Wednesday 27 September 2023

Sea Group Shares On a Run Up: Indonesia Ban Live Selling on Social Media Platform

Indonesia has banned e commerce transactions on social media platforms.

Its a good policy that prevents predatory pricing by Bytedance money burning antics which is aimed to kill off local business. Bytedance has been undercutting legitimate business models by burning its large pool of money raised from Saudi Arabia.

Beneficial to Go-To and Sea Group

Indonesia is the largest e commerce market in South East Asia, accounting for 52% of South East Asia's market. Sea Group Shopee and Go-to are neck to neck each holding 36% share in Indonesia.

With the removal of Tik Tok shop from Indonesia, Go-to and Sea Group will continue to benefit on their own from Indonesians. As of now, both groups are profitable in their e commerce segment and the continued sales on their Indonesia platform will increase revenue. The model of e commerce platforms is that their profits grow exponentially with scale. As mentioned, building an e commerce platform is like building a highway toll, at first, large amount of money is thrown in to build the highway and toll is collected for each traffic passing through it.

With each increase in traffic, there is not a need to add proportionally more cost. Hence the margin from each new e commerce order is very high. On the other hand, local businesses benefit because they have access to the "highway" to link business to consumers for sales. Tiktok was not doing this.

This solidifies the investment thesis for Go-to and Sea Group. I expect Sea Group to be immensely profitable as the largest e-commerce Indonesia has done a good policy to protect the local business and e commerce platforms. Tik tok had been doing anti monopolistic measures which would have harmed Indonesia in the future. Hopefully more South East Asia economies will do the same.

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