Episode 2: Sea


Neil Kansari, Sr. Portfolio Manager

Episode 2: Sea

Episode 2: Sea
May 27, 2021

Neil Kansari, Sr. Portfolio Manager, discusses Sea, a Singapore-based mobile gaming and ecommerce company that has become Southeast Asia’s largest internet and technology company based on market cap. In this podcast, Neil outlines the economic, demographic, and market conditions in Southeast Asia for ecommerce and digital finance adoption and Sea’s business plans.

See portfolio holdings for portfolio holdings purchase dates. As of the episode date Sea and Tencent are current holdings in our Global Growth and Emerging Markets Growth strategies.


00:43 Why Southeast Asia is positioned to adopt innovative technology.

02:42 Why we invested in Sea’s IPO.

04:38 Evaluating Sea’s growth trajectory, especially in ecommerce.

07:03 Sea’s management team.

11:08 Sea versus other ecommerce giants.

14:04 Did the pandemic pull forward Sea’s growth?

15:21 Insights into Sea’s fintech business.

17:40 Doing research remotely during the pandemic.

20:56 Closing thoughts on Sea.

22:42 Neil’s path to investing.

25:00 Advice for people considering a career in investment management.

26:10 What Neil is listening to and reading


Kevin: Welcome to What Matters Most, Sands Capital’s podcast series in which we will explore some of the innovative growth trends in businesses that are propelling the pace of global innovation forward and changing the way we live and work today and into the future. Today, I’m speaking with Neil Kansari, Sands Capital senior portfolio manager, about Sea Limited. Sea is a Singapore-based mobile gaming and ecommerce company that has become Southeast Asia’s most valuable internet and technology company, with a market cap now of over a hundred billion.

In this podcast, we’ll discuss the economic, demographic, and market conditions in Southeast Asia for ecommerce and digital finance adoption, and Sea’s business plans. So, Neil, thanks for joining us today.

Can you start off by telling us a bit about why Southeast Asia, in particular, is positioned for the adoption of innovative technologies?

Neil Kansari: Thanks, Kevin. That’s a good place to start. What are the market conditions that enable this kind of innovation and growth to take place?

So, greater Southeast Asia is composed of six countries. Plus, in this case for Sea’s business, they also operate in Taiwan. So, you’re talking about countries like Indonesia, Vietnam, Thailand, the Philippines, Malaysia, and Singapore, that’s the ASEAN markets. And then Taiwan. The combined population here is 600 million-plus.

So, it’s a substantial population set in these countries. It’s a very young population, with $3 trillion of nominal GDP, which is growing roughly at twice the growth rate of the U.S., for example. And most importantly, internet usage continues to just multiply rapidly.

The consumers there are adopting mobile technologies. They have cheap phones, access to data, and they’re accessing the internet over their mobile phones—400 million-plus internet users, according to the Google/Temasek report.

So, you have a confluence of factors—young population, really exponential growth in mobile internet—which obviously leads to business opportunities. That’s expected, according to that report, to grow to 300 billion by 2025. So again, you’re growing, in five years, that’s tripling of that internet economy space.

I think that’s what makes a company like Sea, gives them the opportunity, because the end markets are growing in this fashion.

Kevin: All right. Excellent. Thanks. That’s good backdrop there. So, Sea Limited became a publicly listed company in 2017 and is actually listed in the U.S. on the New York Stock Exchange. And Sands Capital decided to become an early shareholder. In fact, you invested in the IPO. So, maybe you can give us a little backdrop on what gave you the conviction to not only invest in the company but to be an early investor in the IPO.

Neil Kansari: We had been loosely following the internet economy in Southeast Asia. And then I think what really sparked our interest in Sea in a deeper, meaningful way was when Nick Nash, who was at the time the president of the company, visited our Arlington offices months before, actually, the IPO.

And he gave us the story of how Sea had become the dominant gaming company with Garena, and they were now in the market in their second act, which was ecommerce, and it was early but had a lot of promise. And he showed a compelling vision for Sea, which really piqued our interest.

And again, we’ve had significant experience investing in gaming. These are the companies that allowed this kind of experience, investing in ecommerce and gaming. That’s when the journey really started and we started doing some preliminary work. Of course, then the filings happened, and all the data came out, and we could really deep dive into the IPO. In combination with our business model, which enabled us to see the promise, what this company really could be out in the future, in five, seven, 10 years combined with, of course, the backdrop that I just talked about, in Southeast Asia, one of the most promising early markets in the world.

