Market Insight

Garena files for US IPO to raise $696 million

October 11, 2017  | Subscribers Only

Chenyu Cui Chenyu Cui Senior Research Analyst, Games

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SEA, an online-gaming publisher in Southease Asia originally known as Garena, aims to raise as much as $696 million in its US-based initial public offering. The Singapore-based company established its business via PC game publishing, namely League of Legends, FIFA Online 3 and Heroes of Newerth. Then it expanded out to include mobile gaming, e-commerce and mobile payment services in Southeast Asia and Taiwan. Tencent is the largest shareholder with a 40% stake.

Our analysis:

Garena changed its name to SEA in order to reflect the growing development of its e-commerce (Shopee) and mobile payment (AirPlay) capabilities in the region. Shooter title Point Blank helped the company establish its ground in gaming industry, while the blossoming League of Legends enabled Garena to become the fastest-growing online gaming company in Southeast Asia and Taiwan. In line with the trend of attentions shifting from PC to mobile, Garena, via support from Tencent, has exclusive publishing rights of Honor of Kings and Thunder Strike in the region, sparking revenue growth for the company in 2017.

Although SEA’s IPO implies a future focus on e-commerce and payment solutions beyond online gaming, the Garena games portal remains the only profit generator for the company, countering losses from the great initial-stage costs of e-commerce operations. Seeking opportunity in the e-commerce sector seems to be the ideal option for publishers who wish to avoid the fierce competition within the online gaming market while ramping up revenue, as also done by NHN Entertainment (in Korea) and NetEase (in China). And the development of its mobile-payment solution could help boost in-game spending on its online portals.

Prior to Garena’s IPO, VNG announced it would sign an agreement to list shares on the Nasdaq Stock Market in May. Coincidently, Tencent invested in the company as well, and both Garena and VNG have stepped into e-commerce and payment business in recent years. As such, we believe the IPO of both companies might be part of Tencent’s overseas expansion strategy. Tencent dominates the online gaming market, from development, to publishing, to distribution. But in line with a decline in growth rate and maturing market conditions, Tencent has increased its investment activity beyond online gaming, particularly regarding the rapidly growing e-commerce business reflected by investments into JD.COM and mini-programs on WeChat.

The investment from online-gaming companies is posing a threat to the dominant position of Alibaba in the e-commerce industry of China. And now the competition seems to be expanding into Southeast Asia. Compared to the stagnant PC-based online gaming, and the highly-competitive mobile gaming scene, e-commerce industry may very well seem a blue ocean for Chinese companies.


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