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Southeast Asia’s ecommerce giants have been mainly entangled in stiff competition and weak earnings. However, Fidelity International thinks their struggles are just the growing pains of a young market gearing up for long-term growth.
In a recent market analysis, the asset manager points out that while Shopee and Lazada, the region’s biggest and second-biggest ecommerce platforms, are mimicking their Chinese counterparts, they have been struggling to replicate the profit margins of China’s e-commerce giants.
“Shopee has strategically switched between a top and bottom-line focus, swinging back to losses after a brief period of profitability, although losses narrowed in the fourth quarter of 2023,” writes Fidelity analyst Elroy Ng.
“Lazada, too, has been making losses, despite receiving sizeable capital injections from Alibaba in the last few years. Also bleeding cash is Jakarta-based Tokopedia, the region’s fourth-biggest player,” he adds.
While both are struggling for profits, Fidelity believes that the current challenges are just “growing pains for a young market, where demographic dividends, infrastructure upgrades, and further digitisation will drive long-term growth”. According to the asset manager, there are early signs of competition easing among the top players.
Two factors bolstering the positive outlook for the Southeast Asian ecommerce market are the young and growing population and the rapid wave of digitisation. In fact, especially the Gen Z generation (born from 1997 to 2012) use ecommerce plattforms. According to a new study, 73% of Gen Z Southeast Asians said they conducted their product research and discovery through alternative channels, but they made their purchases on ecommerce platforms.
“None of the current challenges looks big enough to break the investment case for Asean’s ecommerce sector though. Its long-term growth potential also remains supported by the region’s macroeconomic trends,” Ng concludes.