And then, finally, I think over time, we went to Singapore, meeting management: Forrest Li, the founder; Chris Feng, the founder of Shopee, who runs Shopee; and then Nick Nash, of course. So just engagements with them and doing all the proprietary work that we did in the ecosystem really enabled us to build the early conviction to participate in the IPO.

Kevin: So, after participation in the IPO, what research did you do to gain further conviction that the company was on the growth trajectory that you were expecting?

Neil Kansari: Yeah, great question. Our research doesn’t stop when we invest. It’s an ongoing process. We continue to evaluate the company, make sure that it’s meeting our investment criteria and continue to do more and more research and deep dive and build conviction.

So, in that process, over the next six, nine, 12 months, we did a tremendous amount of follow-on work, which really gave us incremental conviction, particularly on the ecommerce side of the business. And now, if you look back a little bit into the IPO process, we had some early insights into the ecommerce business.

We believed in the promise of ecommerce—and that having a significant potential for value creation. We hired a market research firm to fly in many consumers from the five major islands of Indonesia into Jakarta. Got them into a room and had a conversation with those consumers, asking them how do they actually use ecommerce, which platforms do they use. We tried to understand that from the consumers. How did they use it?

And, we did the same thing in Thailand, and one of the consistent messages we got from this deep proprietary work was that Shopee was clearly on its path to leadership. Anywhere from six to eight consumers out of 10 said Shopee is already their No. 1 starting point of ecommerce. That was really an aha moment for us. And this was a small sample space. It was a nice early indication but we needed to follow up with a more comprehensive scientific survey. So, we did that with a thousand-plus member survey in Indonesia.

And in that survey, there was one data point that really stuck out to me. And I shared it with the firm. It was 50 percent of consumers said, Shopee is our starting point of ecommerce.

We were seeing those early signs of leadership, which allowed us to build significant conviction in the business. And, as you mentioned, Kevin, it’s now a $100 billion company starting from a $5 billion to $6 billion market cap at the IPO. A significant part of the value creation has actually come from Shopee.

Kevin: All right. Thanks. So, you mentioned management, you touched on Forrest Li and Chris Feng. I know you had the opportunity, as you said, to meet with those folks and other members of the management team prior to or around the IPO. If you can give us an idea because it is one of our criteria — clear mission value and focus — really kind of another way of saying, we’re looking for visionary management and really trying to understand their plans for growth over time. Can you give us some idea of any of the insights or the impressions that you had in meeting with that team? What maybe made their approach different or what parts of other business models were they taking or changing?

Neil Kansari: So, Kevin, I would say maybe 30 percent to 40 percent of my conviction actually came from engaging with the management team, and Forrest Li’s interesting background.

He grew up in China, moved to the States for work, and then to Stanford business school. He was very inspired by folks like Pony Ma of Tencent. And he moved back to Singapore because his wife is from Singapore and relocated, but he saw this opportunity in Southeast Asia, where the gaming market and ecommerce market was very underserved. And he had all the business background and the ability to raise some funds to start Garena, the gaming business. And then, when you engage with him, you could really see that vision playing out.

He and, of course, the team brought the company to the stage of the IPO. But you could see the sparks of what you would define as an excellent management team and that just the way you laid out the gaming opportunity, not just in Southeast Asia, but maybe over time in other emerging markets. How you develop your own studios. So, Garena used to be primarily a distributor of third-party games from other leading gaming franchises. In fact, Tencent is one of their partners and is a big investor in the company. So distributing Tencent’s games or other companies’ games. But what I think Forrest understood was, long term, you do have to develop your own games.

So, he actually spent time in China, in a bit of a studio in Shanghai, getting some talented engineers to work on games and gave them free rein to develop something amazing, which is exactly what happened with Free Fire, which has now gone on to become a massive hit, not just in Southeast Asia, but it’s the No. 1 game in Latin America. It’s the No. 1 game in India. If you look at some of the stats of what Garena and Free Fire has done in Q1 of 2018. So, about three years ago, Garena on the platform had 127 million quarterly active users. In the last quarter, it had 611 million quarterly active users. That’s a growth of five times.

