TikTok Shop is a rising threat to major e-commerce players such as Shopee and Lazada in Southeast Asia.

It comes as its parent ByteDance pushes the short video app in markets outside the U.S. and India to create alternative revenue streams.

TikTok Shop is the e-commerce marketplace of short video app TikTok, which is owned by Chinese tech giant ByteDance. The shopping app enables merchants, brands and creators to showcase and sell their goods to users.

In 2022, TikTok Shop expanded to six Southeast Asian countries — Singapore, Malaysia, Indonesia, the Philippines, Vietnam and Thailand.

“TikTok continues to grow rapidly in Southeast Asian countries. We estimate that TikTok’s 2023 [gross merchandise value] will reach 20%~ of Shopee, which we suggest prompted Shopee to defensively increase sales and marketing since April,” said Shawn Yang, analyst at Blue Lotus Research Institute, in a recent report on Sea Group, the owner of Shopee.

TikTok did not want to comment or reveal numbers.

TikTok Shop’s GMV, or total value of goods sold, skyrocketed more than four times to $4.4 billion in Southeast Asia in 2022, according to internal data obtained by tech media outlet The Information. TikTok Shop is reportedly aiming for a GMV target of $12 billion by 2023.

To be clear, TikTok Shop’s current GMV is only a fraction of Shopee and Lazada’s.

Shopee netted $73.5 billion in GMV in 2022 while Lazada’s GMV was $21 billion for the year through September 2021, according to available public figures.

A TikTok spokesperson told CNBC that TikTok Shop “continues to grow rapidly” as both large and small users use the platform to reach new customers. TikTok is “focused on the continued development of TikTok Shop in Southeast Asia,” said the spokesperson.

As of May, the number of TikTok users in Southeast Asia alone is 135 million, according to market research company Insider Intelligence.

Indonesia has the second largest population of TikTok users after the U.S., according to Statista.

Indonesia is Southeast Asia’s most populous country, where 52% are young people and it has around 113 million TikTok users.

“Impulse buying from watching content is an advantage TikTok has,” Sachin Mittal, head of telecom & internet sector research at DBS Bank, told CNBC.

Sea Group is banking on its e-commerce arm Shopee to lift the group’s balance sheet as its gaming arm Garena continues to see revenue decline, given the lack of a strong games pipeline and the continued ban of its flagship game Free Fire in India due to national security threats.

Shopee is expanding its footprint in Malaysia and continues to build up its Brazil operations after exiting several European and Latin American markets.

A survey conducted by online retail insights company Cube Asia revealed that consumers spending on TikTok Shop are reducing their spending on Shopee (-51%), Lazada (-45%), Offline (-38%) in Indonesia, Thailand, and Philippines.

Shopee and Lazada declined to comment on competition from TikTok Shop.

Data from web analytics firm Similarweb revealed that Shopee is currently the largest online marketplace in Southeast Asia, holding 30% to 50% traffic share across the region in the last three months, while Lazada holds the second spot with 10% to 30% traffic share.

TikTok Shop’s push comes as the app is being scrutinized in its largest market, the U.S., amid rising geopolitical tensions and tech rivalry between China and the U.S.

Last week, the U.S. state of Montana banned TikTok, which could spark other states to suit. TikTok disputed Montana’s allegations that the Chinese government “could access data about TikTok users, and that TikTok exposes minors to harmful online content” in a lawsuit filed Monday to try and reverse the ban.

TikTok CEO Shou Zi Chew’s testimony before Congress in March did not ease lawmakers’ worries about the app’s connections to China or the adequacy of Project Texas, its contingency plan to store U.S. data on American soil.

TikTok has also been banned in India since 2020, alongside other apps said to have Chinese origin. It is not accessible in China, though its Chinese version Douyin is widely used by over 750 million daily active users.

But TikTok is burning cash to grow, a tested strategy to win market share.

“TikTok is spending an incredible amount of money right now on incentives to onboard buyers and sellers, which may not be sustainable,” said Jonathan Woo, senior analyst at Phillip Securities Research. Woo said he estimates the incentives to be between $600 million and $800 million a year, or 6% to 8% of a $10 billion GMV in 2023.

To incentivize sellers to join the platform, TikTok Shop waived commission fees when it launched in Singapore in August. Merchants were only required to pay a 1% payment fee.

Data from Apptopia, an app analytics company, showed that TikTok Shop Seller Center app has been attracting an increasing number of downloads over the past one year.

Meanwhile, Shopee charges more than 5% on commission, transaction and service fees.

A CNBC check revealed that four-ply toilet paper from Nomieo was selling on TikTok at 5.80 Singapore dollars for twenty-seven rolls. In comparison, the same goods are selling at around SG$16.80 on Shopee.

Woo noted that TikTok Shop is “still very young” and in the “burn-cash-to-grow phase which may not bode well in today’s market given higher cost of funding.”

TikTok Shop is also “just a platform with no end-to-end capabilities” unlike Shopee and Lazada which have been investing heavily in improving logistics for faster deliveries and returns, increasing overall user experience and trust for sellers and buyers, he said.

It also has a smaller user base at this point in time with a younger demographic which means less spending ability, said Woo.

“I don’t think there’s a big risk to Shopee from TikTok,” said Mittal. “Shopee can afford to lose some market share, but Lazada cannot.”

Lazada has been trying to catch up with Shopee ever since Shopee overtook the company to become Southeast Asia’s biggest e-commerce platform in 2020.

“Overall, I think TikTok Shop has the potential to be as big as Shopee or Lazada, though this might take quite a number of years,” said Woo, noting the gap between TikTok Shop and Shopee’s GMVs.