Broker: Maybank Research Pte Ltd
Date of Report: August 5, 2025

Sea Ltd Faces Competitive Pressures in Brazil as MercadoLibre Ups the Ante: In-Depth Analysis and Outlook

Introduction: Competitive Dynamics Intensify in Brazil’s E-Commerce Market

Sea Ltd (NYSE: SE), a leading internet conglomerate based in Singapore with core businesses spanning e-commerce (Shopee), gaming (Garena), and digital financial services (SeaMoney), is experiencing new headwinds in Brazil. The latest quarterly results from MercadoLibre (NASDAQ: MELI) highlight an aggressive push to capture market share in Brazil’s low average selling price (ASP) e-commerce segment—a space that Shopee currently dominates. This article provides a comprehensive breakdown of the competitive landscape, Sea’s strategic positioning, financial performance, and the implications for investors.

MercadoLibre’s Strategic Moves in Q2 2025: Fee Cuts, Free Shipping, and Marketing Blitz

MercadoLibre, the e-commerce powerhouse of Latin America, has rolled out several bold initiatives aimed directly at Shopee’s stronghold:

• Fee Reductions: MELI slashed fees by approximately 40% for products priced between BRL79 and BRL200 in May 2025.
• Lowered Free Shipping Threshold: The threshold for free shipping was dramatically cut from BRL79 to BRL19 in early June 2025.
• Increased Marketing Spend: Second quarter marketing expenditures surged 47% year-over-year across Brazil, Mexico, and Argentina, fueling major campaigns and buyer engagement.

These measures produced immediate results:

• Items sold in Brazil soared by 34% YoY in June, compared to 22% YoY in April–May 2025, implying a 12% month-on-month jump versus a typical 2% run rate.
• Buyer activity, traffic, conversion, and engagement metrics all increased sharply.
• However, these growth tactics came at a near-term cost: MELI’s Q2 2025 earnings dropped 2% YoY and missed consensus expectations by 14% as the company prioritized growth over profitability.

Implications for Shopee: Sea Ltd’s Brazilian Expansion Under Pressure

With MELI moving aggressively into the low-ticket item segment, Shopee faces direct competitive threats in its Brazilian core.

• Price and Value Proposition: Shopee still offers distinct advantages, with products averaging 11% cheaper than MELI’s and faster delivery timelines.
• Seller Economics: Shopee maintains lower take-rates for sellers, especially on low-ticket items, even after accounting for shipping subsidies.
• Market Momentum: Despite Shopee’s competitive moat, MELI’s initiatives are gaining traction, particularly in June, where low-value segment sales significantly outpaced historical growth rates.

Shopee’s management attributes MELI’s success to logistics scale and offline-to-online adoption. However, the strategic expansion directly challenges Shopee’s dominance and could pressure its growth trajectory in Brazil.

Shopee’s Countermoves: Moving Upmarket and Enhancing Logistics

While MELI intensifies its focus on small-ticket e-commerce, Shopee is executing a pivot:

• Onboarding over 800 major brands to move “upmarket.”
• Significant investments in logistics, fulfillment, and delivery infrastructure.
• Despite current EBITDA-positivity in Brazil, management may be willing to accept short-term losses to safeguard market share and drive long-term growth.

Risk Assessment: Downside Limited, Diversified Growth Drivers Remain

Even in a worst-case scenario, downside risk for Sea Ltd appears limited:

• Shopee Brazil constitutes only about 9% of Sea’s sum-of-the-parts (SOTP) valuation.
• Potential impact restricted to an estimated 8% downside due to the segment’s relative size.
• Other business units—Shopee Asia, SeaMoney fintech, and Garena gaming—remain robust and could offset any incremental risks from Brazil.

Company Overview: Sea Ltd at a Glance

• Business Model: Sea operates across gaming, e-commerce, and digital financial services, with dominant market share in ASEAN and Taiwan.
• Growth Drivers: The company benefits from digitalization in underpenetrated ASEAN markets, where e-commerce GMV is expected to grow at a 15% CAGR through 2030.
• Competitive Moats: Sea’s own logistics, strong balance sheet, and defensive gaming franchise (Garena) underpin its market position.

Shareholder and Market Data

Financial Performance: Key Metrics and Projections

Shopee’s ASEAN E-Commerce Dominance and Growth Prospects

• Shopee is the dominant player in ASEAN and Taiwan, benefiting from rapid digitization and e-commerce penetration that remains 2–3x below mature markets.
• Sea is forecast to achieve a 14% revenue CAGR from FY23 to FY26, driven by e-commerce and digital financial services.
• Adjusted EBITDA is expected to grow at a 35% CAGR, with free cash flow turning positive in FY24.
• Sea’s strong cash position (USD 8.6b as of 1Q24) provides ample strategic flexibility for ongoing investments and competitive responses.

Business Model, ESG, and Risk Considerations

• Social Responsibility: Shopee supports SMEs with online courses, operational cost relief, and significant COVID-19 support packages, including over USD35m in seller support and over USD510,000 in donations.
• Governance and Compliance: A six-member board (with three non-executive directors) and rigorous data security protocols underpin Sea’s governance structure.
• Diversity: 46% of Sea’s workforce and nearly half of its management are female, with over 50 nationalities represented company-wide.
• Environmental Impact: Limited exposure beyond increased packaging; digital businesses (gaming, fintech) have lower environmental footprints, though server emissions are a consideration.

Financial Ratios and Key Performance Indicators

Risks and Opportunities: What Investors Should Watch

• Upside Catalysts:
  • Faster-than-expected user and topline growth across all segments.
  • Potential for Shopee to capture additional market share as competitors like GoTo focus on profitability.
• Downside Risks:
  • Macroeconomic uncertainties impacting consumer spending and GMV growth, particularly in Southeast Asia.
  • Slower user growth or intensified competition affecting Sea’s businesses.
  • Higher-than-expected credit costs for SeaMoney in an economic slowdown.
  • Emergence of new competitors in the Southeast Asian e-commerce landscape.

Conclusion: Sea Ltd Remains a Buy Amid Short-Term Pressures

Despite competitive challenges from MercadoLibre in Brazil, Sea Ltd’s diversified business model, strong cash position, and leadership in high-growth ASEAN markets underpin a positive long-term outlook. While the Brazil unit faces near-term growth and profitability pressures, the overall downside risk remains contained, with other divisions poised to offset headwinds. Sea’s ongoing investments in logistics, brand partnerships, and digital services continue to drive robust revenue and earnings growth, reinforcing its position as a compelling investment opportunity for the next 12 months.

Historical Recommendations and Target Price Movements

• Buy ratings consistently maintained, with target price recently set at \$192.00 (23% upside from current levels).
• Share price progression: \$105.0 (Aug 2023) to \$192.0 (Jun 2025), reflecting steady analyst confidence.