So, you could see that vision from Forrest, particularly in the gaming side. And then switching onto the ecommerce side, which is where we were building a tremendous amount of conviction, we were given access to Chris Feng, who’s actually not that accessible. He doesn’t often meet investors. But because of the reputation we have as long-term partners and long-term investors, we got access to Chris. And Chris sticks out as probably one of the best, in my personal opinion, ecommerce executives I’ve ever seen. And it’s in the way he was thinking about building the business for the long term. While the simple narrative on the street was, hey, Shopee is spending boatloads of money, $500 million, $600 million, burning cash, that was the simple narrative. But when you truly understood what he was doing, he was building a platform. This was an investment in a nascent opportunity. So, it made a ton of sense. And the cadence of investments. When do you invest in marketing? When do you invest in free shipping? When do you invest in logistics? The timing of those is important. And he understood that beautifully. To me, those were the sort of the early insights of great market opportunity, execution from Chris Feng and team, localizing, whether it’s gaming or ecommerce, a lot of local management team.

Kevin: So, let’s step back a little bit and talk about that opportunity that you said they had seen and were taking advantage of. We’ve seen just an endless number of examples of ecommerce giants around the world in various markets operating with a lot of success. So, are there any similarities or differences between Sea and the other ecommerce landscapes, say, in the United States or China or other places around the world? Anything unique about that? Or some similarities that you might’ve encountered in that early exploration of the company?

Neil Kansari: Yeah, I think it’s interesting you asked this because there are some nuanced differences in the way Sea approached, Shopee approached, even Garena approached the world, the markets. So, in these parts of the world, they skipped a generation. In the U.S. and developed markets, we had PCs, you had gaming consoles, things like that. Whether it’s gaming or ecommerce, those are the roots. In places like Southeast Asia and in other markets, Latin America, India, you don’t have that.

It was a completely mobile-first approach. So, both of them, Garena, they built games that were light to run on cheap phones, $100 phones, not your iPhones, but Android phones, but still had all the graphics and all of that.

So, you had to completely design games for that ecosystem. So, that’s what has given them tremendous amount of success on the gaming side. Of course, then the content is great, but also this content has to run really well on phones with lower memory and lower processing capability. So, I think that was a great insight that a Western company may or may not have. The other thing on the ecommerce side, too, it was a very mobile-first approach. While some of the competitors who are much earlier than them in the market, they had a PC version and they tried to then transform into mobile. Shopee came late actually, it was the third or fourth entrant, for example, in Indonesia, which is the biggest market in Southeast Asia. But they came with the mobile-first approach. They had this amazing chat function where buyers and sellers could engage with each other.

This enabled a lot of sellers with selling on Instagram and Vine, these other social media platforms, put them onto a more sophisticated platform, where you could essentially have your product listing as well as engage with the customers.

The entire mobile application also had gaming-like features, it was more entertainment-ish. There was more engagement with the platform, and that’s where all of these things are moving. Gaming, shopping, there’s a blend of entertainment in it. So, I think again, Sea, Forrest Li, and Chris Feng understood that, the reduced payments friction. They brought gamification. They created tools for sellers. And you just didn’t have to create the software. So, it’s marrying technology plus local market knowledge, which really enabled them to become the No. 1 company in the region.

Kevin: So, clearly they planted a lot of seeds early on. But I have to imagine that with the pandemic, a lot of that growth became exponential. Maybe even an inflection point while people were looking for other ways to shop and consume when they couldn’t leave their houses. Is there any concern that that pandemic has pulled forward a lot of Sea’s growth and that perhaps, at the end of the pandemic, that growth will moderate or slow significantly? How are you thinking about that as we hopefully start emerging from this period?

Neil Kansari: I think we are seeing significant stickiness. The growth rates haven’t decelerated at all, even as economies have opened up. This year, for example, on Shopee, the guidance is 400 percent-plus revenue growth for 2021. This is on the back of already strong numbers. Ecommerce for example, is still seven to eight percent penetration. You look at China, that’s at 30 percent, you look at the U.S., it’s at 25 percent.

And those are growing too. So you have significant runway for growth, and what Shopee and some of the other players in the market, they’ve done is they’ve broken down those barriers, they’ve invested the capital, and created the infrastructure for that growth to happen.

