Shopee's GMV Surge Masks Rising Profitability Challenges: Can Sea Limited Achieve Sustainable Growth?

Shopee has delivered impressive headline numbers in recent quarters, with gross merchandise value climbing over 28% year-over-year to reach $32.2 billion in Q3 2025 across its key markets in Southeast Asia, Taiwan, and Brazil. Yet beneath these strong top-line figures lies a more complex story about the trade-offs Sea Limited is making to achieve this GMV expansion.

The Subsidy Trap: Impressive Growth, Real Cost

To drive order volume and customer stickiness, Sea Limited has deployed aggressive logistics incentives—essentially free or discounted shipping to pull customers into Shopee’s marketplace. This strategy has proven effective in warding off intensifying competition from platforms like Lazada, TikTok Shop, and MercadoLibre. However, the financial toll is substantial.

In Q3 2025, Sea Limited’s cost of services surged 38.8% year-over-year, primarily driven by elevated logistics spending. This cost inflation directly pressured profitability despite growing order volumes. Tellingly, Shopee’s value-added services revenues actually contracted 5.7% year-over-year during the same period—a symptom of the margin compression caused by heavy shipping incentives.

The adjusted EBITDA margin fell to just 0.6% of GMV, underscoring how thin profitability has become. Advertising revenue showed promise with solid growth, and take rates improved, yet these gains were overwhelmed by fulfillment and shipping cost pressures. The central question for investors: Is this a sustainable trade-off or a warning sign?

SPX Express: Sea Limited’s Path Toward Cost Control

Recognizing the need to reduce external logistics dependency, Sea Limited has been scaling SPX Express, its in-house delivery network. This proprietary logistics arm now handles most deliveries across key regional markets, providing both operational control and potential long-term cost efficiency. While building out internal logistics requires upfront capital and operational investment, it represents a deliberate shift away from the subsidy-heavy model.

Competitive Pressures Keep the Subsidy Cycle Running

Sea Limited operates in brutally competitive markets. Alibaba dominates global e-commerce through its portfolio of Taobao, Tmall, Lazada, and AliExpress, leveraging Cainiao’s sophisticated logistics network and AI-driven capabilities. In fiscal Q1 2026, Alibaba’s core e-commerce revenue grew 9% year-over-year to RMB 118.6 billion.

MercadoLibre commands Latin America alongside Brazil operations where Shopee also competes. With $16.5 billion in GMV during Q3 2025 (up 28% year-over-year), MercadoLibre’s integrated ecosystem combining Mercado Envios logistics and Mercado Pago fintech creates formidable competition. The company’s scale and financial services capabilities erect high barriers that reinforce its market position.

Against these powerhouses, Shopee’s shipping incentive strategy functions as a competitive moat—necessary to maintain market share but increasingly expensive to sustain.

Valuation: Modest Premium Against Growth Potential

Sea Limited’s stock has appreciated 6.6% over the past year, underperforming both the Computer & Technology sector’s 24.1% gain and the Internet - Software industry’s 6.3% return. From a valuation lens, SE trades at a forward 12-month P/E of 21.38, below the sector’s 27.76X multiple.

The Zacks Consensus Estimate projects 2025 revenue growth of 37.43% and 2026 growth of 26.21%, suggesting meaningful expansion ahead. Earnings estimates stand at $3.60 per share (2025) and $5.64 per share (2026), implying year-over-year EPS growth of 114.29% and 56.67%, respectively. These figures remain unchanged over the past month, indicating analyst stability around the outlook.

The Critical Inflection Point

Sea Limited faces a pivotal challenge: gradually reducing the intensity of shipping incentives while maintaining GMV momentum. Shopee’s marketplace model depends on order velocity to capture advertising and take-rate revenue, yet profitability cannot remain compressed indefinitely. The scaling of SPX Express offers a path toward this transition, but execution risk is substantial.

For investors, the key metric to monitor is whether Sea Limited can achieve margin expansion without sacrificing GMV growth rates—ultimately determining whether Shopee’s current trajectory represents genuine business momentum or subsidized growth masking structural profitability issues.