Sea books profit of US$162.7 million, expects e-commerce breakeven by second half of 2024

NEW York Stock Exchange-listed Sea announced its first-ever profitable year with earnings of US$162.7 million for 2023, reversing from a loss of US$1.7 billion in 2022. But this missed analysts’ estimates of US$301.7 million.

Revenue for the period rose 4.9 per cent to US$13.1 billion from US$12.4 billion a year prior, exceeding analysts’ forecasts of US$12.9 billion.

Earnings were bolstered by e-commerce arm Shopee booking profits for the first two quarters of 2023. E-commerce revenue for 2023 rose 23.5 per cent to US$9 billion from US$7.3 billion in 2022. The business unit booked a loss of US$550.5 million for the year.

Forrest Li, Sea’s chairman and chief executive officer, said: “Despite an environment of intensified competition in South-east Asia, we believe Shopee had a meaningful gain in market share between the start and the end of 2023.”

Sea’s digital entertainment unit, Garena, continued its slide in revenue, falling 44 per cent to US$2.2 billion in 2023 from US$3.8 billion in 2022. It booked a profit of US$1.2 billion for 2023.

Sea reported improvements in user acquisition and retention for its mobile game Free Fire. Analytics company Sensor Tower said Free Fire was the most-downloaded mobile game globally in 2023, with a peak of more than 100 million daily active users in February.

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“With this positive momentum, we currently expect Free Fire to grow double-digits year on year for both user base and bookings in 2024,” said Li.

This guidance is based on past trends that Sea has observed, with the group reporting that Garena has games in the pipeline. 

The digital financial services arm, SeaMoney, also recorded its first profitable year, with earnings of US$490.2 million, reversing from a loss of US$277.3 million in 2022. This was driven mainly by the credit business. Revenue grew in tandem by 44 per cent to US$1.8 billion in 2023, from US$1.2 billion in 2022.

“In 2024, we will continue to invest in user acquisition for our credit business, both on and off the Shopee platform as we see significant upside in our markets. As we scale, we will remain prudent on risk management,” said Li.

Sea’s cash position was US$8.5 billion as at Dec 31 last year.

For the fourth quarter of 2023, Sea’s revenue rose 4.8 per cent to US$3.6 billion from US$3.5 billion a year prior. The group reported a loss of US$111.6 million for the quarter, a reversal from the US$422.8 million profit in the same period the year before.

Both Q4 2023 revenue and losses were better than analysts’ estimates of US$3.5 billion and US$131.1 million, respectively.

Shopee booked a loss of US$303.7 million in Q4 2023, a reversal from a profit of US$109.5 million in the corresponding year-ago period. Quarter on quarter, losses narrowed from US$428.2 million in Q3 2023.

Garena booked a profit of US$261.1 million in Q4 2023, down from US$400.2 million a year prior. Revenue slipped to US$510.8 million from US$592.2 million in Q4 2022. Meanwhile, bookings were US$456.3 million for the quarter, compared with US$543.6 million in the corresponding year-ago period.

Quarterly-paying users stood at 39.7 million for the current period, slipping from 40.5 million in the previous quarter. The paying-user ratio remained stable at 7.5 per cent quarter on quarter.

SeaMoney booked a profit of US$134.2 million in Q4 2023, compared with US$61.8 million in Q4 2022. This was driven mainly by the consumer and small-and-medium enterprise credit business. Loan principal outstanding as at 31 Dec was US$3.1 billion, an increase of 27 per cent year on year. The non-performing loans ratio stood at 1.6 per cent.

Sea is guiding for Shopee’s 2024 gross merchandise value growth to be in the “high teens”, with adjusted earnings before interest, taxes, depreciation and amortisation to turn positive in the second half of this year.

This is based on forecasts for Indonesia, where Sea believes Shopee is the market leader with scale for better cost efficiency. The group also cited Indonesia’s large logistics coverage as helping reduce costs and introduce new services, such as on-the-spot returns.

It added that 15 per cent of Shopee orders come from livestreaming, with this proportion likely to grow.

Sea has no current plans to initiate any share buyback programmes, as management emphasises the need to maintain a strong cash balance. However, it is not ruling out options to utilise the cash balance in this regard.

“We are pleased to see positive trends in both growth and profitability for all three of our businesses. Looking ahead, we will continue to invest for the future with discipline and focus,” said Li.