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No. of Recommendations: 4
Ant, no one would ever question negative operating and net margins for a company in this stage of growth. But gross margin in 3p/platform business is 7% in their last reported quarter and 1p/direct sales gross margin is close to 0 (which is normal).

I've never seen such gross margins for platform e-commerce business. For example, a comparable company Meli has GM around 50, Etsy has in 70s.

My take is that they're either

1) have super low take rate or
2) they put some additional expenses into cost of sales

I hope it's 1 rather than 2 because accounting flag would be worrisome. If I'm not mistaken they used to report adjusted revenues and SEC forced them recently report GAAP revenues. In any case such a low gross margin is strange and worrisome.

It's 80b+ company today. Considering that SE's gaming business could have hit a peak now (possibly), their future returns most likely will be driven by

1. Ecommerce business
2. Fintech / payments

Ecommerce business raises questions which need to be answered and fintech is at the moment negligible but provides nice optionality to the bull thesis.

We should also keep in mind that SEA region is 9 countries - yes, 600m people, but 9 different legal systems, cultures etc. I'm pretty sure the business plan to become a kind of Alibaba+Tencent+JD of the region will be less smooth for SE compared to BABA's path in China for example. SE will always have local competitors from Indonesia or Thailand but most likely no other pan-region competitors aside from Lazada.
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