Sea's Q2 revenue doubles, lifted by Garena and Shopee growth

Singapore

SINGAPORE-BASED Sea Ltd - which owns e-commerce platform Shopee and game developer Garena - saw its total adjusted revenue doubling to US$1.29 billion for the second quarter this year, from US$665.4 million a year ago.

CGS-CIMB on Wednesday upped its target price on the New York-listed stock to US$158.20, from US$152.00, while reiterating its "add" call.

Analyst Ngoh Yi Sin said Sea's Q2 adjusted revenue exceeded CGS-CIMB's and Bloomberg consensus full-year forecasts, led by stellar growth in both Garena and Shopee.

The consumer Internet firm's adjusted revenue from digital entertainment - the biggest contributor to the group's top line - surged 61.6 per cent year on year to US$716.2 million.

This was thanks to a larger active user base, deeper paying user penetration, and the continued success of Garena's self-developed game Free Fire during Q2.

CGS-CIMB's Ms Ngoh wrote: "We expect Garena's strong content creation and recurring e-sports events to sustain its strong user momentum into H2 2020."

Meanwhile, e-commerce and other services raked in adjusted revenue of US$437.6 million for the quarter, up 141.4 per cent on the year, driven by the growth of its e-commerce marketplace and positive developments in the revenue streams of transaction-based fees, value-added services and advertising.

Ms Ngoh noted that Shopee continued to record high growth in gross merchandise value (GMV) despite easing pandemic-related lockdowns in some countries.

This was due to its market leadership, the growing number of brands joining its platform as well as added social or entertainment features - such as live-streaming of K-pop music festivals - to increase user engagement, she noted.

According to Bloomberg Intelligence analyst Matthew Kanterman, this GMV growth may remain above pre-pandemic levels through the second half of this year, as Shopee's strengthening market share enables it to "disproportionately" benefit from a more rapid adoption of digital services in South-east Asia.

Sea kept its full-year 2020 revenue guidance intact at US$1.9-2 billion for gaming revenue and US$1.7-1.8 billion for e-commerce revenue, although CGS-CIMB noted that during the results briefing call, the management "seemed confident" of outperforming these targets.

The group fell deeper into the red with a net loss of US$393.5 million for the three months, compared with a US$280.1 million loss a year ago.

This was worse than what analysts had expected, as the consensus was for a US$228.2 million net loss. Jefferies Equity Research, which has a "buy" rating on Sea with a price target of US$146, had also anticipated a US$216.5 million net loss.

Total adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) reached US$7.7 million for the three months, reversing from an Ebitda loss of US$11 million in the corresponding period last year.

This beats consensus for a US$54.7 million Ebitda loss for the quarter, Jefferies' estimate of a US$32.5 million Ebitda loss, and CGS-CIMB's forecast of a US$59 million Ebitda loss.

CGS-CIMB raised its net loss estimates for FY20 by 6.6 per cent on higher share-based compensation, but lowered its net loss forecasts for FY21 by 10.3 per cent and for FY22 by 45 per cent to account for stronger Ebitda contribution from e-commerce.

Sea also announced it will discontinue the use of adjusted revenue, starting with its results for the third quarter of this year.

It has been reporting adjusted revenue as a supplemental non-GAAP (generally accepted accounting principles) financial measure since its initial public offering in 2017, meant to help investors evaluate its operating performance.

The counter ended at US$145.98, up S$11.70 or 8.7 per cent, on Tuesday in the US after its results were out. Its shares have gained more than 260 per cent since the start of this year; in July, it surpassed DBS to become Singapore's most valuable homegrown public firm.