Sea Limited (NYSE: SE) is one of the leading tech conglomerates in Southeast Asia, which operates its e-commerce（Shopee）, digital entertainment（Garena）, and digital financial service businesses（SeaMoney）.

Back in 2017, when Sea just went public, its stock price soared on optimism surrounding the development of e-commerce in Southeast Asia. Sea's stock price reached its peak in 2021 with a gain of over 1000%.

However, a global pandemic altered the economic landscape. The Federal Reserve in the U.S. kept raising interest rates, putting pressure on growth stocks. As a result, Sea saw its stock price plummet by 90% from its peak.

Recently, Sea's stock price has seen a slight recovery, possibly due to the news that its competitor TikTok's e-commerce business is being banned in Indonesia. Could this be a potential turnaround signal for the company?

This article delves into Sea, exploring what has transpired in 2023, the impact of TikTok's e-commerce ban on its business, and the potential opportunities and risks the company faces.

What Happened to Sea in 2023?

In 2023, Sea underwent its most significant change: turning losses into profits.

Starting in 2022, Sea overhauled its business to focus on profitability amid high inflation and interest rates rather than growth.

Sea's top executives voluntarily forfeited their salaries, while the company implemented a freeze on salary increments for the majority of its employees and reduced bonus payouts. Local media outlets reported that the company had to make the difficult decision of laying off over 7,000 employees within six months.

As a result, Sea achieved a positive net income for the first time in the fourth quarter of 2022, and this achievement has been maintained since then. Before that, Sea was largely unprofitable, amassing billions of dollars in losses since its inception.

Despite Sea becoming profitable, investors were not convinced because the company's growth had slowed down.

On August 15, 2023, Sea released its Q2 earnings, which showed a mere 5.2% year-on-year growth in revenue for the quarter, with its e-commerce business Shopee recording historically low growth rates. Concerns among investors about Shopee's growth prospects led to a 29% drop in the company's stock price after the financial report.

This highlights that investors are not only concerned about Sea's profitability but also eager to see when the company will regain its growth momentum.

Indonesia Bans TikTok Shop – How Will Sea Benefit?

Shopee's growth has slowed due to intensified competition in Southeast Asian e-commerce. TikTok Shop, the social commerce platform of the short-video app TikTok, was considered one of Shopee's primary competitors.

On September 27, 2023, Indonesia announced a policy banning social commerce, with a primary target being the e-commerce platform TikTok Shop.

The question is: How will this affect Sea? To answer this question, it's essential to understand TikTok Shop's market share in Indonesia.

According to a report by Momentum Works, Indonesia was Southeast Asia's largest e-commerce market in 2022, contributing to 52% of GMV. The largest e-commerce platform in Indonesia's market share was Sea's Shopee, which held 36%. TikTok Shop, in contrast, only had a 5% market share.

At first glance, a 5% market share might not sound like a big deal. But, when you look at how fast TikTok Shop is growing, things become more interesting.

TikTok Shop is the fastest-growing e-commerce platform in Southeast Asia. Momentum Works' report indicates that TikTok Shop's GMV in Southeast Asia was $4.4 billion in 2022, with a goal to reach $15 billion in 2023, marking a growth of 240%.

This report also says that TikTok Shop might have 13.2% of the market in Southeast Asia in 2023. That means it's getting closer to the big players like Shopee and Lazada, which is owned by Alibaba.

Now, here's a twist. TikTok Shop is banned in Indonesia. This ban will slow down its growth and give other Southeast Asian e-commerce players a chance to grow.

Therefore, Citi analyst believes that Indonesia's ban on TikTok could be a positive development for traditional e-commerce players in Indonesia — particularly Sea Ltd., given the latest competitive intensity between TikTok and Shopee.

Potential future opportunity for Sea

1. E-commerce and gaming businesses are expected to rebound

According to analysts from The Motley Fool, Slowing e-commerce growth and pain in its gaming segment have weighed on Sea stock in recent years.

There are recent signs of improvement in both of these factors.

First, the ban on social commerce in Indonesia might mean less competition for Shopee.

Also, Sea recently got permission to launch the game "Free Fire" in India. India is one of the most populated countries globally, which could help their gaming business get back on track.

Lastly, they believe Sea's stock price is cheap compared to others in the same business, with a forward Price-to-Earnings (P/E) ratio of just 18.

Potential future risks for Sea

1. Increasing investments could impact profitability

According to a CNBC report, Sea may shift its strategy to prioritize growth over profitability to defend its market share in e-commerce. This potential change suggests an increase in e-commerce investment spending. While this move could aid the company in regaining growth, it may negatively affect profitability.

JPMorgan analysts believe that Sea's intensified investments in e-commerce could notably impact its profitability. They anticipate a substantial investment phase in the latter half of 2023, potentially leading to a decline in profits.