Sea's shares climb again as Q2 revenue jumps on gaming, e-commerce boom

SHARES of Singapore-based Sea Limited - which owns e-commerce platform Shopee and game developer Garena - rallied further after it reported that its total adjusted revenue doubled to US$1.29 billion for the second quarter this year, from US$665.4 million a year ago.

The counter finished at US$145.98, up S$11.70 or 8.7 per cent, on Tuesday in the US. The New York-listed shares have gained more than 260 per cent since the start of this year. In July, Sea surpassed DBS Group to become Singapore's most valuable homegrown public company.

CGS-CIMB on Wednesday raised its target price on the stock to US$158.20, from US$152.00 previously, 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.

In results released on Tuesday night, the consumer Internet firm announced that 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 the second quarter.

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CGS-CIMB's Ms Ngoh wrote on Wednesday: "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 said.

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 net loss of US$280.1 million in the year-ago period.

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.

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

For the digital entertainment segment, in place of adjusted revenue, Sea will disclose operating metric "bookings", which will similarly represent the segment revenue plus the change in the segment's deferred revenue.

It will not provide a corresponding metric for the e-commerce, digital financial services and other services segments.

The company 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.