Shopee, the Amazon of Southeast Asia, has been on a layoff spree within a year of raising $6 billion. We dug into the financials for an inside look.
- On September 19, Singapore-based ecommerce giant Shopee announced its latest round of layoffs.
- Shopee is pivoting from a growth mindset to cutting costs as external funding dries up.
As employees trickled into the offices of Singapore-headquartered ecommerce platform Shopee on September 19, it became clear that this was going to be no ordinary Monday morning.
Within the next few hours, a "low single-digit percentage" of the company's employees had been given their marching orders, a Shopee spokesperson told Insider. The company employed more than 67,000 people at the end of 2021, per Bloomberg. Hours after the layoffs started — which a source close to the situation described as a "right-sizing" of resources — LinkedIn was lighting up with testaments from former employees expressing shock and dismay over their termination.
The latest round of Shopee layoffs came almost exactly a year after the ecommerce giant raised $6 billion through the sale of equity and bonds in September 2021. At the time, it was the largest fundraising in Southeast Asia.
We dug through Sea Limited's financials to piece together an inside look at the company and found that while revenue has been climbing year over year, losses have been growing. What's more, the recent Federal Reserve rate hikes have made it hard for Shopee — and other tech giants — to raise funds. Now, the company's mindset is shifting from growth to preserving cash.
A turbulent seven months
Shopee was founded in 2015 by Chinese-born Singaporean businessman Forrest Li. The ecommerce brand launched in seven markets across Southeast Asia and has since expanded into 13 markets. Today, Li is the billionaire CEO of NYSE-listed Sea Limited, which owns 100% of Shopee as well a gaming unit called Garena.
The company's public decisions over the past seven months have heralded various issues, both financial and regulatory.
In March, Shopee closed its Indian office and laid off 300 staff members. The closure came a month after regulatory intervention by the Indian government led to the banning of certain apps, including Garena's Free Fire.
In March, Shopee also pulled out of France, its sole presence in Europe.
In late August, Shopee rescinded several job offers, the South China Morning Post reported. Among those was an offer extended to a Chinese national, who discovered that the offer had been pulled when he landed in Singapore along with his wife and dog.
In early September, Shopee told staffers it was shutting operations in Chile, Columbia, and Mexico, and was entirely exiting Argentina, per local news agency Straits Times.
And finally, on September 15, a few days before the cuts began, Li wrote a 1,000-word memo to staffers. In it, he said the adverse market conditions are "not a quickly passing storm" and wrote that the company's objective for the next 12-18 months would be to become self-sufficient.
Li wrote that the company has a "solid cash base" but warned that "we can easily run through this cash base if we are not careful, and with investors fleeing for 'safe haven' investments, we do not anticipate being able to raise funds in the market." He also outlined a series of cost-cutting measures the company would be taking, including top-level executives temporarily forgoing salaries.
Sea Limited, the parent company of Shopee, declined to comment for this piece.
Numbers paint a bleak picture
Sea Limited has lost around $170 billion of market value since an October 2021 high, per Bloomberg.
Its quarterly losses have been ballooning, and the top-line revenues did not translate to profits in the second quarter of 2022. At the end of the second quarter, the company started signaling trouble ahead when it suspended a revenue forecast for the ecommerce business in 2022.
Sea Limited's financial statements show that revenue is rising, and that ecommerce is the biggest growth driver. In the second quarter, Sea Limited's revenue stood at $2.9 billion, a 29% year-over-year growth. In the same quarter, Shopee's revenue came in at $1.8 billion, marking 75.6% year-over-year growth.
However, the company's losses are also mounting. Sea Limited reported a loss of $931.2 million in the second quarter of 2022, widening significantly from a net loss of $433.7 million in the second quarter of 2021 and on the tail of two straight quarters of losses.
Amid these growing losses, Sea Limited revised and then dropped its ecommerce revenue guidance for the year.
In the fourth quarter of 2021, Shopee expected ecommerce revenue in 2022 to fall between $8.9 billion and $9.1 billion. The following quarter, it lowered that forecast range to $8.5 billion to $9.1 billion. And then, in the second quarter of 2022, the company said it would be "suspending" its ecommerce revenue guidance for 2022 altogether.
Businesses do not operate in silos
The layoffs and cutbacks at Shopee come as the tech industry at large undergoes a seismic shift in staffing.
Facebook parent Meta is reorganizing departments and putting some employees on a 30-day list that gives them a month to find new roles within the organisation or leave, per a Wall Street Journal report. Fifty staffers of Google's startup incubator Area 120 will need to find new internal roles or risk being terminated. Snapchat parent Snap Inc. plans to lay off around 20% of its roughly 6,400-person staff, or roughly 1,200 employees, CNN reported.
These companies — Shopee included — have seen their growth explode in recent years. Sea Limited posted revenues of $414 million in 2017, which ballooned to almost $10 billion in 2021. This growth was mainly fueled by cash from fundraising, as in its record September 2021 fundraising round.
The market from which these growth-minded tech companies raised their funds looks drastically different now.
Looking to bring down the rate of inflation, the Federal Reserve raised benchmark interest rates by another 0.75 points to 3% to 3.25% on September 21. While this means the cost of borrowing has shot up, it also means the return on risk-free assets — like US Treasury bonds — could be more attractive to investors than riskier tech stocks, per the Motley Fool.
This is the scenario Li alluded to in his September 15 staff memo, when he wrote that investors are fleeing for "safe-haven" investments, and it's why investment funding has dried up for Shopee. As an alternate to external funding, companies can look inwards to fuel growth and expansion. However, Sea Limited has been posting losses for the past few quarters, so that option is not viable in the short-term.
All this has led to Shopee prioritizing cash flow via cost-cutting over growth, which in turn led to the September 19 layoffs and to the mindset change Li outlined in his staff memo.
"In the past, we have focused on growth first, and sometimes growth at all costs. This was not a wrong approach, as global conditions were ripe with opportunities then," Li wrote. "But now that global conditions have changed, we too must adapt."
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