Shopee Profits Go Up After Downsizing and Exiting Some Markets

After exiting loss-making markets in 2022, Shopee has reported its first profitable quarter. During the fourth quarter of 2022, the ecommerce giant achieved an adjusted EBITDA of US$196.1 million, indicating a significant improvement from the US$877.7 million losses it recorded in the same period in the previous year.

As a result of Shopee's profitable Q4 performance, Sea Group, the parent company of Shopee, reported better-than-anticipated Q4 results, which caused Sea's shares to soar by approximately 22% on the previous day, culminating in a closing price of $80.06.

This achievement marks a major milestone for Shopee as the company has been working hard to streamline its operations and improve its financial performance. The company's focus on profitable growth has paid off, and it has finally managed to turn the corner.

According to Mr. Forrest Li, the CEO and Chairperson of Sea Group, the positive results of Shopee are attributed to enhancements in marketplace revenue and operating costs, particularly in logistics.

Despite a decrease of 15% in the number of gross orders to 1.7 billion, the ecommerce company achieved profitability in the quarter, and cost of goods sold fell by 23.8% to US$229.6 million.

In September 2021, Shopee entered the Polish market, but it decided to exit in January 2023. This is part of Sea Group's strategy to streamline its operations, which included closing its offices in Argentina and ending local operations in Chile, Colombia, and Mexico. As a result, Shopee had to lay off approximately 7,000 employees in 2022.

However, despite these changes, Shopee was able to achieve profitability by maintaining its gross merchandise value and reducing its sales and marketing expenses by 50% year-on-year. 

Mr. Yanjun Wang, Sea Group's COO, attributed the success to the company's initiatives to prioritize its core operations and deprioritize less critical ones, which included downsizing its operations and exiting certain markets.

Despite offering fewer promotions, Shopee continues to be a popular shopping application, particularly for consumers in Southeast Asia. Nevertheless, the region is experiencing the emergence of TikTok Shop as a strong contender that could potentially challenge Shopee's position as a leading marketplace.