The Indian regulator's move to suddenly ban the most popular game from Sea
Ltd was immediately responded to by investors. In just one day, Sea Ltd's
shares fell, causing the parent company of e-commerce Shopee to lose market
value of up to US$ 16 billion.
Quoting Bloomberg, Tuesday (15/2), investors are increasingly worried that
the ban might be the beginning of the company's problems. Singapore-based
Sea went public in 2017 and quickly became Southeast Asia's most valuable
company.
This company, not only offers game products, but also e-commerce, and
financial services outside its home region. New Delhi's decision to ban Free
Fire as a product of the Sea game will be a new challenge for this tech
giant.
Also increasing competition from rivals such as Lazada from Alibaba Group
Holding Ltd. India has banned hundreds of Chinese apps over the past two
years, but the extension of the policy to Sea has taken management and
investors by surprise.
This startup was founded by Forrest Li who was born in China but has now
become a Singaporean citizen. Its largest shareholder is Tencent Holdings
Ltd, a Chinese social media giant.
“India is seen as one of the next major growth drivers for Sea's e-commerce
and gaming arm outside Southeast Asia,” said Angus Mackintosh, founder of
CrossASEAN Research, which published the report in Smartkarma.
With the Free Fire ban, there is a risk that the authorities will also
disable the Shopee app. Of course this would give Sea the potential to lose
that profit for growth.
Investors are concerned that India could potentially also ban Shopee, the
second pillar of Sea's business, where it has about 300 employees and 20,000
local sellers last December.
On Monday, Li assured shareholders at his annual general meeting that the
company had taken control of the situation. He did not comment on the Free
Fire ban in India.
Shares of Sea in New York plunged more than 18% overnight as analysts
scrambled to outline India's rationale and reassess Sea's growth outlook.
The stock has lost nearly two-thirds of its value since October.
"Sea is a Singaporean company and we aim to partner on India's digital
economy mission," the company said in a statement in response to questions
from Bloomberg News.
"We are committed to protecting the privacy and security of our users in
India and globally, we comply with Indian laws and regulations, and we do
not transfer or store any data from our Indian users in China."
Free Fire was the best-selling mobile game in India in the third quarter of
2021, according to industry tracker App Annie.
JPMorgan analyst Ranjan Sharma slashed his price target by about 40% to
$250, citing growing jitters around the Sea gaming franchise.
The Free Fire ban could curb Sea's digital entertainment business as a
whole, limiting its ability to finance Shopee's expansion into new markets,
said Oshadhi Kumarasiri, an analyst at Lightstream Research who provided a
research report on Smartkarma.
"With Free Fire banned in India, the state of Shopee's expansion in India is
at risk," he said
But the company's ties to the world's number two economy, China, remain
strong. Founded in 2009 by Li, Gang Ye and David Chen, the majority of its
senior executives are from or have strong ties to China.
Tencent, a longtime Sea backer, is undergoing a national security review in
the US. Last month, the internet giant revealed plans to sell IS $3 billion
of Sea stake to reduce its stake to 18.7% from more than 20%, while finally
taking the vote.
Some analysts view the move as an attempt to clear up questions about Sea's
origins and who tipped off the company.
But despite any efforts to assuage those concerns, Tencent's gradual
withdrawal in itself has the potential to be a significant blow to the
company.
Although Tencent is the largest shareholder in Sea, it adopts the same
hands-off approach as other investors in China. But his support was
instrumental in Sea's rise especially in recent years, when it ranked among
the best performing stocks in the world.
Leveraging Tencent's extraordinary experience with global distribution
platforms and business models, Free Fire quickly amassed over a billion
downloads on Google Play.
This places it among the most popular titles in the world. Li was candid
about relying on Tencent's expertise, especially in the early days of Sea,
and his attempts to emulate its business practices.
It's unclear how Tencent's sell-off will affect the relationship. Both sides
have made it clear that they will continue to cooperate.
But Tencent itself is now embarking on an overseas expansion after Chinese
regulators launched a crackdown on the gaming sector at home, meaning it's
sure to compete with Sea for some of the same gaming audience, just not in
India.
“Any kind of gap in the revenue stream from gaming will be picked up by the
investment community,” said Mackintosh.
