Sea's Q3 loss outpaces its topline growth; group raises full-year revenue guidance

SINGAPORE-BASED Sea Ltd, which owns e-commerce platform Shopee and game developer Garena, on Tuesday posted a wider Q3 net loss of US$425.3 million, more than double the loss of US$206.1 million a year ago.

This was despite a 98.7 per cent growth in topline to US$1.2 billion for the three months ended Sept 30. Revenue fell short of street estimates; a Bloomberg poll of seven analysts had turned up a consensus of US$1.9 billion.

New York-listed Sea recorded US$713 million in operating expenses, 82.5 per cent more year on year. Most of the group's spending was on sales and marketing, which grew 87.1 per cent to US$471 million.

Total adjusted Ebitda was US$120.4 million, compared with a loss of US$30.8 million a year ago. Ebitda was adjusted for share-based compensation, depreciation and amortisation expenses and unallocated expenses.

Digital entertainment, the group's gaming arm responsible for mobile game hit Free Fire, grew its revenue by 72.9 per cent to US$569 million. Bookings, which represent GAAP (generally accepted accounting principles) revenue plus change in deferred revenue, totalled US$944.7 million, up 109.5 per cent.

Quarterly active users grew 78.3 per cent to 572.4 million; quarterly paying users grew 123.6 per cent to 65.3 million.

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E-commerce revenue was up 173.3 per cent to US$618.7 million. This revenue included US$467.1 million of marketplace revenue, which refers to transaction-based fees and advertising income as well as revenue from value-added services, and US$151.6 million of product revenue, which refers to direct sales.

Gross merchandise value was US$9.3 billion, an increase of 102.7 per cent. Adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) loss was US$301.6 million, compared with a loss of US$253.7 million a year ago.

In Indonesia, a key battleground for Shopee against archrivals Lazada and Tokopedia, the company registered over 310 million orders in Q3, up 124 per cent.

With its sustained revenue growth, Sea is now raising its guidance for digital entertainment and e-commerce for the full year. The group had previously left its guidance intact at the release of Q2 results.

Sea now expects bookings for digital entertainment to exceed US$3.1 billion, representing more than 75.4 per cent growth from 2019. The revised guidance is an increase of 59 per cent from the midpoint of the previously disclosed guidance of between US$1.9 billion and US$2 billion.

It also expects revenue plus sales incentives net-off for e-commerce to exceed US$2.3 billion. The revised guidance represents a more than 144.1 per cent increase from 2019, and a 31.4 per cent increase from the midpoint of the previously disclosed guidance of between US$1.7 billion and US$1.8 billion.

In Q3 FY20, total payment volume for SeaMoney, the group's mobile wallet, exceeded US$2.1 billion. But adjusted Ebitda loss for digital financial services deepened to US$149.3 million from US$33.6 million.

Gross profit across the group doubled to US$407.6 million. Gross profit margin for digital entertainment was 65.8 per cent, an improvement from 64.4 per cent a year earlier due to higher revenue contribution from its self-developed game. The margin for e-commerce and other services was 6.4 per cent, compared with -4.5 per cent in 2019.

Shopee ramped up its brand marketing and other marketing expenses during the quarter, resulting in a 54 per cent rise in expenses to US$306.7 million. Higher staff compensation and benefit costs also contributed to the higher expenses.

In digital entertainment, sales and marketing costs grew 85 per cent to US$45.8 million due to higher online marketing costs.

General and administrative expenses nearly doubled due to higher staff compensation and benefit costs, as well as provision for credit losses for financial services. Research and development costs more than doubled because of a larger staff force.

Shares of Sea last closed at US$178.22 on Monday US time, down 1.77 per cent or US$3.22.