Kevin: Okay, great. You mentioned services, the ecommerce platform, and we’ve talked a little bit about gaming, but maybe you can give us a little insight into their fintech business. That seems to be an important feature of a lot of these ecommerce platforms these days. And I know they have their own digital financial services business with Sea Money or Shopee Pay. Maybe talk about the potential for that to have a significant impact on helping people in Southeast Asia transact over these platforms.

Neil Kansari: Yeah, I think Sea, with these innovative companies, it’s their ability to create these flywheels and then grow the flywheels. So, you had this company that went from gaming to the second act of ecommerce. And now we think they are in the process of building the third act, which is the digital financial services business, on the back of the infrastructure and the platform that they already have built. And, particularly for digital financial services, it’s very synergistic to the ecommerce flywheel because, if you think about ecommerce, you have millions of consumers on one side, you have a few million sellers on the other side in the marketplace model, which is what Shopee is. And, in a place like Southeast Asia, both those constituents are not really banked very well. They’re underbanked or not banked at all.

So, to enable “buy now, pay later services” on the consumer side, as well as merchant-side small-business lending, those are opportunities that the Shopee flywheel can service at a low cost. And with the data science they have, with the analytics they have, they’ve got obviously all the great data on the consumer.

They’ve got great data on the sellers on the platform. They can also manage the risk of that lending business pretty well. So, of course it’s an evolving space but they’re taking all these early steps. They’re getting the licenses in place and they’ve got the banking license in Singapore, they bought a small bank in Indonesia.

They’ve got other licenses, payment, et cetera. Digital payments is a huge opportunity. So, I think with payments, with consumer lending, with small-business lending, maybe some other services wrapped around it, we think, and our conversations with management seem to suggest they think as well that the financial services business can be as large, if not larger than ecommerce. So that’s the third leg, the third act—it’s pretty big.

Kevin: That’s interesting. Thanks for that. Let’s pivot a little bit to the way you’re doing work these days. You talked about ongoing research in these companies, and clearly one of the side effects of this pandemic has been our inability to travel. And an important part of our research process is boots on the ground, visiting the companies and management teams in person in many cases. So, how’ve you been able to work closely with Sea, and you touched on this a little bit, but how have you been able to work closely with them despite being in different parts of the world. Has that been a challenge? How do you see that?

Neil Kansari: Of course, we like to be on the ground and kick the tires a little bit, but with these digital companies the advantage is you can do a lot online. So, for example, recently again I worked with the market research firm to do a follow-on survey in a couple of markets for Shopee, for example. With the gaming franchise, you can track a lot of data on App Annie and other providers like Sensor Tower, et cetera, just seeing how the game is doing. And, of course you can follow along on the gaming side, a lot of other market research, to give you a sense of that. In terms of research activities, a lot of it can be done remotely with these digital-first companies. And it’s the same for Sea Limited. On the other side of access to management and conversations, I think that’s where the relationships matter.

I have a personal relationship with Forrest Li because of spending time in Singapore. I remember walking in this giant stadium in Thailand with him where they host these big events for gaming. They organized these big esports events in many countries in Brazil and in Thailand. And I remember walking with him and building a personal relationship with him as he was showing me the different floors, the different sections of different games in a giant stadium. So things like that, I think, go a long way. So, of course, we’ve got great access to Forrest, to some of the other senior leadership in the company, which again, we try to focus on the long-term vision of the company, understand that, and that kind of access is great.

So, I think, in summary, it’s been a great year in many ways. And the research has been fantastic too.

Kevin: That’s great. I don’t think we can understate how important those existing relationships are. I recently heard someone say that maintaining relationships over video calls is possible, even preferable, but building new relationships is nearly impossible over video and distance. So, it is important to have established those early on. Following along on that thread, do you expect this remote research communications and some of the things that you’ve been doing remotely to persist, even when it’s safe to travel again? What do you think you’ll continue to do? And, what do you think you’ll get back to doing that was sort of your traditional way of doing it?

Neil Kansari: I think our travel will probably be reduced a little bit but it’s still going to be an important component long term as, Kevin, you were saying. New relationships, new companies that may come into the portfolio, I think it’s definitely valuable to be on the ground, to kick the tires, if it’s a consumer company, see their products on the shelves, things like that. So, I think it’s going to be a hybrid approach.

