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[SINGAPORE] Sea Ltd pitched itself as an emerging growth company in last month's initial public offering, and investors are about to get their first chance to see if it lives up to the billing.
The Singapore-based company will release its first financial report Wednesday, with sales expected to reach US$94.5 million in the three months ended September, according to the average of analysts' estimates, as the company builds on its core games business.
That's a 4.4 per cent increase from a year earlier, according to data compiled by Bloomberg.
Sea is counting on growth at the Garena games business to remain strong and fund investment in e-commerce that has led to wider losses.
The company, which also has digital payments, counts Chinese powerhouse Tencent Holdings among its biggest investors and distributes the WeChat owner's titles in the region.
Analysts are bullish on the stock, with five of the six tracked by Bloomberg recommending buying Sea shares, while Morgan Stanley has the equivalent of a hold.
"Digital entertainment growth should accelerate in the second half of this year amid new title releases such as Arena of Valor, in partnership with Tencent, and as it begins recognizing record deferred revenue," Bloomberg Intelligence analysts Matthew Kanterman and Andrew Eisenson wrote Nov 16.
"E-commerce sales should continue ramping up amid early monetisation efforts."
The net loss for the quarter is expected to be US$156.6 million, according the average estimate of three analysts surveyed by Bloomberg News. That compares with a year-earlier loss of $65.6 million.
Sea's share price has bounced around since their New York debut. After selling stock in the IPO at US$15 apiece, shares surged 8.4 per cent on the first day of trading, rising to an intraday high of US$16.99.
It has since fallen to as low as US$13.62 before closing Friday back at the IPO price, giving the company a market valuation of US$4.9 billion. Sea's American depositary receipts rose 3.3 per cent to US$15.49 in New York Monday.
The Garena games business still accounts for more than 90 per cent of total revenue, with the titles offered for free but Sea getting revenue when players buy virtual items like armour, weapons or special skills. The e-commerce business makes money from commissions and advertising, while collecting fees from payments.
"Strong growth potential in South-east Asia, arising from increasing smartphone penetration and per capita GDP, has set Sea on a promising course for growth," Morgan Stanley analysts led by Grace Chen said in a Nov 14 report.
"But its cash burn from e-commerce, coupled with intensifying competition, lead us to rate it equal-weight."
Sea was founded by Forrest Li as an online gaming company in 2009 under the Garena name before he rebranded to reflect its regional ambition and diversification. Sea branched out with a digital payments service called AirPay in 2014 and the mobile shopping business Shopee in 2015.
The e-commerce unit competes in South-east Asia with Lazada, a rival controlled by Chinese behemoth Alibaba Group.
The IPO raised about US$884 million, and the company has a number of marquee backers, including the Ontario Teachers' Pension Plan, Malaysia's sovereign wealth fund and several Asian billionaires.