Maybank Investment Bank said Wednesday that new monetization avenues will help Singapore-based tech conglomerate Sea to achieve margin targets sooner.

The research house said in a note that e-commerce competition remains benign, leading to monetization initiatives such as seller take-rate increases (1-3 percent) and advertising growth, which in turn fast forwards margin improvement for Sea.

It raised its 2030 e-commerce adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to gross merchandise volume (GMV) margins to 2.7 percent by 2030 (from 1.9 percent previously).

“We think (Sea’s e-commerce arm) Shopee is comfortably positioned to exceed its long-term e-commerce adjusted EBITDA to GMV margins target of 2 percent to 3 percent,” Maybank said.

However, it thinks the company is likely to cap ecommerce margins to keep the space competitive to maintain its dominance and/or counter entry of aggressive new entrants.

According to the research house, Shopee’s recent seller take-rate increase, potential improvement in advertising and relatively stable costs suggest room for adjusted EBITDA margin expansion beyond management’s long-term target of 2 percent to 3 percent of GMV.

However, it thinks management is likely to keep margins capped at 2 percent to 3 percent of GMV while returning excess revenue lift in the form of vouchers, coins etc and an even better user experience in the form of faster delivery, cancellation and return policies.

It noted this is mainly to keep the operations nimble to thwart entry of new players and/or attack on Shopee’s market share from existing players.

This is reflected in initiatives like Shopee’s recent YouTube partnership, which allows the former to narrow social commerce gap vs. TikTok, albeit at a slight margin leakage, it added.

It is noted that advertising contributes only about 1 percent to 2 percent of Shopee’s GMV. This compares to around 4 percent for the global peer average.

As per emarketer, retail media is the fastest growing segment within the digital ads category at 23 percent compound annual growth rate (CAGR) and that growth momentum is expected to sustain in 2024 to 2025.

With the ASEAN internet currently in a steady state and with artificial intelligence (AI)/tech help, advertising growth initiatives are on the rise, said Maybank.

“We estimate advertising take-rate to potentially rise to 3 percent of Shopee’s GMV by 2028 (still 20 percent below current global average) driving 29 percent of our expected lift in EBITDA margin,

“This is on top of the organic growth and ongoing monetization initiatives,” it said.

While e-commerce margins could be capped by design, Maybank thinks monetization could indirectly come from a larger-than-expected shift from offline to online given Shopee’s scale/efficiency creating economics for sellers and better experience for users.

According to Maybank, digital financial services (DFS) can be leveraged to realize a part of e-commerce monetization as DFS is a derivative of e-commerce and should grow alongside e-commerce; DFS won’t be the first area of attack from a competing e-commerce player; and a pure-play fintech player won’t have a similar ecosystem advantage as SEA.

“We raise our DFS revenue by 1 percent to 15 percent alongside increasing our e-commerce GMV,” it added.

Singapore’s Sea revises up guidance for Shopee amid strong e-commerce momentum