Sea’s cloud business is the ideal defence for Shopee’s market share

[SINGAPORE] Amid intense competition on the e-commerce front, Sea’s cloud business could be just the thing to help it fend off its rivals.

Sea’s recent Q3 2026 earnings revealed that its e-commerce arm Shopee, had its most profitable quarter ever, with adjusted earnings before interest, depreciation and amortisation (Ebitda) rising 44.5 per cent to US$269 million from US$186.1 million in the year before.

The figure was also higher than the second quarter’s Ebitda of US$255.4 million.

Revenue for Q3 2026 grew 41.3 per cent to US$6.1 billion from US$4.3 billion in the corresponding period.

Heat from rivals

These were strong results, but Shopee has felt the competition – particularly that from Bytedance’s TikTok Shop – nipping at its heels in the last three years.

Recently, TikTok Shop launched a separate app in South-east Asia, which attests to the e-commerce business’ ability to stand on its own, rather than just being a tab on the TikTok app.

Hiving off TikTok Shop enables it to operate outside the constraints of the TikTok app; the e-commerce team can now shape customers’ behaviour, consultancy Momentum Works said in a note.

Other newer competitors are also jockeying for position. Chinese e-commerce company Pinduoduo is ramping up its efforts in Singapore; both its platforms Temu and Pinduoduo are mounting heavy advertising and marketing campaigns.

Then there is also Mercado Libre, the e-commerce incumbent in Brazil, which competes with Shopee on the South American continent.

There are barriers to entry in starting and running a successful e-commerce business, but they are not insurmountable. The players in this arena know that low prices and free shipping can draw customers, and that merchants can be enticed on board with lower fees and better reach.

Sea chief explains the pivot

Against this backdrop, CEO Forrest Li’s announced in a note to Sea employees on Oct 20 that the company was entering the cloud business. The news was less of a surprise and more like a sustainable way to build a new revenue stream.

He disclosed more details and the management’s thinking on the subject in the recent Q3 2026 earnings call. He said that, rather than looking to build artificial intelligence infrastructure with data centres, the focus would instead be on helping enterprises adopt AI.

Sea intends to take its own lessons from developing AI capabilities and show others how it can be done, in areas where it has had success, such as with fraud detection, customer services and content generation. The aim is to turn this cost centre into a revenue stream.

“By serving external customers on top of that existing base, we can spread our fixed costs among more users and earn attractive incremental returns on capital,” said Li.

Sea is not closing itself off from potentially building and running data centres either; he said that if there is customer demand and attractive returns, Sea would pursue such opportunities.

The timing of such a business could not be any better, as enterprises are seeking to squeeze more value out of their AI tokens – now getting cheaper – after a spell of “token maxxing”.

Li said: “The real opportunity is to build a significant business around the long-term decline in token prices, and help organisations drive much broader AI adoption.”

Sea’s route into the cloud business is not entirely a fresh one: US e-commerce giant Amazon spun off its cloud business, Amazon Web Services (AWS), initially building it to solve its own issues, and then pivoting to running it for external customers.

It has worked well for Amazon. AWS now contributes to the bulk of Amazon’s net income, making US$17.7 billion of the giant’s US$20.7 billion net income for Q3 2026.

For Shopee, building this new cloud business even while it is the forerunner in South-east Asia’s e-commerce market, could be the way to build up sufficient resources, to continue to defend its market share.