Sea (SE), a global consumer internet company based in Singapore, announced that Shopee its Indian e-commerce arm will be closing down due to the poor company growth.

Shopee’s second pullback this month comes just weeks after exiting France’s market and India banning the Seas Free Fire app. Seas Market Value fell to $16 Billion in just one day. This led some investors to liquidate the shares.

Shopee stated that Shopee’s pullback is due to global market uncertainty and that they will make every effort to smoothen the transition.

Sea recently stated it expected Shopee’s revenue to fall to 76% in 2022 after experiencing a phenomenal 157% growth due to lower engagements.

Mark Goodridge, a Morgan Stanley analyst sees this decision as a win for SE. We have had difficulty making the India unit economy work in India.

“We view this as a positive announcement for two key reasons: 1) Management has continued to demonstrate a flexible capital allocation process, where now the risk return on entering India is no longer attractive; and 2) it should help to control expanding ecommerce losses … we have always struggled to make the unit economics for Shopee India work “ this is due to the very competitive landscape, Shopee’s very low Average Order Value, and relatively high logistics costs. Sea Ltd. Shopee Poland and Shopee India = more upside, we noted that Shopee would need to make $900m annually in EBITDA losses to gain 5% GMV. “Hence, SE’s decision to stop following this strategy is a positive in our opinion,” Goodridge stated in a client letter.

Analyst finds current company’s market value attractive.

Navin Killa from UBS also liked the SEs decision. He suggested it might signal improved cash burn discipline.

Killa said in a memo, “We think the market should consider the exit positive: 1) It supports management’s comment during FY21 earnings call regarding a more measured approach to investments particularly on international opportunities exASEAN and Taiwan (with Brazil being the key focus); 2) It eliminates the risk of high cash burning from competing against an ultracompetitive Indian market for e-commerce with global and local players such as Flipkart (NASDAQ:), Flipkart (NASDAQ:), and JioMart (NASDAQ:).”

By Senad Karaahmetovic