Recently e-commerce newbie, TikTok Shop was accused of unfair competition by Indonesian MSMEs through cheap imports, the market is one of Shopee’s largest with approx 40% share of online sales. Regulatory action that restrains TikTok Shop should result in market-share shifts in favour of existing platforms, including Shopee (which is owned by Sea). Further, TikTok shop’s relatively lower fee structure and aggressive investments in Indonesia have spurred Sea to invest more heavily in subsidies and marketing to protect market share. Any regulation that restrains TikTok is likely to result in a more rational competitive market.
Here’s the lowdown- Indonesia’s media reported that Jakarta is set to follow India’s and the US’s lead by prohibiting TikTok from engaging in e-commerce activities within the country. This follows concerns of potential monopolistic practices stemming from a combination of TikTok’s social media platform and its e-commerce offering. Specifically, Indonesia’s Ministry of Cooperatives and SMEs has expressed concern that TikTok’s algorithmic recommendation system will provide TikTok Shop with an unfair advantage relative to other e-commerce platforms. The ministry also argued that the direct sale of cross-border products via social commerce platforms may undercut local prices and harm Indonesia’s SMEs.
Maybank IB says, the market believes TikTok Shop, Temu, and other potential newcomers could significantly erode Shopee’s market share. However, the house believes Shopee’s loss of market share to newcomers could be less severe than the market expects, primarily because Southeast Asia has yet to develop a mature industry chain for live stream e-commerce (e-commerce penetration is 21% in Southeast Asia vs 56% in China); TikTok Shop has started to charge a different percentage of commission fee for each product category, aiming to shift from a high-risk, high-reward model to a more stable approach, which we believe could slow its GMV growth; and Temu’s low-cost user acquisition + full merchant outsourcing model used in Europe and the US may not be a long-term competition advantage in Southeast Asia.
Maybank IB expects near-term share price volatility for Sea due to uncertainty about the effectiveness of its investments and its ability to counter intense competition. However, as Sea’s gaming business may have bottomed and GMV and commission rates of its overseas e-commerce platforms have improved, Sea’s revenue growth may accelerate going forward.
