market, but groceries are not really Shopee’s thing, so its own growth is getting to be more laboured.  More ominously, competition is heating up in the categories that are Shopee’s strong suit. Shopee shies away from higher-priced items such as the digital products that were staples of Lazada, and instead has focused on fashion, health, and beauty. Competitors like TikTok are ramping up sales in these categories, on Shopee’s own patch.  The hunter is becoming the hunted.