But to maintain those relationships, at least in certain periods of time, as well as these new relationships with new companies, I think that’ll be important.

Kevin: Okay. We’ll step back, and the final question on the company is about the bigger picture. So, we like to claim that we’re in the insight business generating unique insights that others might not see. Can you talk about some aspects of Sea that other investors might not fully appreciate and how that might contribute to your expectations or differentiated expectations for potential future growth?

Neil Kansari: We’ve had continuously, I think, differentiated insights in this business, as I was mentioning earlier. In the early days, people just didn’t value the ecommerce business. We are also in the process of building further conviction in this digital financial services business. Again, having experience across different markets, different segments, being a global investor in fintech, we think we have some insights that are differentiated. And as I was saying, that can be significantly large for a business like Sea. So, it’s not going to happen overnight but if you give it five, seven, 10 years, you have all the ingredients in place: underbanked population, the banks not being able to service these markets, asset management and insurance growing from low basis.

So, then you have the Shopee flywheel that can really execute. And Chris Feng runs both Shopee and this sort of digital financial services business. And I have a lot of conviction in the management team to do that. So, I think that’s one of the areas where we think we have some differentiated insights from the market, which is why we remain very optimistic on the company.

Kevin: Great. Well, we’ve covered a lot of ground on this podcast about this particular company and have learned a lot. So, thank you for that. If it’s all right with you, I’d like to pivot the podcast a little bit to more personal questions about Neil Kansari. So give us a little bit of your background and what ultimately led you to Sands Capital.

Neil Kansari: Yeah, I have an interesting personal story, how I ended up at Sands Capital and investment management. So, I grew up in an emerging market. That’s what I focus on today. I grew up in India. I moved to the States in the late ’90s to actually do a master’s in engineering at University of Virginia. And while I was doing that, I always had an interest in business. And actually, an interest in investing and that I can credit to my father. He was middle class, not a lot of money, but he had a lot of passion for investing.

When I was growing up, we used to get The Economic Times delivered to our home, which is like The Wall Street Journal equivalent. And the circulation of that is fairly minimal in a country as big as India. But my dad was one of those guys who used to subscribe to it because he used to invest small rupee amounts in the market, which actually sparked my interest in business, I think, and investing, and I ported that even when I came to UVA. I opened a stock market account from the small stipend I used to get during my engineering days, I got a scholarship.

I pivoted my career, after my masters, into management consulting, which I thought was a really good place to learn the fundamentals of how a business works. Helping executives execute on their vision of the strategy, the operations. And I think that was a great foundation for eventually the kind of investing that Sands does.

So, as I was doing that management consulting, traveling to all sorts of Fortune 500 clients and others, I did that for four years but I realized that again, going back to those roots, my true passion really was even, marry that business, but how do I actually execute was through the world of investing.

So, I went back to business school to Darden and then I was lucky enough to actually be part of the Darden Capital Management, which is the investing club, they’re a pretty selective group of 16 students who do that. Through that process, I connected with Dave Levinson.

And one thing led to the other, and I got a job as an analyst at Sands. And then of course in a few years, with the two of my other colleagues, started building out the emerging markets fund at Sands, which has been pretty successful for our clients.

Kevin: Okay, that’s great. That’s, I know, a unique path, your own path to the investment management world. But is there any career advice you would give a young investor thinking about a future career in investment management?

Neil Kansari: I think probably a few of the attributes, and everybody’s got different strengths. So, first and foremost, know your strengths and know your weaknesses. And align yourself to careers where you can amplify your strengths. So, in this business, in the business of investment management, having a very inquisitive mind, always thinking of yourself as somebody who is constantly learning, because the world is always evolving.

At the same time, being practical. So, the balance between learning combined with the actual practical realities of a business. I think if you can marry those things, and if you think that you are that kind of person naturally, it doesn’t matter whether you’re a student of engineering or economics or finance, I think, if you have thosw ingredients within you.

I think this can be a great career because it’s an industry where you’re constantly learning, you’re constantly inquiring, you are also making practical judgments about why a business model or a company might work or why it wouldn’t.

Kevin: Oh, that’s interesting. And actually segues into my last personal question. What are you, Neil Kansari, currently reading or learning about? “What’s on your nightstand?” I guess is another way to ask that.

