Sea records first profit in Q4; narrows FY2022 loss by 19% to US$1.7 billion

NEW York-listed Sea is in the black for the first time, recording US$422.8 million in net income for the fourth quarter ended Dec 31. This marks a turnaround from the US$616.3 million loss in the year-ago period.

The profitable quarter was in part due to a US$199.7 million net gain on debt extinguishment, as the company repurchased US$817.2 million of convertible senior notes for US$611.3 million in cash. Sea also reversed US$130 million in previous accruals for certain expenses, amid its aggressive cost cuts and layoffs over the past year.

Its Q4 sales and marketing expenses decreased by 61.2 per cent to US$473.6 million, with cost cuts across all business segments. Research and development expenses were down 14.8 per cent to US$244.2 million. 

Noting that the company made a “significant shift within such a short period of time”, CEO Forrest Li said in Tuesday’s (Mar 7) earnings call: “We took the hard path, but we believe this is the right path to achieve long-term success.”

Topline for the quarter was up 7.1 per cent to US$3.5 billion, lifted by the e-commerce business, where revenue grew 31.8 per cent to US$2.1 billion. Of this, revenue from its core marketplace Shopee was up 53.9 per cent to US$1.1 billion.

The segment saw its adjusted Ebitda (earnings before interest, taxes, depreciation and amotisation) turn positive to US$196.1 million, as compared to the US$877.7 million loss a year ago. This was even as gross merchandise value (GMV) dipped to US$18 billion, from US$18.2 billion a year ago, while gross orders fell to 1.7 billion from two billion.

The improved profitability was thanks to a US$80 million of accruals reversal with cost cuts. Shopee’s Asian markets recorded US$320 million in adjusted Ebitda, while other markets posted a loss of US$123.9 million. In the earnings call, Li emphasised the progress in Brazil, where the contribution margin loss per order improved 53.9 per cent quarter on quarter to reach US$0.47.

“We have been able to drive meaningful improvements in logistics costs to our ecosystem. This will remain an important area of focus going forward. We believe that lowering the cost … will be key to our long term growth by unlocking large, underserved user segments across our markets,” he said.

That said, Sea’s gaming business was downbeat, as adjusted Ebitda fell 57.1 per cent to US$258.2 million, while revenue was down 32.9 per cent to US$948.9 million. Average bookings per user were US$1.10, as compared to US$1.20 for the previous quarter.

“For Garena, our focus now is to continue to stabilise our user base and provide a better experience to our users on our core games. At the same time, continue to improve our profit margins… we’re still very high compared to the industry average,” said Yanjun Wang, Sea’s chief corporate officer, on the call.

The company’s nascent digital financial services arm, SeaMoney, meanwhile saw its adjusted Ebitda positive to US$75.6 million, as compared to the US$149.8 million Ebitda loss a year ago. This came as revenue near-doubled to US$380.2 million.

Full-year showing

On a full-year basis, Sea narrowed its net loss 18.9 per cent to US$1.7 billion, on the back of a 25.1 per cent growth in revenue to US$12.4 billion.

The e-commerce segment, which recorded a 42.3 per cent increase in revenue to US$7.3 billion, as well as an adjusted Ebitda loss of US$1.7 billion, narrowing 33.8 per cent from the previous year.

SeaMoney similarly narrowed its adjusted Ebitda loss to US$228.6 million, from US$616.9 million loss in FY2021. This was due to a 160.1 per cent increase in revenue to US$1.2 billion.

The gaming arm however saw a fall in adjusted Ebitda to US$1.3 billion, compared to US$2.8 billion in FY2021. Adjusted Ebitda represented just 47.7 per cent of bookings for FY2022, down from 60.4 per cent the prior year. The segment’s revenue came in at US$3.9 billion, down from FY2021’s US$4.3 billion.

Looking ahead, Li cautioned that macro challenges remain. “We are closely monitoring the market environment… While there may be near-term fluctuations in our performance, we remain highly confident in the long-term growth potential of our markets and fully focused on capturing this opportunity,” he said.

Sea had US$6 billion in cash as at end-2022 and US$6.9 billion in current liabilities. Its shares were trading up 15.7 per cent at US$76, as at 10.34am in New York.