Neil Kansari: So my learning—since I’m quite passionate about investing personally and then professionally—that’s what I do day in and day out. So, I spend a lot of time thinking about investing and reading investment books and things like that. A lot of people do that. So, actually I try to get away from that and keep myself grounded because there are huge volumes of information and stuff coming at you day in and day out.

So, I think you almost have to take a step back and ground yourself and get into a calm meditative state, just to keep your mind fresh and healthy. And that’s what I try to do is actually de-focus from that. And I’ve been reading a little bit on Buddhism and meditation and Vedanta, things that are more spiritual in nature. There are obviously audiobooks, and YouTube has been fantastic.

You can listen to some really interesting Buddhist monks on how to live a spiritual, simple life. I try to do that because I find it grounding me and keeping me simple and humble, because this is a challenging job, and you got to keep yourself at it. And humility and being simple is, I think, also important for the long term.

Kevin: Can you give us some specifics? I’m sure people would be interested in some of the specific titles that you’re reading in those categories or others business, maybe some podcasts you might be listening to as well.

Neil Kansari: Yeah, of course. In my free time or sometimes late in the evening, I listen to on the spiritual side, there’s on YouTube, there’s lectures given by Ajahn Brahm. He’s a Buddhist monk who lives in Australia and is British. His talks are quite nice, quite calming.

There’s the book called Awakening the Buddha Within by Surya Das, this American Buddhist monk who has written a nice book. Again, what, reading it on and off, some chapters. So, I think on the spiritual side, those are some specifics that I spent some time on.

On investing, I like to keep myself also fresh and, going to that point, about always learning. So, obviously quantitative investing has become pretty popular in certain parts of the investing world. Of course, it’s completely different than what we do, which is business investing in high-quality growth businesses.

I’ve been listening to an audio book, Jim Simons’ Renaissance technologies book, The Man Who Solved the Market. I think it’s pretty interesting. The journey of how Jim Simons founded the firm Renaissance, becoming one of the most successful firms out there in the quantitative world.

Warren Buffett is a great teacher. I think that is universally known but I definitely read and read a lot of his stuff. I’ve actually printed out all the annual letters and, from time to time, I’ll go back and read some of the annual letters of Warren Buffett. I also, every year, I’m not able to go to Omaha but I carve time out of the five, six hours, and I actually listen to the entire annual meeting of Berkshire Hathaway.

And finally on the business side, building things, what makes a business great. What are the management attributes to look for? I think Zero to One is a great book by Peter Thiel, visionary entrepreneur and investor now. I highly recommend anybody who’s interested in business or what characteristics to look for early in the growth cycle of a company.

Kevin: Okay, thanks! That is great insight. And I would imagine not the answer people were expecting to hear. So thanks for that.

Well, thanks again, Neil, and thank you to our listeners. We hope you enjoyed joining us here for this deep dive into what we think is a truly innovative company, and one that we have very high conviction in at Sands Capital. And we appreciate you taking the time out of your busy day to listen to us. And, Neil, we thank you for taking the time out of your day to speak with us.

Neil Kansari: Absolutely. Thanks, Kevin, and thanks to all the listeners for listening.

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The featured podcast portfolio companies represent a subset of Sands Capital holdings that illustrate the types of businesses in which we typically invest. The series uses rotation whereby podcasts are selected to highlight different sectors and geographies. 

The views expressed are the opinion of Sands Capital Management and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed were current as of the date indicated and are subject to change. This material may contain forward-looking statements, which are subject to uncertainty and contingencies outside of Sands Capital’s control. Readers should not place undue reliance upon these forward-looking statements. There is no guarantee that Sands Capital will meet its stated goals. Past performance is not indicative of future results. A company’s fundamentals or earnings growth is no guarantee that its share price will increase. Forward earnings projections are not predictors of stock price or investment performance, and do not represent past performance. References to companies provided for illustrative purposes only. The portfolio companies identified do not represent all of the securities purchased or recommended for advisory clients. There is no assurance that any securities discussed will remain in the portfolio or that securities sold have not been repurchased. You should not assume that any investment is or will be profitable. GIPS® Reports and additional disclosures for the related composites may be found in the Sands Capital GIPS Report.